US National Debt Surpasses $37 Trillion in 2025, Debt-to-GDP Hits 124%, Raising Fiscal Risks Through 2054

The United States’ gross national debt has now exceeded $37 trillion, a milestone reached far sooner than anticipated by earlier fiscal projections. This acceleration underscores persistent challenges in federal budgeting, driven by pandemic-era spending, economic stimulus measures, and ongoing fiscal deficits. As of the latest Treasury Department reports dated 12 August 2025, this figure highlights a trajectory that has outpaced estimates from the Congressional Budget Office (CBO) in January 2020, which forecasted the debt would not surpass this level until after the fiscal year ending in 2030. For investors, this development raises critical questions about long-term economic stability, interest rate pressures, and the potential crowding out of private investment.

Historical Context and Acceleration of Debt Growth

The ascent of US federal debt to over $37 trillion represents a significant escalation from pre-pandemic levels. In fiscal year 2019, the gross federal debt stood at approximately $22.7 trillion, according to Treasury records. The subsequent surge was fuelled by emergency measures to combat the economic fallout from COVID-19, including multi-trillion-dollar relief packages under both the Trump and Biden administrations. These initiatives, while stabilising short-term growth, have contributed to annual deficits averaging around $2 trillion in recent years.

What makes this threshold particularly noteworthy is its premature arrival. The CBO’s baseline projections from early 2020 envisioned a more gradual increase, with debt levels climbing to $37 trillion only in the early 2030s under assumptions of moderate economic growth and controlled spending. However, unforeseen events—such as the global health crisis, supply chain disruptions, and inflationary pressures—necessitated heavier borrowing. By fiscal year 2024, deficits had ballooned, pushing the debt-to-GDP ratio to around 124%, a level reminiscent of post-World War II highs but without the corresponding economic wind-down.

Analysts point to structural factors exacerbating this trend. Mandatory spending on entitlements like Social Security and Medicare, which accounted for over 60% of federal outlays in recent budgets, continues to rise with an ageing population. Discretionary spending, including defence and infrastructure, has also expanded, while revenue growth has lagged due to tax cuts enacted in 2017 and uneven economic recovery. The result is a compounding effect: higher debt leads to elevated interest payments, which in turn widen deficits further. Treasury data from 2025 indicate that net interest costs on the debt are projected to exceed $1 trillion annually by the end of the decade, rivalling expenditures on major programmes.

Implications for the Economy and Financial Markets

This rapid debt accumulation carries profound implications for economic policy and investor strategies. One immediate concern is the strain on fiscal sustainability. The CBO’s updated long-term outlook, as of June 2025, warns that without policy changes, federal debt could reach 166% of GDP by 2054, heightening risks of a fiscal crisis. Such scenarios could manifest through higher borrowing costs, as investors demand greater yields to compensate for perceived risk. Indeed, yields on 10-year Treasury notes have fluctuated above 4% in recent sessions, reflecting market unease over inflation and deficit financing.

From an investor perspective, the burgeoning debt influences asset allocation decisions. Fixed-income markets may face volatility if the Federal Reserve’s efforts to manage inflation collide with the government’s funding needs. Crowding-out effects could emerge, where heavy Treasury issuance absorbs capital that might otherwise flow to corporate bonds or equities, potentially dampening private sector growth. Equity investors, meanwhile, should monitor sectors sensitive to interest rates, such as real estate and utilities, which could underperform in a higher-rate environment driven by debt concerns.

Globally, the US dollar’s status as the world’s reserve currency affords some buffer, allowing the government to borrow at relatively low rates. However, sentiment from credit rating agencies remains cautious. Fitch Ratings downgraded US sovereign debt to AA+ in 2023, citing governance challenges and repeated debt-ceiling brinkmanship. Moody’s has maintained its Aaa rating but highlighted downside risks in its latest review dated July 2025. These assessments, explicitly marked as agency sentiment, underscore the need for fiscal reforms to preserve investor confidence.

Potential Policy Responses and Forecasts

Addressing this debt trajectory will require bipartisan action, though political gridlock has historically delayed reforms. Possible measures include revenue enhancements through tax adjustments, spending caps on non-entitlement programmes, or entitlement reforms to align benefits with demographic realities. The CBO’s analyst-led models suggest that balancing the budget by 2035 could stabilise debt at around 100% of GDP, assuming 2.5% annual GDP growth and inflation near 2%. However, more pessimistic scenarios, incorporating slower growth or higher interest rates, forecast debt exceeding $50 trillion by 2030.

Investor-grade forecasts from institutions like Goldman Sachs, as of their mid-2025 outlook, project annual deficits averaging 6–7% of GDP through 2030 without intervention. This could pressure the Federal Reserve to maintain accommodative policies longer, potentially fuelling asset bubbles. Dry humour aside, one might quip that the US is borrowing its way to prosperity—until the bill arrives. More seriously, these projections emphasise the importance of diversification for portfolios, favouring assets like inflation-protected securities or international equities less exposed to US fiscal risks.

Sectoral Impacts and Investment Considerations

Certain industries stand to benefit or suffer amid rising debt levels. Defence contractors, for instance, may see sustained demand as geopolitical tensions justify higher military spending, a key driver of recent deficits. Conversely, healthcare providers could face reimbursement pressures if entitlement reforms materialise. In the bond market, longer-duration Treasuries might offer value for yield-seeking investors, but only if inflation remains contained.

A table of historical debt milestones illustrates the acceleration:

These figures, drawn from Treasury and CBO historical data up to 14 August 2025, highlight the post-2020 spike. For context, the 2025 ratio, while elevated, remains below the 1946 peak of 118% during wartime borrowing, but today’s peacetime context amplifies sustainability concerns.

In summary, the surpassing of the $37 trillion debt threshold ahead of schedule signals a pivotal moment for US fiscal policy. Investors would do well to incorporate these dynamics into their theses, balancing opportunities in resilient sectors against the risks of unchecked borrowing. As the debt clock ticks onward, the path to resolution lies in prudent reforms—lest the burden become untenable.

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