_WHATāS HAPPENING_
The US national debt has officially surpassed the size of the American economy for the first time since the aftermath of World War II. Data released by the Bureau of Economic Analysis show publicly held debt is climbing toward $39 trillion, with estimates suggesting it could reach around $54 trillion in the next decade.
The debt-to-GDP ratio now exceeds 100 percent, a threshold not crossed since 1946. Unlike the post-war period, when the debt fell quickly amid surging growth and declining spending, today's trajectory is on a steep ascent, with neither Democrats nor Republicans discussing reducing it.
_THE FACTS_
The all-time record debt-to-GDP ratio of 106 percent was set in 1946 as the US demobilized after World War II. The Congressional Budget Office (CBO) projects America will break that record by 2030.
Just four decades ago, the national debt was under $1 trillion.
The federal government now spends $1.33 for every dollar it collects in revenue, with budget deficits running at around 6 percent of GDP.
The CBO projects federal interest expenses will surpass $1.5 trillion and 4 percent of GDP by 2031.
In 2027, mandatory spending on Social Security, Medicare, and Medicaid, plus interest on the debt, will permanently exceed federal tax revenue, meaning all discretionary spending will be financed with borrowed money.
Penn Wharton Budget Model projections show debt approaching 190 percent of GDP by 2050, at which point markets may no longer absorb Treasury borrowing.
Future unfunded liabilities for Social Security and Medicare could total as much as $193 trillion.
Former Treasury Secretary Henry Paulson warned that runaway government spending could trigger a crisis in the Treasury bond market, which investors buy to finance federal spending
JP Morgan Chase CEO Jamie Dimon said, "The way it's going now, there will be some kind of bond crisis, and then we'll have to deal with it."
_OUR TAKE_
The incentives at play make it unlikely that the national debt will descend anytime soon. Stabilizing the debt would require reducing deficits by roughly $10 trillion over the next decade through spending cuts or tax increases that neither party has shown willingness to pursue. Still, the US has maintained leeway to spend because of its position as the dominant global power, which keeps it the most trusted and economically valuable player, even with its massive debt.
But as Henry Paulson and Jamie Dimon warned, investor confidence in American Treasury bonds could evaporate quickly once bondholders begin demanding higher yields to compensate for the growing risk of default. At that point, the government faces an impossible choice ā to default by missing payments, default through inflation, or take emergency austerity measures that would make the 2008 financial crisis look like a breeze.
