The real trouble with the US debt topping 100 percent of GDP
For the past few days, I’ve been weighing the significance of news that the US national debt now exceeds the size of our entire economy, which The Wall Street Journal reporter Richard Rubin called “crossing a once-unthinkable threshold” in a front-page story. The last time US debt crept above 100 percent of gross domestic product (GDP) was in 1946, and Americans had a World War II victory to show for it.
The US stock market seems to shrug off most unsettling news these days, whether it’s continued tariff threats from the Trump administration or relentlessly rising energy prices in the face of the ongoing Iran conflict. So why should rising debt levels be any different? It’s true that US publicly held debt reached an eye-watering $31.265 trillion as of March 31, or 100.2 percent of US GDP. But the United States is not the first nation to cross this symbolic boundary. Japan, France, Canada, Italy, and a dozen other countries each have debt greater than the size of their economy.
The argument over whether this marks an inflection point divides economists, policymakers, and investors into two camps. One group, and I would count myself among them, senses a growing danger that should end complacency and prompt action. The other side argues that my view represents an overreaction to a statistic that, however large, has less meaning when measured in the context of US economic health, which remains robust.
What seems indisputable is that the US margin for economic and geopolitical error is shrinking with every new trillion dollars of debt.
Hard choices
Let’s start with the math. Debt at this level constrains choice. It narrows the room to respond to crises, whether financial shocks, global conflicts, or natural disasters at home. It crowds out private investment, as government borrowing competes for capital that might otherwise fuel innovation, infrastructure investment, and growth. Washington now spends more on interest payments than it does on many core government functions.
On average over the past fifty years, the US government spent about twice as much on defense as on net interest payments: 4.1 percent of GDP compared to 2.1 percent. In 2024, net interest payments surpassed defense spending, and they are likely to rise further. By 2036, the Congressional Budget Office projects, these interest payments will nearly double defense spending, reaching 4.6 percent of GDP and squeezing defense down to 2.4 percent. Even in this scenario, US debt is projected to stay well above 100 percent of GDP.
Then there’s the geopolitics. The United States’ ability to borrow at scale, the so-called “exorbitant privilege” of having the world’s leading reserve currency, rests on international trust—in our economy, our institutions, and our democracy. Persistent deficits, rising debt, and growing policy unpredictability all test that confidence. If that trust erodes, the consequences would be profound: higher borrowing costs, a weaker dollar, and diminished global influence. Economic historian Niall Ferguson simplifies this as Ferguson’s Law, named for the philosopher Adam Ferguson, which states that “any great power that spends more on debt servicing than on defense risks ceasing to be a great power.”
Yet the opposing argument is equally forceful, and it is supported by the facts. Both governments and individuals continue to buy US Treasuries even at times of US-instigated geopolitical turmoil. The argument is that the United States issues its debt in its own currency that it controls, a currency that remains the anchor of the global financial system. This, we are told, is an indisputable strength, allowing the United States to run deficits and even neglect the institutions that make the United States fiscally mighty to begin with. It boils down to a line I hear most often: “Look around, there just isn’t a good alternative to US Treasuries and the dollar.” As an American patriot in the 250th anniversary year of our nation’s birth, that doesn’t strike me as a particularly inspiring rallying cry.
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A question of perception
What increasingly concerns me is that true economic inflection points are as much psychological as statistical, defined more by a change of perception than by a number.
“There isn’t a special level where debt goes from problematic to catastrophic,” wrote Rubin in The Wall Street Journal. “And the ratio might bounce around in coming quarters as tax receipts come in, tariff refunds go out and GDP fluctuates in response to inflation and revisions. Still, the triple-digit mark is a potent symbol of the fiscal stresses on the U.S. that have been building for decades.”
For the better part of a century, the United States has benefited from the trust the world has put in its institutions, its innovative culture, its investment climate, and its remarkable ability to self-correct. As Winston Churchill is often quoted as having said (though there is no evidence he actually did so), “Americans can always be trusted to do the right thing, once all other possibilities have been exhausted.”
Trust doesn’t collapse overnight. It slips incrementally until the terms on which the United States borrows, invests, and leads begin to change. This debate still strikes most Americans as abstract; it is anything but. Higher debt, if mismanaged, means higher interest rates on mortgages and business loans. It can shift resources away from investments in our national future toward paying for the past at a time when the global competition with China is accelerating.
Still, if handled wisely, US debt can remain what it has long been—a manageable burden for the world’s most consistently innovative, dynamic, and resilient large economy.
What now?
There was plenty of handwringing when US debt levels hit 106 percent of GDP in 1946 after the vast mobilization of World War II. How could a country bear such a burden without inviting decline? Would the United States share the fate of exhausted European powers, weighed down by war debts and characterized by diminished ambition?
The answer at that time wasn’t austerity but economic growth and geopolitical credibility. The country expanded its economy at a pace that outstripped its debt, invested in infrastructure, and anchored a global financial system that was then built around the dollar. The debt-to-GDP ratio at that time fell not because Washington became more frugal, but because the country grew more productive, more dynamic, and, yes, more widely trusted.
History is unlikely to repeat itself quite so neatly in a more contested world and with confidence in the United States predictability shaken. What worries me more than the debt numbers themselves is the complacency around them—as fiscal choices are deferred and today’s extreme becomes tomorrow’s baseline.
Frederick Kempe is president and chief executive officer of the Atlantic Council. You can follow him on X @FredKempe.
This edition is part of Frederick Kempe’s Inflection Points newsletter, a column of dispatches from a world in transition.
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Image: A stack of $100 dollar banknotes. (Abdurrahman Antakyali - Depo Pho/Depo Photos/Sipa USA via Reuters Connect)