Growing U.S. Debt – Trouble Ahead?

Last week I talked about the upward sloping Treasury yield curve, a welcome change from the inverted yield curve that lingered for years. The upward sloping curve means that investors are rewarded more for taking on duration. Today I am shifting to the mounting concerns for an upward sloping history of growing debt. The U.S. total public debt outstanding has reached over $36 trillion. The national debt could be compared to your personal debt held on a credit card. It is borrowed money that is accruing interest. Each of the 340 million people in the population would have to pay $106,486 to pay the debt off. Afterall, we are the nation, and it is our debt. A household of four would have to come up with nearly $426,000, an improbable resolution for most Americans.

US Treasury graph

The US government now spends ~13% of its budget on interest for this debt. If this were your household’s credit card debt, spending 13% of your paycheck just for interest seems disproportionately high. Receiving a raise at work would help to remedy the situation by giving you the ability to pay down some of the debt. In the same way, the nation’s gross production could increase and help pay off some of the national debt. However, you can’t always count on a raise, nor can the nation rely on growing its way out of the problem.
Pie chart graph

By cutting back on household expenses, you can slowly lower your credit card debt. The US government can likewise reduce its spending. This is likely a little trickier for the government though because finding ways to reduce spending may involve reduction of entitlements which would be politically unpopular. The three largest sectors of US spending are health insurance (including Medicare and Medicaid), Social Security, and defense. Cutting defense is not a viable option and cutting entitlements of healthcare and supplemental retirement income would be grossly ill-received.