US national debt: From $50,000 per newborn to over $120,000 per capita

From now on you will enjoy the rights and freedoms of this country. But you also take on some of his problems. Mathematically, you already have $50,000 in national debt.

These were the words that began a television ad in 1985 that symbolically welcomed newborns as new citizens of the United States. The message: The national debt affects every American. The baby reacts with loud cries.

Today that child would be 41 years old. And the US national debt has now exceeded the $40 trillion mark. Mathematically, this means that every resident of the United States owes around $120,000. For comparison, per capita debt in Germany is the equivalent of around $34,000.

From budget surplus to permanent deficit

The situation once looked significantly different. At the end of the 1990s, the US government even ran budget surpluses under then-President Bill Clinton. At that time it seemed possible to reduce the debt level in the long term.

But in the decades that followed, things changed. Wars, economic stimulus programs, Corona aid, rising social spending and tax cuts caused deficits to grow while government revenues did not keep pace.

Labor market economist Kathryn Anne Edwards criticizes the current practice of taking on debt and criticizes the current practice of taking on debt: "We are not building a nationwide highway network, are not fighting climate change and are not investing in the next generation." In other words: A growing portion of new debt is not flowing into projects that could bring economic returns in the future.

The real concern: interest costs

Economists are therefore paying particular attention to the development of interest expenditure. According to current estimates, the US government will pay more than $1 trillion in interest alone in 2026. This corresponds to around 2.7 to 3 billion dollars every day. Interest costs now exceed defense spending and exceed many other major budget items.

In addition, investors are now demanding higher returns in order to finance the American government. Interest rates on US government bonds have risen significantly since the beginning of the year, especially for medium and longer terms. Every new bond issued makes the state's financing more expensive.

The problem worsens itself: the higher the mountain of debt, the greater the annual interest payments. And the higher the interest payments, the less money remains for education, infrastructure, research or other future investments.

Why the USA still remains solvent

Despite the record debt, an immediate default by the United States is considered unlikely. The most important reason: The USA takes on most of its debt in its own currency, the dollar.

Unlike countries that have to borrow in foreign currencies, the United States has the option of repaying its debts in dollars. In an emergency, the US Federal Reserve can provide additional liquidity. That doesn't mean that debt is without consequences. But this significantly reduces the risk of a classic national bankruptcy.

That's why many experts don't see the absolute level of debt as the greatest danger, but rather that financing costs continue to rise and make up an increasing part of the federal budget.

A problem with no easy solution

There is no consensus in Washington about the right way out of the debt trap. Former economic advisor Jason Furman boils down the options to a simple formula: "There are only two solutions: cut spending, raise taxes, or a combination of both." Many economists assume that both will be necessary in the long term.

Carolyn Bourdeaux from the Concord Coalition, a non-partisan US initiative for sustainable government finances, is among those who issue particularly urgent warnings. In their view, if the rise in debt gets permanently out of control, significantly higher interest rates, persistent inflationary pressure or other economic distortions could result.

Whether the USA is actually heading towards such a crisis is controversial among experts. But there is agreement on one point: the longer Washington postpones necessary reforms, the larger the portion of the federal budget will have to be spent on past debts instead of being invested in the country's future.