democracy is a work in progress
Scope2020-05-20T09:36:38-05:00

Problem Scope

Size of the Debt

As noted under the Definition, the size of the debt is measured in two ways. First, as the dollar value of the debt. For example, the dollar value of the debt at the end of 2018 was $16.1 trillion.

The second measure is debt as the ratio of net debt-to-GDP. Since GDP at the end of 2018 was $20.6 trillion, the size of the debt by this second measurement was 78.1%.

Debt measured as a percentage of GDP is a useful way of evaluating a nation’s ability to repay its debt. The lower a nation’s debt-to-GDP ratio, the more capable it will be to pay off its debt without the need for additional borrowing. The opposite is also true: When debt-to-GDP ratio is high, and particularly if economic growth is slow, investors will be less likely to invest in that nation’s economy and it may be more difficult for the government to borrow money to sustain the economy.

Using the debt-to-GDP ratio as the primary means of evaluating the size of the debt means that when economic growth is strong and outpaces borrowing, the debt-to-GDP ratio shrinks and the nation’s ability to continue borrowing is sustained. In fact, the size of the debt in dollars can actually increase even when the debt-to-GDP ratio decreases. This was the trend from the 1950s into the 1970s.

Debt-to-GDP ratio decreases as GDP grows faster than debt

Debt is Rising

After decades of steady decline, the debt-to-GDP ratio began to grow again starting in 1981, and has for the most part continued an accelerated upward trajectory since.

The debt is projected to rise to its highest levels since WWII

Many economists and business people do not see this growth in the debt as sustainable and would like to see the federal government develop a plan to bring it under control before we reach a crisis point that undermines economic growth. Exactly when that crisis point will arrive is a point of debate. It is an elusive figure that seems to defy a single standardized number and is highly dependent on the pace of economic growth as well as tax and spending policies.

Following passage of the tax cut bill in December 2017 and an increase in spending, debt increased to $15.7 trillion in FY 2018 (the government’s fiscal year ended Sep 30, 2018). Our federal government owed so much money to others that spending for the fiscal year included $325 billion in interest payments on the money borrowed to date. That’s almost $900 million a day. Based on current tax and spending laws, the Congressional Budget Office estimates that the debt will approach 95% of GDP at the end of FY 2029.

Related Problems: Climate Change, Access to Healthcare, Infrastructure

Researched and written by George Linzer

Reviewed by Committee for a Responsible Federal Budget and William Gale

Published on November 5, 2019

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