U.S. Economy – Debt and Deficits

Debt and Deficits

We’ve seen several articles and news stories recently about the debt and deficits in the U.S. economy. Much of this recent reporting is likely driven by the high levels seen for both deficit and debt and comparing those amounts to history. In this issue of Financially Speaking, we want to investigate these terms, what they mean, and how they affect the general economy. As always, we are open to any questions or suggestions any of our readers may have.

Definitions of Debt and Deficits

Let’s start with the simpler of the two definitions: the budget deficit. A deficit is the outcome of the Federal government when outgoing payments (outlays) exceed the total money collected (revenues). If outlays were smaller than revenues, the budget would experience a surplus. Budgets are most often measured over a select period of time, such as the government fiscal year, which runs from September to September each year.

Debt, on the other hand, is the total running accumulated amount of money the Federal government owes. Budget deficits generally lead to higher government debt levels because the U.S. government must borrow funds to make the deficit payments above the revenue collected. Debt is a bit more complicated because government debt comes in two flavors: publicly held, which is considered a marketable security and can be bought and sold as desired by the public. Non-publicly held debt, also called Intragovernmental debt, as implied, is when one government agency owes the debt to another agency. This debt is almost exclusively non-marketable, meaning those borrowers don’t have a choice to buy or sell the security. Intragovernmental debt is relatively small in comparison to the total debt load. Even though Intragovernmental debt has the U.S. Government as both the lender and creditor, it is included in the total debt. One way or another, these agencies have to pay their debts. We will focus on total debt, including publicly held and intragovernmental debt.

U.S. debt is issued in Treasury Notes, Bonds, Bills, Inflation Protected Securities, and Floating Rate Notes. All of these are sold to investors expecting to get the ongoing interest payments from them. No security in the world is more trustworthy and reliable than U.S. government debt. And that is why the U.S. can continue to sell its debt to investors.

Current Status

The latest data regarding the U.S. deficit is for fiscal year 2023, which ended in September 2023. At that time, the U.S. deficit was $1.7 trillion. Total spending was $6.13 trillion, and revenues collected were $4.44 trillion. The $1.7 trillion deficit equals about -6.2% of the total Gross Domestic Product (GDP) of $27.36 trillion for fiscal year 2023. This amount is considered large by historical standards, and here again, it is likely leading to the articles we’ve seen recently. Fiscal year 2022 had a deficit to GDP ratio of -5.4%, and 2019 was -4.6% of GDP. In a more normal year, such as 2015, the deficit was only -2.4% of GDP. The COVID-19 pandemic was bad for deficits, with 2020 coming in at -14.7% of GDP and 2021 at -12.1%. These amounts were due to the combination of large government surplus spending during the pandemic and lower GDP amounts due to the economic impact of the pandemic.

Due to these large deficits, the total U.S. debt is growing. The total debt for fiscal year 2023 was $33.1 trillion, or 121% of GDP. Debt levels greater than 100% of GDP are considered less than ideal. For fiscal year 2022, the total debt was $30.9 trillion, or about 6.6% lower. Going back to pre-pandemic 2019, the total debt was $22.7 trillion, about 31.4% lower than the fiscal year 2023.

How Does This Affect the Economy?

Deficits and debt can have both short-term and long-term effects on the general economy. But that is a more detailed conversation for another day. For now, we want to focus on the one clear area where these factors come together: the interest payments owed by the U.S. government on its outstanding debt.

Remember, U.S. debt pays an annual interest rate to investors, which is why they buy it in the first place. Also, remember that for the government to sell its debt, it must offer a competitive interest rate. No investor will buy U.S. debt if it pays less interest than other reasonably reliable vehicles, such as money markets or foreign sovereign debt. So, as interest rates have increased over the last two years to fight the post-pandemic inflation, the interest rate on U.S. government debt has increased, raising interest payments.

The latest U.S. government interest payments figures are for Q1 2024, when the interest payment bill was $1.05 trillion. Compare that to the interest payment due in Q3 2020 of $508 billion. Then, go back to Q1 2017, when the interest payment was $460 billion. That’s about 9.4% lower than Q3 2020 and 56% lower than Q1 2024. These larger interest payments directly affect total payments for the U.S. government and thus directly affect the deficit. As those interest payments go up, all else being equal, the deficit also increases. The larger deficit then requires more debt to service it, and the larger debt drives the interest payments up even higher. It’s a bit of a vicious cycle that will be hard to break until we see interest rates decline, government debt shrink, or some combination.

All the best,


Deficit to GDP – https://tradingeconomics.com/united-states/government-budget
U.S. GDP – https://www.bea.gov/news/2024/gross-domestic-product-fourth-quarter-and-year-2023-second-estimate#:~:text=Current%2Ddollar%20GDP%20increased%206.3,(tables%201%20and%203).
U.S. Deficit – https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/
U.S. Deficit – https://www.thebalancemoney.com/us-deficit-by-year-3306306
Debt Interest Payments – https://fred.stlouisfed.org/series/A091RC1Q027SBEA

Barron Financial Group, LLP is a fee-only Registered Investment Advisor regulated by the Securities and Exchange Commission.

This newsletter is for general information only and should not be considered investment advice.  Investors should consult with a trained investment professional to discuss their particular situation.

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