The national debt isn’t just a big number. It’s a major anchor on economic growth.
On Tuesday, The Wall Street Journal reported that government bond yields are increasing throughout the globe. As these bond yields rise, government debt becomes more expensive. The yield on Japan’s 10-year bond hit 3 percent on Tuesday. That was a three-decade high. For much of 2019 and through 2021, German government bond yields were negative. As of this writing, they’re over 3.3 percent.
During the early months of the COVID crisis, yields on U.S. government bonds were under .7 percent. As of this writing, they’re over 4.7 percent.
Ask would-be homeowners about the difference a percentage point or two make in the cost of a mortgage. Now apply that principle to the national debt, which topped $40 trillion last month.
People have warned about the national debt for decades. In 1985, then-President Ronald Reagan called the country’s $1.7 trillion national debt “a serious problem that demands your immediate attention.”
“Business as usual will eventually destroy our prosperity and all the blessings it has given us,” he warned.
At this point, a $1.7 trillion national debt seems quaint. Last year, the U.S. ran a $1.78 trillion annual deficit. This fiscal year, the annual deficit is up 10 percent. For this year, 15 percent of government spending is on interest expenses. That’s around as much as the country spends on Medicare. National defense comes in at only 13 percent.
But while the national debt may seem bad theoretically, decades of dire warnings seem to have numbed many people to the problem. After all, America has the greatest economy in the history of the world.
While economic growth has helped America sustain these deficits, there are a few problems with that line of thinking. For one, the housing market looked stronger than ever at the beginning of 2007 — right before the bottom fell out. Another is that small changes in 1985 or 2005 could have fixed the problem. Today, necessary changes will be much larger and more painful.
This massive debt also carries an economic cost. Borrowing crowds out private investment.
“Less investment means slower productivity growth, which in turn means the living standards of future generations will be lower than they would otherwise be,” three Brookings Institution scholars warned in February 2025. They also noted the debt could spark “a global financial crisis that erodes asset values, destabilizes financial institutions, and pushes economies into recession.”
Those urging the public and politicians to bring down the national debt may seem like Cassandras. But it’s worth remembering that Cassandra was always right.
