US: The superpower in debt | Number Theory

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The US, under Donald Trump, has seen a lot of firsts. Most of them are seen by a large number of Americans and the outside world as negatives. However, there is one important metric, where Trump 2.0 has only continued with the existing trend. It is this bipartisan consensus which could well be the most defining driver of US’s global dominance or lack thereof going forward.

Image for representational purposes. (Pixabay)

The US today, continues to be a superpower, but a superpower which is increasingly under debt. If forecasts by the Congressional Budget Office (CBO) – it is a federal agency tasked with fiscal policy watch – are to be believed, US indebtedness is well on track to reach levels which are unprecedented in its history. This single dynamic will test the US much more than anything else in the new few decades. Here are four charts which explain the argument in detail.

US: The superpower in debt

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  US’s debt-GDP ratio is expected to reach 175% by 2056

  According to the latest forecasts issued by the CBO, federal debt held by the public in the US will rise from its current level of 101% to 120% by 2036. The 2036 debt-GDP ratio will be “higher than at any point in the nation’s history” and this will rise to 175% of GDP by 2056, the CBO says. Even after 2056 debt levels are expected to keep rising. For comparison, India’s is around 80%.
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  US’s rising debt servicing costs will put a squeeze on its ability to spend on other things

  Debt, whether acquired by a person, company or a country, has to be paid for. The US will not an exception. As the US’s debt-GDP ratio rises, it will have to allocate a larger part of its budget towards debt-servicing costs. CBO’s projections show that in 2036, the US would be spending more than double of what it has spent on average on interest payments between 1976-2025. The biggest loss of this rising interest burden will come on the US’s military spending. The US spent 4.1% of its GDP on defence between 1975-2025 compared to 2.1% on net interest payments. In 2036, the numbers will change to 2.4% and 4.6% respectively. Politics and demography will ensure that the US continues to spend a higher amount on social security and health care.
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  The AI hype notwithstanding, future growth outlook isn’t very bright

  While the CBO’s debt-GDP ratio projections have already factored this in, what is even more worrying for the US is that its future growth outlook is not going to be significantly better than what it has been in the recent past. CBO projections put the US’s potential growth rate for 2026-2030 and 2031-2036 at 2.1% and 1.8% respectively. The latter number would be the lowest for different periods in the history of the US since 1950, as shown in the CBO’s analysis. To be sure, part of the reason for this poor performance is a slowdown in the growth of labour force. Seen another way, this can also be interpreted in the manner of the US entering not just one of its lowest but also most unequal growth phases going forward. Reports already indicate a deepening crisis in even the white-collar US job market even as manufacturing jobs continue to disappear despite Trump tariffs.
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  Inflation might help the debt burden, but it will hurt politically

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