NDR: Rising U.S. Debt - Sustainability and Interest Concerns

The U.S. federal debt-to-GDP ratio continues to rise, currently at 106%, or 92% when excluding the Fed’s SOMA holdings. While some economies, like Japan, have sustained much higher debt levels without collapse, the key concern is whether debt grows faster than nominal GDP. Projections from the CBO indicate persistent deficits, raising long-term sustainability concerns. The U.S. benefits from its reserve currency status, but that privilege does not eliminate fiscal risks.

The biggest worry is the surging interest on federal debt, which must be paid regardless of economic conditions. Net interest costs rose 25% in 2024, reaching $900 billion—18.5% of tax revenues and surpassing defense spending. By 2035, net interest is projected to exceed 4% of GDP and 17% of total outlays. When debt service costs outpace economic growth, financial risks increase, especially if rising private-sector credit demand leads to a wider term premium in bond markets.

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