National Debt Trickery

 Recently the US national debt passed $40 trillion .....

US National Debt

..... an eye watering figure, that would have seemed inconceivable even a decade ago.

In fact, such is the US's current rate of borrowing, that the Bank of America recently projected it will hit $50tn by 2029, and the debt is on target to hit $101tn by 2037, which will be about 172 percent of the by-then projected $58.4tn economy. Net interest costs, were nearly $1tn pa in 2025 and accounted for nearly 14% of the nation's spending.

President Trump's two terms in office have spanned a doubling of the debt from $20tn, to $40tn, as in 2016, US national debt stood at just under $20tn, and for instance, his 'One Big Beautiful Bill', passed 2025, will add a further $4.2tn to the national debt through fiscal year 2034, according to the Congressional Budget Office. It took almost 200 years for the US national debt to reach $1tn for the first time in 1981, when President Reagan told the nation in a televised address, 'If we as a nation needed a warning, let that be it'."

Well, that warning wasn't heeded, and now the US spends nearly $1tn annually to service its debt, with Government revenues undermined by repeated tax cuts since 1981. Each US government has put off the necessary actions to tackle the problem, such as reforming the tax system and public spending, or practising austerity, or even negotiating debt restructuring as another option, but all avoided so far.

National Debt As A Percentage of GDP

So why is the world not panicking? Well, Japan also has an even larger national debt and has not collapsed. There is a difference between “gross” and “net” (consolidated) government debt, this is because a large proportion of most nations national debt is comprised of private and public debts. In other words, a lot of the debt is held by government agencies and is therefore not really debt, as its money it owes itself. 

For instance the Bank of Japan buys a large share of Japanese government bonds at low interest rates and so in effect Japan’s government has been borrowing from itself at low interest rates, and running up a huge gross government debt, but then investing much of that money in the stock market, building up a large financial asset that make its consolidated debt much lower. So, because the net consolidated debt is far lower as a proportion of GDP, the consolidated debt across all of Japan’s government is only 77% of GDP, even though the gross debt is more like 204% of GDP.

Similarly whilst the public holds about 80% of the US's debt, with more than two-thirds is held by domestic lenders such as mutual funds, the Federal Reserve System, and foreign investors holding the rest, but 20% of the debt is held by intra-governmental debts, money the federal government owes to its own internal accounts. So if the US intra-governmental holdings are around $7.78tn, whilst the debt held by the public (The Net Consolidated Figure) is about $32.27tn, calculated in this manner, the US has consolidated debt of about 83% of GDP. 

Which is why there are only warning lights, and not evacuate signs flashing at the moment ..... one day a reckoning will come ... but not today!!