U.S. Debt Now $7 Trillion Bigger Than The Entire Economy
Ever since it started growing in earnest following the abandoning of the ‘Bretton Woods system’ in the early 1970s, and accelerated to an unprecedented pace following the ‘Economic Recovery Tax Act’ of 1981, the U.S. national debt has been a hot topic.
The debate grew particularly prominent in recent years thanks to the effects of the 2008 crash and the associated debt jump, and – arguably even more – thanks to the unprecedented rise in the public burden during and after the COVID-19 pandemic.
More recently, the discussion came into sharp focus in early 2023 when the country again approached the debt ceiling, reigniting the long-standing fight between officials on the exact conditions for its raising.
The tensions led to the suspension of the debt ceiling – effective until 2025 – and has, thus, by early 2024 ignited new concerns with the national burden growing at an even greater rate.
Indeed, earlier this year, Bank of America (NYSE: BAC) estimated that the U.S. is borrowing approximately $1 trillion each quarter, and Finbold previously estimated that, should the current pace be maintained – a highly unlikely scenario – the national debt would hit $57 trillion by 2030.
U.S. debt already 25% bigger than its economy
While any projections for the future are uncertain, by the start of May 2024, the situation became such that the total national debt of the United States is approximately $7 trillion larger than the country’s economy – as expressed in gross domestic product (GDP) – in 2023.
In fact, the U.S. GDP in 2023 stood at approximately $27.36 trillion, while the debt in May stood at $34.5 trillion, indicating an $11 trillion increase since 2020.
Similarly, should the current projected growth of approximately 2.4% come to fruition and the debt remains unchanged, the current burden is still nearly $7 trillion greater than the economy is expected to be for the entire year 2024.
Additionally, should the debt continue rising at its current pace, it will be approximately $9 trillion larger than the U.S. GDP – about $37 trillion compared to about $28 trillion.
The matter is particularly concerning given that the latest pre-suspension debt ceiling stood just above $31 trillion – $3 trillion less than the burden at the time of publication – and the suspension is set to last only until 2025.
Is the U.S. set to default in 2025?
The fact it is projected that the U.S. budget will have to cover a gap of nearly $2 trillion also indicates that the national debt is not set to decrease by the New Year.
On the other hand, historical examples demonstrate that for all the fierce rhetoric, American politicians have never had an issue with increasing the ceiling – albeit usually at the expense of the middle and lower classes – meaning that the danger of a default remains low.
Finally, some would argue that, despite the debt being at unprecedented highs, it is far from a cause for concern. Indeed, while approaches such as the Modern Monetary Theory (MMT) are generally dismissed, there are hints – though no confirmations – that at least some of its aspects have been accepted.
One example of a statement that hints at such a situation is the infamous comment from 2023 that ‘there’s an infinite amount of cash at the Federal Reserve’ made by FED’s Kashkari.
