Recent debt increases have been fueled by massive fiscal stimulus such as the Loi CARES ($ 2.2 trillion as of March 2020), the Consolidated Appropriation Act ($ 2.3 trillion as of December 2020), and more recently the American rescue plan ($ 1.9 trillion as of March 2021).
To see how U.S. debt has reached its current level, we’ve created an interactive timeline using data from the Congressional Budget Office (CBO). Crucially, the dataset uses publicly held US national debt, which excludes intergovernmental holdings.
* Editor’s Note: This higher-level figure includes intragovernment assets, or the estimated $ 6 trillion in government debt to itself.
What influences American debt?
It should be noted that the national debt has not always been so large.
Looking back 150 years, we can see that its size relative to GDP has fluctuated considerably, hitting multiple highs and lows. These movements generally correspond to events such as wars and recessions.
|Decade||Gross debt at departure
|Avg. Debt held by the public
Throughout the decade
(% du PIB)
|1910||–||10,0%||First World War|
|1920||–||22,9%||The great Depression|
|1930||16 $||36,4%||President Roosevelt’s New Deal|
|1940||40 $||75,1%||The Second World War|
|1950||257 $||56,8%||korean war|
|1960||286 $||37,3%||Vietnam War|
|1970||371 $||26,1%||Stagflation (inflation + high unemployment)|
|1980||908 $||33,7%||President Reagan’s tax cuts|
|1990||3 233 $||44,7%||gulf war|
|2000||5 674 $||36,6%||September 11 attacks and the global financial crisis|
|2010||13 562 $||72,4%||Congress raises debt ceiling|
|2020||27 748 $||105,6 %||Covid-19 pandemic|
Source: CBO, La Balance
To better understand the history of the US national debt, let’s review some key economic events in US history.
The great Depression
Following its victory in World War I, the United States experienced a period of post-war prosperity commonly referred to as the Roaring Twenties.
This led to the creation of a stock market bubble that finally burst in 1929, causing massive damage to the US economy. The country’s GDP has been halved (in part due to deflation), while the unemployment rate has risen to 25%.
As a result, government revenues fell, pushing debt held by the public as a percentage of GDP from its low of 15% in 1929 to a high of 44% in 1934.
The Second World War
World War II quickly brought the United States back to full employment, but it was an incredibly expensive endeavor. The total cost of the war is estimated at over $ 4 trillion in today’s dollars.
To fund its efforts, the United States has relied heavily on war bonds, a type of bond that is marketed to citizens during armed conflict. These bonds were sold in various denominations ranging from $ 25 to $ 10,000 and had an interest rate of 2.9% compounded semi-annually.
More than 85 millions The Americans bought these bonds, helping the US government to raise $ 186 billion (unadjusted for inflation). This pushed the debt above 100% of GDP for the first time, but was also enough to cover 63% of the total cost of the war.
The post-war period
After World War II, the United States experienced robust economic growth.
Despite involvement in the Korean and Vietnam wars, the debt-to-GDP ratio fell to a low of 23 percent in 1974, largely because these wars were financed by raising taxes rather than borrowing.
The economy finally slowed in the early 1980s, prompting President Reagan to cut taxes on high-income corporations and individuals. Top income taxes, for example, have been reduced from 70% to 50%.
2008 global financial crisis
The global financial crisis served as a precursor to today’s debt landscape.
Interest rates were brought down to near zero levels to accelerate the economic recovery, allowing the government to borrow with relative ease. Rates remained at these abolished levels from 2008 to 2015, and the debt-to-GDP ratio fell from 39% to 73%.
It is important to note that even before 2008, the US government had consistently run annual budget deficits. This means that the government spends more than it earns each year on taxes.
National debt today
The COVID-19 pandemic has damaged many areas of the global economy, forcing governments to dramatically increase spending. At the same time, many central banks have again reduced interest rates to zero.
This has resulted in a growing snowball in public debt that shows little sign of decreasing, even though the worst of the pandemic is already behind us.
In the United States, federal debt has reached or exceeded World War II levels. If we exclude intragovernmental assets, it now stands at 104% of GDP and, including these assets, it stands at 128% of GDP. But while the debt is expected to increase even further, the cost of servicing that debt has in fact decreases during the last years.
This is because existing government bonds, which were originally issued at higher rates, are now maturing and being refinanced to take advantage of today’s lower borrowing costs.
The main takeaway is that the US national debt will remain manageable for the foreseeable future. Over the longer term, however, interest costs are expected to rise significantly, especially if interest rates start to rise again.