National Debt Drowns in Record $34 Trillion, Congress Squabbles Over Lifeline

The gross national debt of the federal government is at an all-time high of $34 trillion, indicating political and economic obstacles to bolstering America's financial standing in the years to come.

On Tuesday, the US financial situation was monitored by a report released by the Treasury Department. Political division in Washington has exacerbated the challenging issue of US finances and may lead to a partial government shutdown in the absence of a yearly budget.

In June of last year, the White House and Republican lawmakers decided to temporarily raise the national debt ceiling in order to avert the possibility of an unprecedented default. The duration of that agreement is January 2025. Here are some responses to inquiries concerning the recently set national debt record.

How Did It Happen?

When the national debt reached $34 trillion, pre-pandemic predictions were many years ahead of reality. The Congressional Budget Office projected in January 2020 that by the fiscal year 2029, the nation's overall debt will have surpassed $34 trillion.

However, the debt grew quicker than expected because of a multi-year pandemic that started in 2020 and shut down a significant chunk of the US economy. The government took on a large amount of debt under former President Donald Trump and current President Joe Biden in an effort to stabilize the economy and encourage recovery. But along with the recovery came a jump in inflation, which raised interest rates and raised the price of repaying the government's debt.

Most policymakers use the gross debt, which includes money the government owes itself, as the foundation for assessing the overall amount of debt held by the public in order to assess the government's financial standing. This lesser sum, $26.9 trillion, is nearly equal to the US GDP.

The Congressional Budget Office projected that by 2053, publicly held debt will represent a record 181% of the US GDP in its 30-year estimate, which was issued in June of last year.

How Will It Affect the Economy?

Given that investors are prepared to lend money to the federal government, the national debt does not now seem to be a drag on the American economy. The government won't need to increase taxes in order to continue funding programs because of this loan.

However, the way the debt is predicted to increase over the coming decades may jeopardize both national security and vital programs like Social Security and Medicare, which have emerged as the main sources of anticipated government expenditure. In addition to the potential financial risk associated with government dysfunction, such as another disagreement over the debt ceiling, investors who are concerned about politicians' readiness to lower the national debt may also be exposed to additional risks.

Foreign buyers of US debt, such as South Korea, China, Japan, and Europe, have already lowered their Treasury note holdings.

A projection from the Peterson Foundation states that by the end of 2022, foreign ownership of US debt will have decreased to 30% from a peak of 49% in 2011.