Challenges
To quickly review:
- When the federal government runs a deficit, it borrows money from the public to bridge the gap between its revenue and spending.
- It borrows money by selling bonds and has historically been able to pay back its debts on time.
The U.S. government relies on its ability to borrow money in order to fund the programs and services that millions of Americans depend on, and the growing national debt puts that ability to borrow in jeopardy. In this section, we’ll explain why that poses a challenge for the country.
ability to borrow
The government’s ability to borrow
You may be asking, “If people are willing to lend the government money to fund its deficits, is the national debt really a problem we need to address?” The short answer: Yes, it is.
Think about it this way. Let’s say you make $70,000 a year. How worried would you be if you had…
- $5,000 in outstanding loans?
- $100,000 in outstanding loans?
- $500,000 in outstanding loans?
Now, imagine if you had to borrow an additional $25,000 each year just to cover your utility bills, buy groceries, and pay rent. You may be less likely to get a loan because you have so much outstanding debt.
That’s basically the situation the U.S. government is in. To be clear, deficit spending is not always bad! In fact, it has been an important tool that helped our nation respond to crises like two world wars, the Great Recession, and the COVID-19 pandemic. The problem is that we have moved from relying on deficit spending only in an emergency to using it to fund the government every year.
The current growth of the national debt is unsustainable because it puts the government’s ability to borrow at risk. That could compromise its ability to:
- Fulfill commitments to millions of Americans through vital programs and services.
- Preserve national security.
- React to unforeseen crises.
unsustainable
What do we mean by “unsustainable?”
At its core, the national debt is unsustainable because it is growing faster than our economy. Economists quantify this through a concept called debt-to-GDP.
GDP (gross domestic product) is the total price of the goods and services sold annually in a country. You can think of it as “the size of an economy.”
Debt-to-GDP is a ratio that’s calculated by dividing public debt by GDP.
When debt-to-GDP reaches 100 percent, the government owes as much as its entire economy produces in a year. That may be concerning but it’s not inherently unsustainable. The real danger is a debt-to-GDP that grows indefinitely into the future.
Unfortunately, that's where the country is today. America’s debt-to-GDP surpassed 100 percent in 2026, and it’s projected to keep rising.
KEY DRIVERS
Key drivers of debt-to-GDP growth
The growth in debt-to-GDP boils down to the fact that the national debt is growing faster than the economy is growing. Unfortunately, that’s not expected to change any time soon.
There are two main factors causing the growth in federal spending: demographic changes and net interest payments on the national debt.
Demographic Changes: There is good news and bad news here. The good news is that Americans are living longer! The bad news is they’re also relying on programs like Social Security and Medicare for far longer than we’d originally planned. That means the government is spending more on these programs, and as the population ages, those costs will keep climbing:
- Social Security provides retirement income, survivor benefits, and disability benefits to millions of Americans. By 2036, Social Security spending is projected to grow by 65 percent.
- Medicare is a federal health insurance program primarily for people 65 or older. By 2036, Medicare spending is projected to grow by 85 percent.
Net Interest Payments: Remember, the federal government has to pay interest on the national debt each year. These interest payments don’t go towards reducing the debt — they’re just the cost of borrowing money, and that cost is rising.
- The government is caught in an unfortunate cycle: Interest payments rise as the debt rises, and the debt rises because of interest payments. By 2036, net interest spending is projected to grow by 106 percent.
When combined, Social Security, Medicare, and net interest make up half of federal spending and will continue to take up larger proportions each year. As spending increases, the government will need to add to the national debt faster than our economy can grow, causing debt-to-GDP to rise.
WARNING SIGNS
Warning signs for sustainability
If left unchecked, indefinite debt-to-GDP growth will result in a crisis. No one knows exactly when that will happen, but there are a few warning signs.
Ferguson’s Law: In 2025, Niall Ferguson of the Hoover Institution released a report on the spending habits of countries that were considered great powers throughout history. He found a common “tipping point” that these countries reached. All of them started to decline once they began spending more on interest payments than on national defense. After reaching that point, their national debt began drawing resources away from their national security, leaving them vulnerable to military challenges.
