For the first time in history, the gross national debt held by the U.S. treasury has topped $31 trillion. To give a better idea of the scale of the debt, according to the Peter G. Peterson Foundation, the government currently holds the equivalent of $93,000 in debt for everyone in the U.S. but what does that really mean?
"Simply put, the national debt is similar to a person using a credit card for purchases and not paying off the full balance each month," the Treasury Department says on its site. "The cost of purchases exceeding the amount paid off represents a deficit, while accumulated deficits over time represents a person's overall debt."
Basically, governments run what is called a deficit when they spend more money than they bring in via taxes, and that deficit is covered by various types of lenders. Running a deficit is common for governments around the world and is not necessarily a bad thing. After all, tax revenues vary from year to year, and governments sometimes have to make up for thin periods.
"Whenever you hear someone say, 'The government should be run like a company: Your revenues have to exceed the amount you spend,' you should stop listening, because that's not how companies are run," writes NPR's Planet Money.
In addition, while governments often spend more each year than they bring in, national economies are also expected to grow each year, meaning that increased tax revenue can go towards keeping the national debt low. In keeping with that idea, President Joe Biden's administration expects that the size of the national debt will recede relative to the size of the economy.
"The key issue is fiscal sustainability: the ability of a government to pay off its debt in the future, essentially by shifting its current obligations onto future taxpayers," Planet Money continues.
However, if debt accumulates too quickly, there can be negative consequences. In the past few decades, the American debt has ballooned thanks to spending on the Afghanistan and Iraq Wars, borrowing during the Great Recession in 2008, and assistance during the COVID-19 pandemic. The pandemic alone resulted in a 50% increase in spending by the government.
"Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt," the Treasury states.
In theory, as America borrows more money, the global community loses confidence in the country's ability to pay back those loans, leading to more inflation and even higher interest rates.
Already, interest rate hikes from the Federal Reserve have contributed an estimated $1 trillion in additional interest payments on U.S. debt. The more the government has to spend to pay off its debt, the less it will have to spend on public support.
"Growing debt also has a direct effect on the economic opportunities available to every American," writes the Peterson Foundation. As private investments decrease, "workers would have less to use in their jobs, which would translate to lower productivity and, therefore, lower wages."
Inflation also decreases the value of the U.S.'s existing debts as wealth is transferred from holders of U.S. government debt - who include both Americans and non-Americans - to U.S. taxpayers," according to the Federal Reserve Bank of St. Louis. However, that inflation is also expected to make borrowing more expensive.
"While a surprising burst of inflation immediately reduces the real value of a borrower's debt burden-transferring wealth from lenders to borrowers-it is also likely to raise future borrowing costs because investors will then expect higher inflation and demand higher nominal yields on debt," the bank wrote in a blog.