top of page

How sustainable is the U.S. National Debt?

The national debt ceiling is being debated once again as Speaker McCarthy and President Biden negotiate on raising it to prevent what Biden describes as “an unprecedented default would inflict needless economic pain on hard-working Americans.” As the United States is at its debt ceiling, it can’t borrow money to fulfill “its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.” This could also trouble the American financial sector since many banks and other financial institutions use Treasury Bonds to invest their money at a minimal risk guaranteed by the federal government. However, the United States would likely address paying the interest on the bonds just as they did with Silicon Valley Bank earlier this year. Primarily because a default on the national debt would reflect poorly on the federal government amongst voters even when considering Biden’s average approval rating of around 40% and his possible reelection campaign.

Source: Pew Research Center

Under the Obama administration, a few debt crises occurred as Republicans controlled the House and made demands in return for raising the debt ceiling. The first was in 2011 when House Republicans requested limits in spending in exchange for allowing an increase in the debt ceiling; leading to the Budget Control Act resulting in spending cuts and a higher debt ceiling. Two years later, House Republicans insisted on conditions, such as repealing certain Affordable Care Act clauses, to raise the debt ceiling again. However, Obama refused to negotiate and a majority of the House later voted to raise the debt ceiling without any negotiations passing. This occurred as a government shutdown occurred due to a new federal budget not being enacted and Congress was pressured to concede to Obama’s insistence. While both of these occurrences were chaotic to the public and the financial sector, the United States didn’t default on its debt during these times.

Source: Pew Research Center

Since the 2000s, America has managed to spend less than 10% of the federal budget on debt interest payments despite paying similar amounts in the 1980s and 1990s. (Note: The actual figures for 2022 are 8.15% and $735 billion) This was made possible by decreasing the average bond’s interest rate. Thus making interest payments cost less for every dollar borrowed. So, U.S. politics has managed to avoid defaulting. This is because politicians are incentivized to not be responsible for defaulting on debt that could ultimately underfund programs, such as Social Security, to maintain their voter approval to win reelection campaigns. If America does reach a default, voters may be outraged similar to how French citizens now react to raising the retirement age. Therefore U.S. politics has a chance to prevent it.

Now when looking at McCarthy’s and Biden’s ambitions, they both care about lowering government spending as Biden seeks to lower budget deficits and McCarthy wants to get rid of “wasteful Washington spending.” This may go down like it was under Obama in 2011 with spending reductions done. But, it could alternatively work with no negotiations since Biden stated that he wouldn’t negotiate. In short, America’s ability to pay off its national debt is highly dependent on Congress and the President at least agreeing to a workable debt ceiling and a budget with some fixed spending.


Rated 0 out of 5 stars.
No ratings yet

Add a rating

Subscribe to The Lake Street Review!

Join our email list and get access to specials deals exclusive to our subscribers.

Thanks for submitting!

bottom of page