The United States’ Debt: A Critical Analysis

Vijay Srivathsan
Sep 6, 2025
6 min read

Updated: Sep 13, 2025

At first glance, a number like $36 trillion, the size of the United States’ national debt in 2025, feels almost unreal. It’s so massive that it’s hard to even imagine it. For many of us in India, this might seem like a faraway concern, something that only economists in Washington, D.C. need to worry about.

But here’s the catch: in today’s interconnected world, debt isn’t just a domestic issue, especially when it belongs to the world’s largest economy. So what exactly is this US debt all about? Why does it keep growing? Why does the US’ president fight with the world’s richest man over this topic? And more importantly, why should we, sitting thousands of kilometres away, care? Let’s find out.

What is the U.S. National Debt?

To understand the full picture, we must begin with the basics: what exactly is the U.S. national debt, and how is it structured?

The US national debt is the total amount of money that the federal government owes to the creditors. It is split into two main categories:

Public Debt: Money the government owes to external investors, including individuals, corporations, and foreign governments.
Intragovernmental Holdings: Money the federal government owes to itself, such as funds borrowed from Social Security or Medicare trust funds. The debt accumulates when the government runs a budget deficit; spending more than it collects in taxes and other revenues.

Historical Context

To make sense of the current debt levels, it’s important to explore how the U.S. got here in the first place. The debt story spans decades and is shaped by major events.

Since the founding of the USA, debt has been a recurring feature of fiscal policy. Major wars, economic crises, and public investment have driven debt upward. However, it’s in the last two decades that debt levels have grown dramatically:

2000s: Tax cuts and post-9/11 military spending increased deficits.
2008–2009: The Great Recession prompted massive stimulus spending and bailouts.
2020–2021: COVID-19 relief measures added trillions in emergency spending.

As a result, US debt as a share of GDP has surged, from about 55% in 200, to over 120% today.

Why Does the Debt Matter?

While debt in moderation can help economies grow, ballooning debt brings with it a set of serious consequences — especially when not managed properly.

Crowding Out Private Investment
High debt can lead to higher interest rates in the long run, which may discourage private investment by increasing borrowing costs.
Interest Payments and Fiscal Flexibility
As the debt grows, so do interest payments. In 2024, the U.S. paid over 1 trillion USD in interest alone. That’s more than it spends on defense or Medical aid, leaving less room for future spending or emergency stimulus.
Dependence on Foreign Creditors
A significant portion of US debt is held by foreign entities, including China and Japan. While these countries benefit from holding safe US assets, heavy foreign ownership can introduce geopolitical risk.

As global concerns rise about debt sustainability, key figures like Gita Gopinath have weighed in with nuanced perspectives on trade policy and fiscal impact. Gita Gopinath acknowledged that it will take some time before the full effects of recent developments based on Trump’s truce with China on tariffs are reflected in economic data.

She noted that having lower average tariff rates than previously assumed in April—when the IMF had downgraded its growth forecast for the U.S. and other countries due to Trump’s tariff policies—is certainly a positive sign. However, she cautioned that there remains a high level of uncertainty, and it is still unclear what the final tariff rates will be.

DOGE Cuts

In an unexpected move, Donald Trump appointed Elon Musk to lead a federal task force aimed at cutting government waste.

The Department of Government Efficiency, DOGE for short, was set up by Trump on January 20th, 2025, and led by Elon Musk, is a temporary federal task force tasked with slashing government waste, contracts, and jobs, via executive authority, embedded within agencies like Treasury and OMB (Office of Management and Budget).

Effect on National Debt

Though the DOGE task force claimed ambitious savings, its real-world impact on the national debt is still up for debate, with many criticizing the way it has gone about spending cuts.

Despite DOGE’s headline figure, currently $180 billion claimed in savings, overall federal spending actually rose by ~$166–196 billion year-over-year, driven by defense, and immigration costs. In short, DOGE cuts were meaningful but dwarfed by other expenses.

Even with DOGE’s claimed cuts, the federal deficit continued to grow, contributing to the national debt. That’s because major cost drivers like Social Security, Medicare, and defense weren’t touched.

Without significant cuts to entitlement/defense or structural tax policy changes, DOGE’s action is not sufficient to bend the debt curve. Experts describe it as a small “$2-off gas card” while the country is buying a $250k Ferrari. This excessive spending eventually led to the ugly fallout between Trump and Musk, with the latter displeased with the new “Big-Beautiful Bill”, which is set to further increase spending to new heights.

Global Implications: Why Should India Care?

At this point, you might wonder — how does America’s debt mess affect us in India? The truth is, quite a lot.

When the US government takes on a lot of debt, it often borrows more money by selling bonds. This pulls global money into the US, making it harder and more expensive for countries like India to borrow money or attract investments. As a result, India might see its currency weaken, face rising interest rates, and struggle with capital moving out of the country. This can slow down economic growth and make it harder to fund development projects.

Rising US debt can also lead to inflation or economic uncertainty around the world. If the US prints more money or struggles to manage its debt, prices for things like oil and imports can go up in countries like India. This raises costs for people and businesses. In extreme cases, fears about US debt can shake global markets, hurting the economies of many other countries, especially those connected to the US through trade and investment.

Is All Debt Bad?

Before sounding the alarm, it’s essential to understand that not all debt is created equal.

Not all economists see high debt as an immediate concern. Modern Monetary Theory (MMT) argues that countries like the U.S., which borrow in their own currency, face no default risk—they can always “print” more money.

Historical examples, like Japan, which maintains a debt-to-GDP ratio above 250%, show that high debt doesn’t always trigger a crisis, especially when inflation and interest rates remain low.

To fairly assess the U.S. debt, we must consider the context: what the debt is funding, and whether it’s sustainable over time.

Debt, in itself, is not inherently bad. It becomes problematic when it overflows the economy’s ability to manage or repay it. The key is the debt-to-GDP ratio, not the absolute amount of money.

Moreover, borrowing to fund productive investments, like infrastructure, education, and research, can yield long-term economic benefits that outweigh the costs of debt.

Potential Solutions

Fixing the national debt isn’t simple, but many credible suggestions have emerged from experts and institutions.

Reforming entitlement programs like Social Security and Medicare to ensure long-term sustainability.
Raising revenue through tax reforms, closing loopholes, or adjusting rates.
Controlling spending without undermining key investments or social safety nets.

The IMF (International Monetary Fund) consistently recommends gradual fiscal consolidation, which means the U.S. government should narrow the gap between its spending and revenue over time.

Healthcare is a major driver of long-term debt. Both the IMF and CBO (Congressional Budget Office) suggest curbing healthcare costs to reduce fiscal pressure.

Ultimately, the goal should be a sustainable fiscal path—one that balances short-term economic support with long-term stability.

Conclusion

As we’ve seen, the U.S. national debt, now standing at $36 trillion, may seem like a distant issue to us in India, but its global ripple effects, through markets, interest rates, and international trade, make it relevant worldwide. While rising debt poses challenges like reduced fiscal flexibility and growing foreign dependence, it’s not the end of everything. When managed wisely and used for productive investments, debt can actually fuel economic growth. What matters most is not the size of the debt, but how it’s handled—and whether it’s sustainable in the long run.