This has happened several years earlier than predicted four years ago.
The gross national debt of the US federal government has reached a record high of more than $34 trillion, according to data released by the Treasury Department. This portends coming political and economic difficulties in trying to fix America’s financial situation.
The national debt surpassed the $34 trillion mark several years earlier than predicted before the pandemic. In January 2020, the Congressional Budget Office expected the federal government’s total national debt to reach $34 trillion in fiscal year 2029.
However, the debt was growing faster because of the pandemic that began in 2020 and shut down much of the U.S. economy. Then, first under President Donald Trump and then under current President Joe Biden, the government was borrowing heavily to stabilize the economy and support its recovery.
But the recovery was accompanied by a spike in inflation, which drove up interest rates and increased the government’s debt-servicing costs. “So far, Washington is spending money as if we have unlimited resources, said economics professor Sung Won Sohn of Loyola Marymount University. - But the fact is, there’s no such thing as a free lunch. And I think the prospects are pretty bleak.
Gross national debt includes money the government owes to itself, which is why most politicians operate on debt owed to others when assessing the government’s financial health. That figure is smaller, $26.9 trillion, and roughly equal to U.S. GDP. Last June, the Congressional Budget Office suggested in its 30-year forecast that debt to others would reach a record 181% of GDP by 2053.
So far, national debt does not appear to be a burden on the U.S. economy, as investors are willing to lend money to the federal government. This lending allows the government to continue spending money on its programs without raising taxes.
However, the track of the national debt over the coming decades could pose a threat to national security and essential programs, including the pension and health insurance programs. These programs have been the most prominent drivers of expected government spending over the next decades.
Foreign holders of U.S. national debt - China, Japan, South Korea and European countries - have already reduced their holdings of U.S. government bonds. According to a Peterson Foundation analysis, the share of foreign holders of U.S. debt peaked at 49% in 2011, but decreased to 30% by the end of 2022.
“Debt will continue to grow rapidly as the Treasury Department plans to borrow nearly $1 trillion more by the end of March,” said Peterson Foundation head Michael Peterson. “Increasing the debt trillion by trillion, year after year, should be a wake-up call to any politician who cares about the future of our country,” he added.