Does the U.S. Have Too Much Debt?

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Relative to 18 developed economies since 1870, U.S. leverage is high though not unprecedented. However, unless the recent rise in interest rates reverses, the U.S. will need to cut its debt load.

The question of the sustainability of the U.S. national debt load is very complex, and its full resolution, were it even possible, is beyond the scope of this article. (For some interesting takes on this question, see recent pieces by Goldman Sachs, Bloomberg, and Wharton). I take on the much simpler task of summarizing the debt loads of 18 developed market economies dating back to 1870, and seeing what inferences can be drawn from these data. The exercise is made possible by the wonderful data collection efforts of the Macrofinance & Macrohistory Lab at the Kiel Institute for the World Economy, which track country-level macroeconomic outcomes from 1870 to 2020, as of the latest update.

The story begins with the following set of charts which documents the public debt-to-GDP ratios of the 18 countries tracked in the Macrohistory data set. As a percent of GDP, several countries – notably Japan and the U.S. – are hovering close to their 150-year high points of national leverage.