U.S. National Debt Surpasses $34 Trillion: What Does This Mean For You?

Diccon Hyatt is a seasoned financial and economic journalist who has extensively covered the pandemic-era economy through hundreds of articles over the past two years. He specializes in translating complex financial topics into clear, accessible language, focusing on how economic trends affect personal finances and markets. His experience includes work with U.S. 1, Community News Service, and the Middletown Transcript.

Essential Points to Know

• The U.S. national debt exceeded $34 trillion on December 29, setting a new record.
• Experts remain divided on whether this level of debt is manageable or poses a significant risk.
• Rising interest rates have increased the federal budget portion dedicated to debt payments, matching last year's military spending.
• Despite higher payments, interest costs relative to the nation's economic output remain near historic lows.

The U.S. national debt, now a staggering 14-digit figure, continues to climb, sparking ongoing debate among economists and policymakers about the severity of the issue. On December 29, the Treasury Department confirmed the debt surpassed $34 trillion, marking an unprecedented milestone. As political parties prepare for budget negotiations, opinions vary on whether this growing debt signals a crisis or is simply a large number.

Economists like Dana M. Peterson, chief economist at The Conference Board, and Lori Esposito Murray, president of its Committee for Economic Development, argue the debt situation is already critical. When the debt reached $33.6 trillion in September, they warned of an impending crisis.

"The congressional debate over FY2024 spending has led to a historic breakdown in governance, a fractured budget process, the threat of default, potential government shutdowns, and risks to the U.S. credit rating," they stated. "These factors endanger U.S. global leadership and national security."

The primary concern revolves around the increasing interest payments on the debt. By November, servicing the debt consumed 16% of federal spending—comparable to defense expenditures. This rise follows the Federal Reserve's interest rate hikes, which reached a 22-year peak to combat inflation.

The government finances its debt mainly through Treasury securities, considered ultra-safe investments by both domestic and foreign buyers. Last year, as the Fed raised rates, yields on 10-year Treasuries surged past 5% briefly and currently hover around 4%, more than double pre-pandemic levels.

Conversely, some experts highlight these interest payments as manageable. The nation's economic output, measured by GDP, has grown alongside debt, enhancing the government's capacity to collect taxes and fulfill obligations.

Treasury Secretary Janet Yellen noted in a September CNBC interview, "The key metric I monitor is net interest as a share of GDP. Despite rising rates, this remains at a reasonable level near 1%."

Many view the national debt as a long-term challenge rather than an immediate emergency. The debt-to-GDP ratio, a critical indicator, stood at 119% in Q2, or 95% when excluding government-held debt like Social Security and Medicare obligations.

Economists from Penn Wharton School estimate that public debt reaching 200% of GDP—projected in about 20 years—would become unsustainable, beyond the reach of tax hikes or spending cuts to resolve.

For those concerned about future generations, University of Georgia economist William D. Lastrapes suggests a practical approach: invest in Treasury securities now to pass on to heirs, enabling them to manage future tax burdens without diminishing overall wealth.

"Buy Treasury securities with savings from current low taxes and bequeath them to your children," he advises. "They can use the principal and interest to offset higher future taxes, preserving their financial well-being."

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