The United States of America is over $37 trillion in debt, but why do we care, and how did we get here?
How do we get debt?
The government earns money via taxes, and spends that money to serve the public.
Whenever they earn more money than they make, then that is called a surplus. The opposite of that is called a deficit.
To make up for that deficit they sell Securites. Securities are government loans, like treasury bonds, treasury bills, and treasury notes. The reason a government would issue debt is because it allows them to continue day-to-day operations without cutting projects or hiking taxes.
Types of Spending
There are three main types of spending: mandatory, discretionary and supplemental.
Mandatory is what the government is legally required to spend including the big three: Social Security, Medicare and Medicaid, as well as some smaller programs like federal civilian and military retirements, money won from lawsuits and nutrition assistance.
Discretionary spending is pre-determined by congress each year. Over half of this spending goes to national defense, while the rest is divided up among other agencies like transportation or environmental protection.
Supplemental spending is a form of spending that is only used whenever there is an issue too pressing to wait for the next round of discretionary spending, like in the case of COVID-19.
Types of debt
Debt is generally divided up into categories based on who it is owed to, public and intragovernmental.
At the beginning of the year, the public held $29.53T worth of debt, and intragovernmental debt was $7.39T, with an average interest rate of around 3.3%.
Intragovernmental debt is debt held between agencies of the government.
As of April 2024, foreign countries owned around 22.9% of government debt, with Japan ($1.1T), China ($749.0B), United Kingdom ($690.2B), Luxembourg ($373.5B) and Canada ($328.7B) owning the most. Debt held by foreign countries is considered a form of public debt.
However, foreign-owned securities carry risks with them. They could affect foreign economic policies and if other countries start seeing US debt (securities) as riskier, then it could drive up the interest rates, or even become too risky to buy.
Currently, U.S. securities are among the most secure in the world. However, in May of this year, the Moody’s credit rating for the U.S. was downgraded. Credit rating is kind of like a credit score: as your credit score goes down, loans become more expensive, and you may have difficulty finding one. The U.S.’s credit score is still good, but it could be a warning sign of times to come.
The reason the U.S.’s credit rating was downgraded was due to its overspending and the belief that it will be unable to pay back its debt.
Overspending
The amount of money a government makes is often referred to as Gross Domestic Product. The current Public debt to GDP is at 120%, meaning the U.S. spends all the money they make plus an extra 20%.
There are five main categories that spend the most: Social Security, Interest, Medicare, Medicaid and National defense.
In the 2025 Fiscal year, over $1.3 T was spent on social security, interest payments on debt were $841 B, Medicare cost $831 B, next was national defense at $758 B, then income security at $608 B, and finally Medicaid at $554 B.
History
Over the past 100 years, the U.S. debt has increased from $370 B to $37.3 T.
During the first World War, a debt ceiling was created to make the government more economically responsible. The debt ceiling is basically a limit to how much debt the government can impose on itself; once the limit is reached no more securities will be sold, nor will debt be increased.
From 1929-1931 the government was stable at around $350 B until 1932, when the government began to take more of an active role in quelling the Great Depression. This led to increased government spending and a general increase in the amount of money within the economy. To bring the U.S. out of the depression, however this caused the debt to grow to $925 B.
This continued spending went into the 40’s, raising the debt to a high of $4.55 T, before a brief cooling off period, dropping the debt to $3.4 T.
The debt stayed stable until the U.S. entered a period of stagflation in the late 70’s. To solve this, in the 80’s, more money was spent to stabilize the economy. This rise in debt spiked at $10.66 T in 1998 and then began to slow down.
In 2001, after the events of 9/11, deficit spending began again with Bill Clinton’s war on terror.
When the 2008 Great Recession occurred, debt was at $14.46 T, but in order to stabilize the economy, a period of mass overspending occurred.
From 2019-2020 the national debt jumped from $27.93 T to $32.67 T.
What if we don’t pay?
No one knows what would happen if the U.S. decided not to pay their debts or defaulted on their loans, but experts say that it would likely be catastrophic. U.S. debt would be seen as an unreliable and be sold off, furthermore, no one would be willing to buy new government debt, forcing us to balance our budget.
Federal employees would likely get delayed payments or go unpaid. Bank runs would likely occur, as well as a stock market crash. Interest rates on almost anything would increase, including credit cards, and mortgages. Social Security, Medicare and Medicaid might not receive funding.
A general distrust of the dollar would arise, causing other countries to attempt to make their currency the world reserve currency. Finally, a new Great Depression might occur, however this is not an exhaustive list, there are other things that could happen that have not been named here.
Bottom line
In conclusion, government is a useful tool. It can be used to stabilize the economy when times are bad, keeping everything running whenever we overspend, and can be used as extra funding whenever a national emergency happens. However, it can just as easily spiral out of control causing distrust in the currency or even destabilize the economy. Either way, it is something to be used with great care.
