Tuesday, May 20`, 2025
Year : 2, Issue: 38
Anadolu: The rising debt burden in the US is fueling economic concerns, as Washington’s national debt is expected to affect wages, employment, investments, and the economic growth of the country.
Rating agency Moody’s downgraded the US’ credit rating from Aaa to Aa1, citing the rise in public debt and interest payments.
The world’s largest economy is facing structural imbalances in revenue and spending, and the continuation of this trend is expected to risk slowdowns in growth, millions of job losses, and a decline in investments in the coming years.
The US federal government borrows to cover the outstanding balance of spending over time, taking money from Treasury securities, bonds, notes, and more to finance its operations when its expenditures exceed revenues in a given fiscal year, which refers to the national debt.
The US national debt consists of the borrowed sum and the interest owed to investors who buy these securities. National debt rises with recurring budget deficits.
The US Department of Treasury data showed that the federal government’s budget deficit is at $1.05 trillion as of April. The deficit stood at $855.2 billion in the same period last year.
The US federal debt rose from $392 billion in 1924 to $35.45 trillion in 2024. The Treasury Department’s data revealed that the US’ current national debt is $36.2 trillion, while the US average gross domestic product (GDP) for the fiscal 2024 is $28.83 trillion, below the debt.
The US’ debt-to-GDP ratio rose to 123% in the fiscal year 2024, indicating the government will face more challenges to repay the debt.
The aging population in the US will be the primary reason for long-term federal spending rises over the next 25 years, according to the Peter G. Peterson Foundation. People aged 65 and above will grow much faster than the working-age population, triggering the need to spend more on retirees.
Meanwhile, the Congressional Budget Office estimated that the federal spending on Medicare and Medicaid will rise from 5.8% of GDP in 2025 to 8.1% in 2055. The total healthcare spending is expected to reach one-fifth of the US economy, according to the Centers for Medicare and Medicaid Services.
The growing national debt of the US and high interest rates lead to a larger share of the government budget to be allocated to interest payments. Debt interests were the second-largest spending item for the federal government in the first seven months of the fiscal year 2025.
The Treasury said that the interest expenses are expected to reach $579 billion by April in fiscal 2025. The figure was $514 billion in the same period last year.
The Congressional Budget Office expects that net interest payments will reach a total of $13.8 trillion in fiscal years 2026-2035. The rise in interest expenses can damage potential investment opportunities in the public and private sectors.
If continued, the current debt increase trend will lead the US economy to shrink $340 billion in 2035, $1.1 trillion in 2055, and $1.8 trillion in 2075.
The foundation estimated that employment in the country will fall by 1.2 million in 2035, 2.7 million in 2055, and 3.6 million in 2075, while wages are expected to decline by 0.6% in 2035, 3% in 2055, and 5.3% in 2075.
Private sector investments will decline 13.6% in 2035, 17.1% in 2055, and 21.6% in 2075, according to the projections.
