First, while the $14.2 trillion debt is large, keep in mind that the U.S. gross domestic product (GDP)—or the amount of money the country “earns”—is close to that same amount. More importantly, the ratio which financial investors most focus upon—the debt held by investors to GDP ratio—is about 70%, well within the range of other G7 nations.
Second, the interest payments on debt held by investors amounts to less than $200 billion. While seemingly a large number, this represents just 1.5% of our GDP. As a result, I believe that servicing our debt is highly manageable—even if rates rise from 2.5% to 3.5% on Treasury’s overall portfolio.
Finally, nearly half of the debt that we have outstanding is debt that we owe to ourselves, through trust funds like Social Security, Medicare, Medicaid, and other programs. These entitlement programs are promises made by the government to its citizens which, unfortunately, can be broken by politicians in the future to reduce the country’s overall debt burden.
Regardless, while the debt situation is currently manageable, the longer term fiscal path is unsustainable. Without meaningful fiscal reform, the United States potentially will be forced to make more drastic—and painful—adjustments at some point in the future.
