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Yes, the nation’s debt surpassed $40 trillion in August – yes, trillion, with a “T” – but beware the panicky prophets of “doom loops” and “death spirals”.
The anxiety is understandable, of course. It’s not particularly nice to contemplate yearly interest payments that topped $1 trillion with a ‘T’ last year – surpassing, for example, a US defense budget which fell just short of that staggering $1T mark.
Nevertheless, let’s try and put emotions aside for a moment – a rare thing in this traditionally charged discussion. Likewise, let’s consider a few facts which are as seldom cited as they are true when it comes to our national debt.
Fact: Measured correctly, debt is down over the last decade. You read that right – down, not up!
It’s worth noting that debt-o-phobes are prone to fixate on whatever category of debt happens to be in the news on a given day – credit card debt, Treasurys, mortgages, car payments, you name it. A number is particularly ripe for outrage when it’s big and round – e.g. $40 trillion.
But even mind-bogglingly big, round and seemingly unprecedented numbers are misleading without appropriate context. In this case, it’s only logical to step back and look at the global picture over time.
Fact: Total global debt of all types combined has fallen when compared to the global economy’s size – and by a lot. Worldwide government, corporate and household liabilities total 246% of global GDP – down from 2020’s 285% peak. We match 2016’s total, and we’re near that of 15 years ago.
How did that happen? Partly, central banks’ COVID-era monetary madness created massive inflation. Bad! But it also made existing debt cheaper to repay, as I detailed in 2024. Hence, since 2020, global public debt-to-GDP fell from 111.5% to 95.6%.
Fact: Globally, corporate debt-to-GDP slid from 106.6% to 93.3%. Global household debt sunk from 69.8% to 59.8%. Shockingly, we could add another $42 trillion in debt globally before reaching 2020’s debt-to-GDP peak. And that level didn’t wreck GDP.
America? Stripping out debt one federal agency owes another, federal debt-to-GDP is around 100%. In 2010 it was about 60%. Hence debt-o-phobes’ dread.
But that overlooks other categories. US corporate debt barely budged relative to GDP. Domestic household debt imploded from 2010’s nearly 100% of GDP to 67% now – mostly offsetting the US government debt’s rise. Who knew?
What’s more dangerous for an economy – too much individual debt or too much government debt? Intuitively, we know it’s the former. Governments can tax and/or inflate away debt, partly to avoid a crisis. Individuals just default.
Looking at recent numbers, it’s the riskier kind of debt – individual and corporate – that fell in relative size while the less risky kind – the federal – grew. Overall, American and global debt situations improved.
Even within government debt, the picture improved. Which is riskier, too much municipal and state debt or too much federal debt? Muni and state, of course, for similar reasons. In 2010, US municipal and state debt combined were 21% of GDP. Now? Just 11%.
The aggregate bottom line in America and globally: After the 2008-2009 recession and 2020 consumers, businesses, municipalities and states overall wised up. Idiot Uncle Sam didn’t. Would you prefer it the other way around?
What about federal interest payments? Aren’t Uncle Sam’s spiking with yields? Somewhat. But taxes still cover interest five times over. And interest’s share of tax revenue was similar in the late 1980s and early 1990s before GDP boomed. Debt payments fell as that boom ballooned tax receipts.
This isn’t some tipping point – it’s partly a normalization. History is rife with countries enduring sovereign debt payments far more challenging than America’s now. Interest rates have returned to levels common before the Fed’s kooky quantitative easing programs artificially squashed them.
To be clear, I’m not advocating for more federal debt. I’m also not defending political wisdom (an oxymoron – whereas most politicos are just regular morons). But don’t waste your time, emotions or money on debt doomerism.
Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author, and regular columnist in 21 countries globally.