Name: When Does the National Debt Become Genuinely Bad?
Uploaded: 2025-06-06T04:00:00Z
Duration: 7 min 36 s
Description: The U.S. national debt is nearly $30 trillion — but is that bad? WSJ explains how the debt affects everyone and when it becomes unsustainable.

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The U.S. national debt is nearly $30 trillion — but is that bad? WSJ explains how the debt affects everyone and when it becomes unsustainable. Photo Illustration: Kent Nishimura/Getty Images

https://m.wsj.net/video/20250606/edaca508-4d17-48f0-84c5-51b2abd55776/2/hls/manifest-hd-wifi.m3u8

The U.S. national debt is nearly $30 trillion — but is that bad? WSJ explains how the debt affects everyone and when it becomes unsustainable.

When Does the National Debt Become Genuinely Bad?

Narrator: After the big tariff announcement, something happened that shocked economists, and it wasn't the stock market dropping, it was the value of the dollar dropping. Usually in times of market turmoil, it increases because investors are flocking to the US for safety.

We saw exactly the opposite. Money fled from the US for safety instead of to the US for safety for the first time in my memory.

That was a sign that something was getting different and that people weren't just shifting between US assets, they were getting nervous about US assets.

And that was unprecedented, and something that woke up, I think, a lot of people, about the issues associated with the debt.

Narrator: That national debt was also one of the main reasons the US's credit ratings downgraded soon after.

It's not just people like me who've been talking about this for, you know, a couple decades. The economics is pretty clear.

Narrator: So, let's explain. If the national debt is concerning, when do we have to be seriously worried about it? But first, here's what the debt even is. Congress spends more than it brings in through tax revenue. For 20 years, we've had a budget deficit. 2020s' $1.8 trillion deficit was added to the combined deficits from the past years. This is the total running national debt. It's uh, a lot. But obviously, our economy now is bigger than back then. So here it is as a percentage of GDP. This is a better way of looking at it. It's still, uh, a lot. We're at World War II levels. And back then there was a good reason to go into debt. The US Treasury raised this money by selling bonds. ♪ Buy, buy, buy a bond ♪ ♪ You can be the guy that helps supply the guns ♪ ♪ And planes and tanks ♪

Narrator: They still do today. But most treasury securities that fund the debt aren't sold via celebrities. They're sold at auction to private investors, to foreign investors. Lots of companies and pension funds keep their money in US securities.

Some government debt is actually a good thing because it allows households to basically save in a low-risk asset.

Narrator: And sometimes it's necessary to go into debt.

Doug: Big recessions, we wanna maintain the standard of living. Pandemics. We borrowed a lot in the pandemic. Probably a really good thing to do in in 2020.

Maya: That's exactly when you want to be able to borrow. The problem is we borrowed when we weren't in the crisis.

Narrator: Which is how we got ourselves into a world war amount of debt. And carrying a large debt is concerning for a few reasons. For one, that's a lot of investors' money going to the government and not these other places.

When they buy a treasury security, they don't buy a corporate equity and give them money to a corporation to invest. They don't stick it in a savings account and have a bank loan it out to build a house. That $1.8 trillion is not available to whatever it may be that makes the economy more productive and allows us to live better. And that's why it matters to the average person. It's an opportunity that we're giving up by financing so much federal debt.

Narrator: Studies have found that if the debt were to go down to here by 2050, incomes per person would be nearly 7% larger.

The thing about the national debt is it affects basically everything in our economic lives, and then some, but we don't see it, we don't feel it, and many people don't realize it.

Narrator: And secondly, well, this is what the government spent in 2024. Social security and healthcare are obviously the big ones, but here, more than was spent on the military, more than everything else spent to run the government or interest payments on the national debt.

We have so much debt that we're borrowing to pay the interest on the previous debt. Well, that's like getting a new credit card to pay off the old one. And if you're doing that, you're in trouble.

So right now, if interest rates go up just one percentage point more than they're expected to, it adds about $300 billion in borrowing a year.

Narrator: So if some debt is good, but too much debt can be bad, when does it become bad, bad, like unsustainable bad?

If the publicly held debt goes above roughly 175% of GDP, things get pretty hard at that point. And 200% is really the drop dead limit. And the reason why is once you hit that limit, you couldn't possibly raise taxes enough at that point to meet the interest payments.

That's the Greek-Portugal meltdown scenario. And when that happens, number one, usually your economy's not in very good shape. So it's not generating a lot of income. So you can't tax it, you can't pay the debt. Suddenly, your interest rates go way up 'cause the borrowers want their money back. No one can afford anything. You get a recession on top of everything else, you're having to raise taxes to pay off the borrowers who are demanding their money, they don't care how you're doing, and it's a really, really bad situation. And one that should be avoided because it can be avoided. 'Cause once you're in there, there are no good choices.

So we did this as outer bound exercise, but some people ask when could things unravel before that? And the answer is, it could be tomorrow. As soon as capital markets believe that Congress and the President, they are not gonna get their act together, everything unravels, and it or unravels very quickly.

Narrator: Sure, this could be triggered when we just objectively borrow more than we can pay back, but whenever investors feel that the US isn't the safest place to put their money, they demand a higher interest rate. That's what happened after the tariffs when the dollar went down.

Doug: Dollars are only valuable if you wanna hold something that you buy with dollars. Now it would be treasuries.

And since the US Treasury has always, always paid its debt and interest on time, the US securities are considered the least risky investment, so they have the lowest interest rate of anything else on the market. So if interest on a US security goes up, so do mortgages. So do even the safest AAA-rated corporate bonds. Everyone in this market is affected.

It ripples through the entire economy in ways that hurts all of us.

Narrator: If this happened on a larger scale and interest rates really went up for everything, it could spiral into a fiscal crisis.

The problem with a debt crisis is that once it happens, you can't just debt your way out of it.

We might be able to borrow during the next crisis. All we know is we have less space to do so than we otherwise would have.

We're not there, we're not gonna be there tomorrow, but you know, I always tell people, "Look, there's no point in finding out how long the world will wait. Let's not run the experiment. Let's just fix the problem and avoid the crisis."

Narrator: Okay, how? How can the national debt be fixed? Some policy makers argue if the US economy does better, we can basically grow our way out of it. If more people make more money, that's more tax revenue, that's higher GDP, this ratio gets smaller. Economists say this could work if the debt wasn't already so big and spending wasn't also growing.

You can't grow your way out of this. Most spending is already tied to economic growth. You solve the fiscal problem, the spur economic growth.

Narrator: And experts say the solution to the debt is simple. Congress needs to spend less and bring in more.

We need to do some hard things. We need to honestly fix social security, which is headed towards insolvency. Same with one of the trust funds in Medicare, those require real choices. We do have to make changes to our welfare programs. We do have to look at how our defense procurement programs work and all the money that's wasted there. We do have to put discretionary spending caps on, and we do have to raise taxes. All of those things, which are like not popular political slogans, they have to get done.

We need a grand bargain that says, "Everything's on the table."

It doesn't have to be draconian, but it does have to be different than what we're doing now.

Narrator: So, is the debt bad? It's not until it suddenly is.

Some days the high-speed news cycle can bring more questions than answers. WSJ’s news explainers break down the day's biggest stories into bite-size pieces to help you make sense of the news.

When Does the National Debt Become Genuinely Bad?

News Explainers

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