In 2007-08, when the country faced high unemployment and low inflation, Tea party and other conservatives wanted to implement austerity measures, even though the economics of the situation argued against it. At present, 2025, the economic rationality in the national budgeting and debt requires trimming down the budget deficit that has grown enormously, to the tune of almost $840 billion. The debt to GDP ratio in Q4 2010 was 91.612% and increased to 125.73% in Q4 2020. However, it slightly decreased to 121.85% in Q4 2024 (St. Louis Fed, March, 27, 2025).

Interest on the debt in 2024 was $892 billion, 13% of total expenditure and 3% of GDP. Peterson Institute for International Economics, January 22, 2025, states that Congressional Budget Office (CBO) projections show that net interest cost would increase from $953 billion in 2025 to approximately $1.8 trillion in 2035.

However, it must also be noted that inflation-adjusted interest rate (real interest rate) is lower than the nominal (not adjusted for inflation) interest rate, since real interest rate is nominal rate minus inflation rate. Penn Wharton Model of the University of Pennsylvania, October, 21,2021, projects that 2.5 percentage of inflation target reduces national debt by 4.2% in 2031, 3.7% in 2041 and 3.2% in 2051.

High national debt may result in crowding out of private investment when investment is directed to buying Treasury securities rather than investment projects. It tends to reduce private capital stock, productivity and economic growth.

If the government raises debt to finance investment in public capital projects, it will lessen crowding out by providing incentives for private investment and thus accumulation of private capital stock. Increase in productivity and growth would also put the government budget and national debt on a fiscally sustainable path.

It is imperative that the country’s budget and debt achieve a sustainable fiscal capacity path, if greater future demands for Income Security, Medicare, Medicaid, National Defense and other urgent social expenditures are being met.

Tax revenues are never enough to meet all the spending requirements placed on the federal budget. Hence, great burden of excess federal spending falls on national debt.

At present, CBO projects interest cost of 3.2% of GDP in 2025. It is projected to increase to 4.1% of GDP in 2035. Such an increase in interest costs is on an unsustainable path since it is much higher than the projected economic growth needed to finance it.

Most national debt is financed by issuing Treasury securities. Most debt is held by the Federal Reserve, domestic investors, financial institutions, pension funds, corporations and individuals. Among foreign nations, China is the largest holder of Treasury securities.

When Federal Reserve’s national debt holdings increase it poses a risk in conducting monetary policy, especially when there is economic and political uncertainty. Hence, foreign buyers may want a higher risk premium on Treasury securities’ yield (rate of return), which tends to increase other interest rates.

Also, national debt may become a burden on future generations if taxes have to be raised to finance the debt. Since, in general, Treasury securities holders are richer, then higher taxes may cause transfer of income from low and middle income people to richer people. This may cause a decrease in aggregate consumption expenditure, the main driver of output and growth.

Penn Wharton Model states that a large amount of “currently outstanding debt” is in nominal terms and a very small percentage is in terms of inflation indexed bonds. Therefore, very high national debt that creates inflationary pressures decreases the asset value of bond holders (reduction in wealth) that hold non-inflation indexed bonds.

In his Wall Street Journal article, February 22-23, 2025, Niall Ferguson poses an even more alarming scenario of rising national debt. He argues that political scientist Adam Ferguson’s “law” states that when service cost on debt — including interest payment and repayment of the principal — exceeds defense spending, including research and development spending, it threatens national security. According to Niall Ferguson the US is now in violation of this law.

However, according to my research of Bureau of Economic Analysis data for 2025, consumption expenditures and gross investment on national defense are close to $1.111 trillion, while interest cost nears $953 billion. We are coming closer to the violation of the Law. It may happen in the near future.

Professor Oliver Blanchard proposes that to stabilize debt (accumulated deficits) Federal Government must start reducing the deficit. To reduce deficits it must have “primary surplus”, the difference between taxes and spending, to pay for the interest payments on the existing debt.

It seems that Congress should start paying close attention to the escalating national deficits each year and to the national debt. It should pay close attention to the problems increasing debt poses to the country. They should think about the national welfare, rather than narrowly focus on their own Congressional Districts or State.

Vijay K. Mathur is a former chair and professor of economics and now professor emeritus in the Department of Economics at Cleveland State University in Cleveland, Ohio. He resides in Ogden, Utah.