Federal Debt: A Heavy Load
Kiplinger's Personal Finance|February 2021
The debt continues to grow, but record-low interest rates could ease the long-term damage.
By David Payne
Federal Debt: A Heavy Load

As recently as 2007, the amount of federal government debt—Treasury securities held by the public—was just 35% of gross domestic product. At the end of 2019, it was 79%, and it’s likely to hit 104% in 2021. It only gets worse: The debt will likely rise to 109% by 2030 and approach 200% of GDP by 2050, according to estimates from the Congressional Budget Office. Those estimates don’t include another fiscal stimulus (which was being negotiated at press time) and assume Congress won’t extend tax breaks scheduled to expire in 2025.

For most of us, that kind of balance sheet would be ruinous. Interest rates would eat away at our income, making it difficult to pay expenses. Certainly, that has been the traditional view of the federal government’s debt: As rising deficits increase the amount of interest the government must pay each year, there’s less money available for other things. There have also been concerns about what would happen if China and other foreign investors were to stop buying Treasury securities. A deluge of debt would flood the market, and interest rates would have to rise to entice investors to buy it. That would cause interest rates on consumer and business loans to follow suit, which would hurt the economy.

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