The U.S. national debt is the cumulative amount the federal government owes to creditors, both domestic and foreign. It is the result of many years of deficit spending—where annual government expenditures exceed revenues. The debt is divided into two broad categories: debt held by the public (such as individuals, corporations and foreign governments) and intra-governmental holdings (money borrowed from government trust funds, such as the Social Security Trust Fund).

Debt held by the public, which currently exceeds $26 trillion, is particularly significant because it reflects active borrowing from the market and imposes real interest costs on the government. In contrast, inter-governmental debt is essentially internal bookkeeping and does not affect the capital markets directly, although it reflects future obligations that must still be paid.

What matters most is the debt-to-GDP ratio, which indicates a country’s ability to manage and service its debt through economic output. When this ratio rises sharply—as it has in the U.S. since the 2008 financial crisis and again after the COVID-19 pandemic—it suggests that debt is growing faster than the economy’s ability to generate income to repay it.

The United States is grappling with a persistent structural fiscal imbalance, where government expenditures consistently outpace revenues. This imbalance is driven by several factors, including mandatory spending on entitlement programs such as Social Security and Medicare, defense expenditures and interest payments on existing debt. The Congressional Budget Office projects that federal spending will rise from 23.3% of GDP in 2025 to 26.6% by 2055, while revenues will increase more slowly, from 17.1% to 19.3% over the same period.

Interest payments on the national debt are the fastest-growing component of the federal budget. In 2024, interest payments reached $881 billion, more than double the amount from three years prior. Projections indicate that interest costs will total $13.8 trillion over the next decade. This surge diverts funds from critical areas like infrastructure, education and healthcare.

There are many dangers of a growing national debt. They include high levels of government borrowing that can lead to increased interest rates, making it more expensive for businesses and individuals to borrow. This “crowding out” effect reduces private investment, potentially stunting economic growth and productivity. In addition, a high-debt burden limits the government’s ability to respond to economic crises with fiscal stimulus. This constraint could hinder efforts to combat future recessions or emergencies.

Persistent deficits and mounting debt increase the risk of a fiscal crisis, where investors lose confidence in the government’s ability to manage its finances. Such a crisis could lead to skyrocketing interest rates and severe economic consequences. The burden of high debt levels will fall on future generations, potentially leading to higher taxes and reduced government services. This intergenerational transfer raises concerns about equity and long-term economic sustainability.

There have been several recent developments. In May 2025, Moody’s downgraded the U.S. credit rating from Aaa to Aa1, citing concerns over the rising debt and long-term fiscal imbalances. This downgrade reflects increased risk perceptions among investors and could lead to higher borrowing costs. The passage of a significant tax and spending bill is projected to add $3.8 trillion to the national debt over the next decade. Critics argue that such measures exacerbate fiscal challenges without addressing underlying structural issues.

The growing U.S. national debt presents a complex challenge with far-reaching implications. Addressing this issue requires a balanced approach that includes fiscal reforms, prudent spending and revenue enhancements to ensure long-term economic stability and prosperity.

About the author: Michael J. Paton is a portfolio manager at Tocqueville Asset Management L.P. He can be reached at 212-698-0800 or by email at MPaton@tocqueville.com.

Published: June 19, 2025.