In 2024, America reached that tipping point and is expected to continue spending more on net interest than on national defense for the foreseeable future.
Downgraded Sovereign Credit Ratings: Three leading agencies — S&P Global, FitchRatings, and Moody’s — give credit ratings to countries based on their perceived ability to pay back their debt on time. Just like a bad credit score will keep you from getting a car loan, a bad sovereign credit rating makes lenders less willing to loan a government money.
Since these agencies launched in the early Twentieth Century, the United States has always enjoyed the highest credit rating possible. Lenders believed that the U.S. government wouldn’t have any issues paying back its debt.
This is no longer the case. Starting in 2011, all three agencies have slowly downgraded America’s credit rating, citing both long-term fiscal concerns and Congress’ inability to find a solution.
Translation? Confidence in the government’s ability to pay back its debt has already decreased.
Wharton Budget Model: The last warning sign comes from the University of Pennsylvania’s Wharton Budget Model. According to their experts, America can only sustain a debt-to-GDP of 200 percent before experiencing an economic collapse.
Remember, we surpassed the 100 percent debt-to-GDP in 2026.
So how much time do we have left? About 20 years, after which the Wharton Budget Model projects we’ll reach a “point of no return.” If we let that happen, no combination of tax increases or spending cuts could prevent an economic collapse.
THE BOTTOM LINE
The bottom line:
Our national debt’s trajectory is unsustainable
All those warning signs point to the fact that our current trajectory is simply unsustainable, because our debt-to-GDP is projected to grow indefinitely into the future.
As debt-to-GDP rises, lenders will become more cautious about loaning the U.S. government money. Think of it this way: You’ve loaned money to a friend several times. They always pay you back, but they still owe you and several other friends a lot of money. And they just keep spending money like they’re not in debt.
At some point, you would start to worry that they may not pay you back, in full and on time. If you did ultimately lend them more money, you’d probably put more stipulations around that loan.
This is the concern with the U.S. government’s borrowing habits. As it continues to take on debt, the bond market will consider it riskier to lend the government money. Here’s what could happen:
- First, lenders could demand higher interest rates to offset that risk. This would make borrowing harder and much more expensive for the government.
- If that doesn’t curb U.S. debt-to-GDP growth, lenders could demand interest rates so high that borrowing becomes prohibitively expensive. At this point, the government would essentially lose its ability to borrow money from the bond market. This would be devastating to the country because, as we’ve explained, the government has come to rely on borrowing to keep the lights on.
THE FIX
We have to fix this problem ourselves
All of that sounds pretty heavy, and it gets even scarier when you realize that no one is coming to our rescue.
Other countries can’t bail America out. When they face debt crises, they often turn to international organizations like the International Monetary Fund (IMF). America can’t do that for two reasons.
- First, we’re the largest contributor to these organizations, so we’d basically be bailing ourselves out with our own money.
- Second, these organizations don’t have enough money to bail us out. Remember, our national debt is $39 trillion. As of 2023, the IMF only had a lending capacity of $932 billion. That wouldn’t even be enough to cover the interest on the national debt for one year.
Other countries may help us during a debt crisis, but the unfortunate reality is that America is just “too big to bail out.” We have to fix this problem ourselves.
That onus falls on Congress, which isn’t doing much. While many lawmakers say they’re worried about the national debt, there’s been little bipartisan action to address it.
One political party is not going to address this issue either, as it will require difficult, and likely unpopular, decisions. The only way to get out of this is through bipartisan Congressional action. Both parties contributed to the debt through decades of deficit spending, and both parties will have to come together to get us back on track.
The last time Republicans and Democrats came together in a serious attempt to make the debt sustainable was during the Simpson-Bowles Commission, which was way back in 2010 when the national debt was $13.6 trillion.
To recap: The federal government has come to rely on borrowing money to fund the programs and services it provides to millions of Americans. Our growing national debt puts this ability to borrow at risk, and we haven’t seen any serious action on this issue from Congress in over 15 years.
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