The National Debt and Gross Domestic Product
Should You Be Worried About Rising Debt-to-GDP?
You often hear concerns about growing government debt—many argue it's one of the biggest threats to a country’s economy. But the truth is: debt isn’t inherently a problem... until it becomes too big to manage. This applies not only to governments but individuals and corporations alike.
Debt in Perspective
Let’s start at the personal level. If someone has $10,000 in credit card debt, it might not be a big issue if they earn $500,000 a year. But it’s a very different story if their income is just $40,000. The higher your debt compared to your income, the more unsustainable it becomes.
The same principle applies to countries. In the U.S., the government's “income” is measured by its Gross Domestic Product (GDP)—the total value of goods and services produced. As of now, the U.S. GDP is around $21 trillion, while the national debt is approximately $23 trillion, putting the debt-to-GDP ratio at around 107%–109%.
How Does That Compare Historically?
We're on the high end of the spectrum historically, but not in uncharted territory. After World War II, in 1946, the U.S. debt-to-GDP ratio peaked at 119%. From 1940 to 1970, it averaged closer to 62%, and dipped as low as 32% in 1981.
Looking ahead, the Congressional Budget Office (CBO) projects deficits will continue every year for the next 30 years. By 2049, debt could reach $100 trillion—or 147% of GDP. And the U.S. isn’t alone. Japan’s government debt has hovered above 200% of GDP for years, with relatively little panic since most of it is domestically owned. On the other hand, Ukraine defaulted when its debt was just 30% of GDP.
What Happened to the “Debt Crisis”?
In 2010, concern over national debt reached a fever pitch. Admiral Mike Mullen, then Chairman of the Joint Chiefs of Staff, even called it the “biggest threat to national security.” This eventually led to a government shutdown and the loss of the U.S.’s AAA credit rating—yet beyond the headlines, not much changed.
The Real Threat Might Be Elsewhere
Fearing high national debt isn’t irrational—but it may be misplaced. While we debate government borrowing, the real sleeping giant might be the corporate debt weighing down U.S. businesses.
Unlike the federal government, corporations can’t print money.
If American Airlines or another major company can’t manage its debt, there’s no printing press to bail them out.
In fact, non-financial corporate debt has more than doubled in the last decade—from $37 trillion to $75 trillion—a much faster pace than government borrowing.
Why Has Corporate Debt Exploded?
It actually makes sense. Interest rates have been historically low, and the pressure for quarterly performance is relentless. But here's the kicker: many executive bonuses are tied to metrics like earnings per share (EPS).
So what did many CEOs do? They borrowed cheap money and bought back their own stock, which reduced the number of shares outstanding. Fewer shares mean a higher EPS—without actually improving the company’s performance. This made financial metrics look better… and made bonuses bigger.
The end result? Corporate America loaded up on debt—not to invest in innovation or growth, but often to pad paychecks and buy beach houses.
Bottom Line
Government debt deserves attention, but corporate debt may be the real risk flying under the radar. With the potential for economic shifts on the horizon, it's worth keeping a close eye on the debt habits of the private sector, not just the public one.