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The US National Debt with Taylor St. Germain

April 16, 2021

How have recent stimulus bills and other trends impacted the national debt, and what doe that mean for the economy? Catch our newest TrendsTalk episode with ITR Analyst and Speaker Taylor St. Germain to learn more.



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Transcript by Rev

Hi, everyone. My name is Taylor St. Germain. I'm an analyst at ITR Economics. And thank you so much for joining me on this episode of TrendsTalk. Today, I wanted to discuss the US National Debt. We've received a lot of questions about the national debt especially with the passing through of numerous stimulus bills throughout this last year as well as the proposed infrastructure bill. Currently, at this point in time, the time of this recording, our debt-to-GDP ratio is 134.5% here in the United States. What I mean by that is our government debt is currently 134.5% of our GDP. The reason that number is significant is that is a new record high. If you look back to the last time we saw a peak in the debt-to-GDP ratio at a similar level, it was World War II. And we came in just below 130% throughout that time.

So I think that's a big reason why this conversation is coming back up because the US is now at a record debt-to-GDP ratio. But the question is, should we be concerned about this in the near term? And my answer to you is no, this is not a near term concern. Especially with the low interest rate and relatively low inflationary environment when we look at the long run. And you've probably heard similar sentiment from our federal reserve and the various governors and the chairman for the federal reserve that even though we have a much higher level of US debt because interest payments are low, we can afford that minimum interest payment on the US debt and we're not concerned about the trajectory of the US economy at least in the near term.

Where this comes to fruition for us in terms of a downside as it relates to the public debt as we look out to 2029 and 2030 timeframe. Depending on your familiarity with ITR Economics, you're probably aware of a 2029-2030 economic downturn. Our President and CEO wrote a book called Prosperity in The Age of Decline, all about this economic recession, depression even, that we're expecting in 2029, 2030. And that's where the level of debt becomes concerning for all of us at ITR Economics. It's not in the near term, it's in the longer term. And some of the reasons for that are we expecting much higher inflationary environment. When we look at particularly the second half of this decade as we get closer to that 2029-2030 timeframe, demographic trends play a key factor there. When we think about the size of the baby boomer generation, the social security payouts, the healthcare cost, as those baby boomers continue to get older and move into those later years of their lives, we see much higher levels of inflation coming our way which of course translates to higher interest rates.

And the federal reserve has already hinted at that with the longer run interest rate projection with rates being much higher in that five to 10 year future than where they are right now. So the level of debt is concerning, but it's not going to trigger some economic catastrophe at least here in the near term from our perspective. It continues to remain a long-term perspective. So there's still a lot of growth to take advantage of over these next five years. And yes, the debt situation continue to get worse in terms of our debt-to-GDP ratio or our federal debt per capita. Yes, we do expect to see the debt climb. But remember, the variable is that inflation piece. Once we see higher inflation, much higher than where we're at right now, then we'll start to see that interest rate rise and that's what makes those interest payments on the federal debt become more concerning. And again, one part of that puzzle that leads to the 2030 downturn.

So, I know we all like to talk about national debt. It's certainly a great cocktail conversation. But our concerns are largely mitigated here in the near term. We're still concerned about that seven to 10 year future as it relates to this level of debt. So, don't be afraid of debt. Don't be afraid of the economic outlook as we look out over these, the first half of the 2020s. There's a lot of growth coming our way even in the face of higher national debt. Take advantage of this growth so when debt and inflation do become an issue as we approach 2029 and 2030, we've had a plenty of time to prepare and grow and be ready for the downturn that's coming throughout that time.

Again, for more information, please read Prosperity in The Age of Decline. Our President and CEO did a great job writing that book. It's a very fascinating read. And I think it's important for all, from a business standpoint but even a personal standpoint that we're ready for what comes deeper into the future. More to come on 2030 with ITR Economics, but for now I'm signing off. I'm Taylor St. Germain and thanks for joining me on this episode of TrendsTalk.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.