Total debt held by the U.S. government is poised to cross the $20 trillion threshold at the end of March.
Right now, about $572 million is borrowed by the federal government every day. A country with a large and diverse economy, such as the United States, can generally afford to borrow enormous sums of money with ease. Governmental spending drives a large portion of our economy and while there are ways to draw it down, doing too much too quickly would cause a major shock to the system.
What is more concerning is the amount of money it takes to service this debt – $450 billion this year – with the amount growing by the day.
Over the last 10 years, public debt has increased from about $9 trillion to the precipice of $20 trillion. At the same time, U.S. GDP has grown from $14.3 trillion to $16.7 trillion. Significant spending may have been necessary to avoid a complete economic collapse in the 2008-2009 period, but the nation cannot sustain such a high rate of borrowing indefinitely.
Some pieces of the financial puzzle of the U.S. do show promise. U.S. debt held by foreign countries has been dropping as a percentage of our GDP and in real terms for the past couple of years, meaning more of what the U.S. does owe is held by U.S. individuals and businesses.
Total mortgage debt in the U.S. is rising again after dropping then leveling off in 2014. Though consumer debt isn’t quite at the peak of where it was in 2008, it will probably surpass the $12.68 trillion high-water mark towards the end of 2017. Higher credit scores among consumers (the average credit score has climbed to 695) have led to increased borrowing power, which Americans are taking advantage of in droves.
Overall, debt is rising among both government and private entities. However, the U.S. does have the very fortunate position of being able to issue debt payable in U.S. Dollars. Much of the world’s debt is held in dollars, which gives the federal government tremendous leverage when it comes to setting interest rates and the inflation-adjusted real value of debt.