Federal Debt Risks
- Fix Federal Debt
- Jun 11, 2025
- 5 min read
Updated: Dec 16, 2025
Comprehending the Severity
Prelude
I have little doubt that most Americans are struggling with the question “Just how serious is the federal debt – present and future – to me, my family, and my country?” It is easy to understand how the breadth and time horizons of this topic make it complex. The purpose of this and coming Substack articles is to present a balanced and factual discussion of the severity of the federal fiscal situation now and in the years ahead so readers will have informed opinions.
Measurement Tool
It is important to have an objective tool by which to measure the amount of federal debt that a country is carrying. The absolute amount of a debt does not qualify. Why? A debt of $3 trillion dollars might be risky for a small country, but not for a large and prosperous one. The measurement tool adopted by many is: Debt Held by the Public as a percentage of Gross National Product (GDP).
Debt Held by the Public is owed to lenders outside the government; Total Debt also includes debt one entity within the government owes to another. For the USA now, the Public Debt is around $29 trillion while the Total debt including the Social Security trust fund and others is around $36 trillion.
GDP is the value of all the goods and services in the entire economy and is about $30 trillion in 2025. It is a good indicator of the ability of a country to pay the interest and repay the principal when it is due.
Therefore, the 2025 ratio of Public Debt to GDP is about $29 t./$30 t. or 97%.
OK, now what happens if the numerator (debt) of this equation increases faster than the denominator (GDP). Let’s say that the debt grows $2 t. in a year (similar to our recent deficits) and the GDP remains unchanged. The new ratio is 31/30 or 103%, a 6% increase over 97% in one year. Ten years at that rate would make a huge change for the worse in our country’s fiscal stability.
Conversely, if the denominator (GDP) grew by $1 t, and the debt remained unchanged, the new ratio would be about 94% - trending downward. Think what an improvement a decade or two or three like that would make! Think about how preferable this path is to the one above. That is the difference between chicken salad and chicken ____.
This is just an example to help comprehend what is important. Please keep in mind that consistent reductions or increases in deficits will make a big difference over years, good or bad. That is how we got into our present precarious situation.
The chart below is from the CBO, a non-partisan office of Congress. The CBO’s guidelines are to make projections and estimates using laws that are already enacted – on the books. One can see that the large difference between the outlays and the revenues (the deficit by definition) stays the same or gets a little worse over the next 30 years. Without significant changes, this situation will raise our Public Debt/GDP ratio to 156%, a ratio very dangerous to our federal government’s fiscal health
Severity
The U.S. federal debt to GDP ratio at about 97% is among the several highest in the world. Economists agree to disagree on a specific danger level for a variety of reasons, primarily that each country is unique in various ways. One does read that a ratio of 100% is cause for considerable concern; this is confirmed by Moody’s Investors’ Service downgrading the U.S. sovereign credit rating in May 2025.
The U.S. federal debt to GDP ratio is rapidly approaching the peak level attained as a result of WWII when the country was borrowing heavily to fund not only our own huge military effort but providing massive support to allies including Great Britain and Russia. Worse, it is on a steep path for the next 30 years to get much worse.
Logical questions are: On what are we planning to spend all this money? Is the mix of spending on programs to remain about the same or in the future will we be spending more on some categories of the budget and less on others? The graphs below will help us comprehend our current path.
First and very important is forecasted spending on Interest. Of course, as the debt grows, spending on interest grows. Remember that this category of any budget buys no goods or services; it is just money spent for the privilege of using borrowed money. Over the 30-year period ahead, interest costs will grow to take an additional 6% of our budget, either in place of other programs like Social Security, Medical Programs, and Defense or the federal government will just borrow even more money to pay the interest, compounding the debt problem.
The mix of Non-interest Outlays (spending) is forecast to change considerably over the next 30 years. Social Security and especially Major health care programs grow substantially at the expense of other mandatory programs and the discretionary ones including Defense.
The primary reasons for increased spending, the resulting deficits, and a rapidly growing debt are discussed below.
Interest must be paid and principal repaid when due, or the U.S. will be in default, something that likely would cause even higher interest rates and an increased probability of not being able to borrow enough money to fund all the budget. Interest costs per GDP can only be reduced by surely and steadily reducing the debt relative to GDP over many years.
Health care costs have escalated for several reasons that will be discussed in a future post. Health care programs can and must be modified permanently if we are to have a balanced and sustainable budget going forward. However, changes must be fair and very carefully crafted to avoid grievous injury to people.
The same is true of Social Security.
One quickly sees in the three above bullets the complexity, long time horizons, and political challenge of the sustainable-fiscal-policy challenge. The alternative is to do what we as a nation have been doing – dump the problem on our descendants.
Remember what Albert Einstein said: “Insanity is doing the same thing over and over again and expecting a different result.”
Medicare and Social Security are the two primary causes of our relentlessly growing deficits and debt. Because they do add so much debt, interest must be paid on this new debt, compounding the fiscal damage caused by these popular programs. The CBO table below shows that the Medicare deficits are more than twice as large as those of Social Security – making it the problem most in need of improvement.
Fiscal Management in Congress
The constitution gave Congress the “power of the purse”. Specifically, Congress was given the powers to tax, spend, and borrow. However, it has not exercised them effectively, resulting in the massive deficits and debt our country now has. Symptoms of process shortcomings that led to poor results are:
Since 1977, passing all appropriations bills on schedule only 4 times
Often not passing a complete budget by the first of the upcoming fiscal year
Lumping appropriations into huge and complex “omnibus” bills rather than passing 12 separate appropriation bills
Causing shutdowns by inaction
Continually supporting deficits and creating more debt
Closing Comments – Severity of the Federal Debt Issue
Our nation has procrastinated for decades on addressing the problem of having a sound and enduring fiscal policy; the urgency of this problem has gotten much worse in the past 20 years. The graph below demonstrates that further delays exacerbate the problem rapidly, raising the costs of stabilizing the debt by 63% in ten years.
The chart below predicts income loss for a family due to debt rising as forecasted. It provides further incentive to call for Congress to address the federal fiscal problem sooner rather than later.
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