"US debt surpasses GDP for the first time in 80 years! The fiscal black hole is getting bigger and bigger, but Washington is "selectively blind""

At the end of the first quarter of this year, the United States crossed a serious threshold - the total amount of federal debt held by the public exceeded its nominal Gross Domestic Product (GDP). According to the latest data from the Bureau of Economic Analysis (BEA), as of March 31, the total amount of federal debt held by the public reached $31.27 trillion, while the nominal GDP for the previous 12 months was approximately $31.22 trillion, resulting in a debt-to-GDP ratio of 100.2%. This is the first time in nearly 80 years since the end of World War II that the United States has experienced a debt ratio exceeding 100% in a non-war period. This "milestone" has once again raised concerns among budget oversight agencies and economists. They believe that the trajectory of the U.S. debt is becoming increasingly unsustainable. Maya MacGuineas, President of the Committee for a Responsible Federal Budget (CRFB), said, "The fact is, the national debt now exceeds the size of the U.S. economy, approximately double the historical average." "Over the past few years, we have heard warning bells about the fiscal path many times, but this time the alarm is particularly loud." In recent years, the size of U.S. debt has been rapidly increasing. In July 2024, U.S. debt surpassed $35 trillion, then $36 trillion in November of the same year, $37 trillion in August 2025, and then exceeded $38 trillion in just two months. Currently, the total amount of U.S. government debt has surpassed $39 trillion, just about five months after it first reached $38 trillion in late October 2025. Michael Peterson, CEO of the Peter G. Peterson Foundation, estimates that at the current rate of increase, U.S. debt will reach a "shocking" $40 trillion before the midterm elections this autumn. The foundation believes that adding an additional $1 trillion in debt took less than five months, a fiscal expansion speed that has no precedent in modern U.S. history except during wartime or severe financial crises. Economists say that the accumulation of U.S. debt is due to years of crisis spending, including the 2008 financial crisis and the massive fiscal stimulus during the COVID-19 pandemic, as well as driving factors such as an aging population, continued tax cuts, and rapidly increasing interest expenses. Unlike the period after World War II, when strong economic growth gradually reduced the debt burden, current forecasts show that the U.S. debt-to-GDP ratio is expected to continue to climb in the coming decades. The Congressional Budget Office (CBO) warned in February this year that, at the current trend, the debt held by the public will rise to 108% of GDP by 2030, surpassing the post-World War II record, climbing to 120% by 2036, and possibly reaching 175% by 2056. At the same time, the cost of financing this debt is also rising. As investors demand higher returns to hold long-term U.S. government bonds, the 30-year U.S. Treasury bond yield has risen from around 4.5% in early March to above 5% recently, reaching its highest level since 2007. Refinancing old debt at higher rates has pushed annual interest payments by the federal government to surpass $1.2 trillion. Federal interest payments have exceeded defense spending, severely squeezing other federal spending on public welfare. Some economists warn that the continually rising interest burden may ultimately crowd out private investment and weaken the government's flexibility to take fiscal measures in future crises. For investors, what may be more concerning is not just the symbolic figure of debt exceeding 100% of GDP, but the expanding fiscal deficit and the possibility of even higher interest rates continuing to drive up U.S. Treasury bond yields. This means that the cost of financing the entire economy could increase, putting pressure on the stock market, real estate, and corporate investments, and further increasing the burden of government interest payments in future budgets. The U.S. Chamber of Commerce has warned that once investors start viewing U.S. debt as a riskier asset, interest rates may rise further, increasing the financing costs for business expansion, hiring, and investment. Fiscal alarms are ringing, but Washington continues to spend big money It is noteworthy that unlike previous financial crises, the sharp increase in debt this time has elicited more tepid reactions in Washington, rather than panic. Washington lawmakers do not seem to show much concern and are instead continuing to push for increased spending on defense and immigration enforcement. Although concerns among economists and some voters are on the rise, there remains insufficient political will in the U.S. political arena to significantly reduce the fiscal deficit. The current federal budget proposals still include significantly increasing defense spending while avoiding major adjustments to welfare programs, which happen to be the main source of long-term expenditure growth. Faced with a grim situation, the Committee for Economic Development (CED) recommends lowering the U.S. debt ratio to more sustainable levels around 70% and establishing a bipartisan fiscal commission composed of members of Congress to provide space for policymakers to deliberate. Maya MacGuineas calls for the implementation of a "hyper pay-as-you-go system" fiscal rule, requiring that any new expenditure or tax cut measures must be offset by double the amount of fiscal surplus. But stabilizing the debt ratio requires much more than that. The CRFB estimates that about $10 trillion in deficit reduction is needed. The widely discussed benchmark goal is to reduce the annual deficit to below 3% of GDP, in order to put the debt ratio on a downward trajectory. However, there is no specific legislative path for this proposal yet. The fiscal year 2026 budget resolution passed by the U.S. Senate did not include a plan to address structural deficits. As U.S. Treasury bond yields rise and gradually transmit to mortgage rates and consumer borrowing costs, public anxiety about the fiscal deficit seems to be increasing. However, some analysts believe that as an immediate economic crisis has not yet erupted, policymakers are more likely to continue postponing the painful decisions involving tax increases or spending cuts. Some experts believe that the U.S. economy remains strong and vibrant, with a stable credit rating, meaning that the debt problem is still manageable in the short term. Jacob Manoukian, Head of Investment Strategy at J.P. Morgan, is one of the experts who holds such an optimistic view. In a related report, he points out that in four out of the past five years, U.S. economic growth has been higher than debt rates, which helps to restrain the further deterioration of the debt-to-GDP ratio. He also stated that there is currently no clear evidence that interest payments will "overtake monetary policy and trigger higher inflation." At the same time, U.S. Treasury bonds are still favored by certain investors, with strong demand, indicating that the market does not perceive imminent risks in the U.S. fiscal situation.