The impact of government debt

September 2023

“A national debt, if it is not excessive, will be to us a national blessing.”
– Alexander Hamilton

Since the Global Financial Crisis in 2008, much of the conversation about US government debt has revolved around the government’s willingness to pay existing debts (e.g., hitting the “debt ceiling”). While these debt ceiling dilemmas have eventually been resolved without default, the topic of the long-term trend growth of the national debt has been less discussed. The US government is the largest debtor in the world in absolute terms, and its debt as a share of Gross Domestic Product (“GDP”) has been increasing rapidly over the past fifteen years. The US national debt of $31.4 trillion represents 98% of US GDP. According to the Congressional Budget Office (“CBO”), it is projected to grow to 118% of GDP in 2033 and 195% of GDP in 2053.

In a prior research note, we addressed the debt ceiling. In this follow-up piece, we explore the broader impact of government debt on the economy. We examine historical debt trends relative to economic growth, discuss what countries do to manage their level of debt when it has grown, and explore what could happen if debt continues to climb.