Analysis | US debt now bigger than the economy ... but that's not the real problem

For years, deficit hawks have been groping for ways to shock politicians and the public into getting serious about the skyrocketing federal debt. They hoped they had finally found the right talking point when the United States recently reached a disturbing new milestone: Debt had shot past 100% of gross domestic product.

“We’ve heard plenty of alarm bells in the past few years about our fiscal path, but this one rings especially loudly,” wrote the Committee for a Responsible Federal Budget, the organization that calculated the March level of federal debt held by the public as a share of GDP. The like-minded Peterson Foundation called it “an alarming fiscal milestone.”

The problem is, few people seemed particularly alarmed, outside of a flurry of somber speeches and opinion essays.

Within a week of the reporting of the statistical landmark, Defense Secretary Pete Hegseth was on Capitol Hill defending the largest Pentagon budget request in American history. And the Senate proceeded with efforts to pass a $72 billion immigration enforcement package through reconciliation, bypassing a potential filibuster and waiving its own rules against deficit-increasing legislation.

It’s not that surpassing the 100% milestone has meaningfully changed anything. Debt isn’t like a reservoir that starts overflowing when it exceeds 100% of capacity. “Ninety-nine is a bad number. One hundred one is worse than 100. We make a big deal out of 100 because it’s a round number,” said Michael Peterson, CEO of the Peterson Foundation.

What should be more disturbing is this: There’s no end in sight. And if debt hawks can’t spur action with even this milestone, what is to be done?

How we got here

Debt has grown because of the costs of fighting the 2007-08 global financial crisis and the COVID-19 recession, the rising expense of caring for an aging population, repeated tax cuts that weren’t matched by spending reductions, and a snowballing interest bill on the debt itself.

The last time federal debt held by the public was higher than GDP was just after World War II. It didn’t stay that way for long. After that spike, the debt-to-GDP ratio declined to 23% by 1974 because of strong economic growth, occasional budget surpluses and inflation that eroded the real value of debt.

This time, in contrast, the Congressional Budget Office projects publicly held debt to keep growing and hit 175% of GDP by 2056.

For years, ultralow interest rates made mounting debt affordable, but this week, 30-year Treasury bond yields hit 5.12%, the highest rate since 2007, up from a 2020 low of 1%. Net interest payments by the federal government exceed the defense budget. As debt grows, the government has to issue new bonds just to pay interest on existing ones.

Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, said clients constantly asked her if the federal government’s indebtedness was on a sustainable path. “To me, it’s one of the easier questions to answer,” she said. “We are not.”

Those who are less worried like to point out that Japan gets along with a much higher debt ratio than the United States is carrying. The International Monetary Fund put Japan’s central government debt at 201% of GDP in 2024.

On the other hand, Japan’s debt is held almost entirely by domestic investors, while the United States relies heavily on foreign sources.

Laurence Kotlikoff, a Boston University economist, recently calculated that the United States was in worse shape than Italy once you included Social Security, Medicare and other obligations that don’t appear in the official debt figures.

“We don’t have any grown-ups in the room in Washington,” he said. “Nobody picks it up and says, ‘You have a problem.’”

Enrique Mendoza, an economist at the University of Pennsylvania, argues that even stabilizing the ratio wouldn’t be enough. Bringing the ratio back down to 60% or below would give the government fiscal space to borrow heavily for the next emergency and would allow the economy to grow faster because the federal government wouldn’t be competing with the private sector for funds, he said.

Mendoza’s prescription is an extreme long shot at this point. The White House is requesting $1.5 trillion for defense in its 2027 budget, a 44% increase, while saying little about the entitlement programs that drive long-run spending. The Elon Musk-led deficit commission last year produced only $1 billion in durable savings, Politico estimated. That was about 0.1% of what Musk aimed for.

Concern but no action

There are signs that Americans are getting restless for action. The rise in Treasury yields has pushed up mortgage rates, hitting Americans where they live and making budget deficits more salient, said Desmond Lachman, a senior fellow at the American Enterprise Institute.

In a Gallup poll in March, half of Americans said federal spending and deficits worried them a great deal, roughly tying it with inflation and the economy among their concerns. The only thing they worried about more was the availability and affordability of healthcare.

Deficit hawks are trying to figure out how to capitalize on that concern. The news releases about hitting the 100% ratio of debt to GDP were one attempt. But Benjamin Larin, an economist at Sweden’s Jönköping University who has studied how crossing round-number thresholds affects inflation expectations, said he didn’t think that crossing a round-number threshold for debt would be equally impactful.

Government debt is “distant from daily experience, and processed mostly through media and political intermediaries,” he wrote in an email.

Oddly, Gallup found that Americans were more concerned about deficits in 2011, when the debt-to-GDP ratio was only 66% and the economy needed the stimulus provided by budget deficits to grow again. Plus, nothing really happened when the economy blew through 100%. The figure has lost its power to frighten.

Jason Furman, a Harvard University economist, worries about debt but acknowledges that it’s hard to see much evidence of its harm so far.

“If you had asked someone in 2000 to predict what the economy would look like in a world where the debt was 100% of GDP and the deficit was 6% of GDP, they would likely have expected extremely high interest rates and possibly even a dramatic economic crisis,” he wrote in an article for the Aspen Institute in 2024.

Such a disaster hasn’t happened yet, so at the moment, doing nothing is a lot easier for politicians than doing something, which would involve some painful combination of raising taxes and cutting spending.

That passivity irks Peterson, the deficit hawk. “I think this is a moment where leadership is really necessary,” he said. “It’s not really up to the American people to fix this. It’s up to their elected leaders.”

This article originally appeared in The New York Times.

Copyright 2026 The New York Times Company