Weekly Wisdom | The National Debt
Our Gravest Threat
On Wednesday, August 19th, the U.S. gross national debt reached a massive $ 40 trillion. The national debt now represents 129% of U.S. GDP, exceeding the 119% recorded after the end of WWII. While the Iran War rages, the national debt presents a serious threat to America’s future prosperity. It is imperative that the Trump administration attempt to tackle the national debt before his term is over.
Facts about our unacceptable national debt:
Currently, the national debt is one of several crises, with a future energy crunch forecast and affordability remaining a dominant concern for most Americans. Addressing the national debt amid these issues, along with the rise of leftist radicalism in the Democratic Party, will prove very difficult.
Our annual federal budget is currently $7.4 trillion, while federal revenue comes in at $5.6 trillion. Our annual federal deficit, then, is $1.9 trillion. Of that $7.4 trillion, roughly $1 trillion is spent on net interest, representing about 13-14% of total annual spending.
The interest on the national debt now consumes roughly 14% of the federal budget—about two percentage points more than total defense spending and just one percentage point less than Medicare. Only Social Security, at roughly 23%, costs substantially more. Unlike these other major expenditures, however, interest payments provide no new public service, infrastructure, defense capability, or social benefit; they are simply the cost of servicing past borrowing.
At its current trajectory, the gross national debt is projected to rise from roughly $40 trillion today to about $50 trillion by the end of 2031—an increase of approximately $10 trillion, or 25%, in just over five years. That amounts to nearly $2 trillion in additional debt per year, on average.
As Treasury Secretary Bessent said yesterday, the solution to our debt is to outgrow it via good policy, which leads to robust economic growth. Other influential leaders, such as Elon Musk, have echoed this belief. As detailed many times in this Substack, a Fourth Industrial Revolution is beginning to take shape. But will the economic growth be enough to outgrow the national debt, and will it happen before a major crisis?
A major economic crisis, whether it originates from Japan or China, or results from the Iran War spinning out of control, could exacerbate our precarious fiscal position vis-à-vis the national debt. Recessions or depressions reduce federal revenue as the economy slows. So the future national-debt forecasts assume we avoid a major recession. And if we don’t? There is a possibility of a sovereign debt and currency crisis, which could ultimately threaten the U.S. dollar’s reserve-currency status and leave Americans substantially poorer.
