By Sam Gutterman
Public debt is enormous. As of Sept. 30, 2025, the U.S. federal debt stood at approximately $37.8 trillion, with about $30.1 trillion held by the public (roughly 125% of gross domestic product [GDP]; the International Monetary Fund [IMF] recently projected gross debt could reach 143% by the end of the decade). It continues to climb, with the unified U.S. federal deficit projected to reach about $1.8 trillion this year, and interest payments now exceeding $1 trillion.
But U.S. debt isn’t limited to the federal government. There are also state and local government debt ($3.6 trillion) and household and nonprofit debt ($20.5 trillion), which includes mortgages ($12.9 trillion), auto and student loans ($1.7 trillion each), and credit card debt ($1.2 trillion), along with nonfinancial business loans ($22.3 trillion). Altogether, U.S. debt totals about $83.8 trillion.
It’s tempting to think we can outgrow this problem, but it’s not simple. Over the past decade, the fastest-growing category of debt has been federal government debt held by the public (about 130% growth), followed by credit card debt (77%), nonfinancial business debt (64%), auto loans (58%), mortgages (57%), and state and local government debt (20%).
Not only have interest rates on household loans increased, but home and auto prices have also surged, significantly raising the total amount of this debt. Many borrowers didn’t feel the impact of these payments while interest rates were at historic lows. Now, however, the effects are catching up with us.
The public debt-to-GDP ratio for all advanced economies combined is now about 110%, up from 70% to 80% before the 2008 financial crisis, while it stands at around 92% for all countries, compared to 60-65% before 2008. The IMF projects the global total will exceed 100% in 2029. Debt is the nearly universal factor behind every major financial crisis (Andrew Ross Sorkin, “The Lesson of 1929”).
While much of this debt growth is driven by investments for the future, if not managed carefully, it could lead to a dangerous debt spiral. When will the federal government face its tough choices—when its debt reaches 150% or 175% of GDP? The country’s credit rating has already been downgraded once.
Some nations have addressed this issue through austerity or efforts to combat waste, fraud, and abuse, with mixed results. Ultimately, investors holding our debt may demand a premium to lend or even rollover existing debt.
Unless society’s demand for public services drops significantly, we’ll have to accept the reality that we need to increase revenue. In any case, those responsible for spending should always be accountable and act transparently. Many seniors adapt to reduced resources by downsizing and being more frugal or selective—can we?
Today, our vast and growing debt often elicits a yawn. Instead, we should focus on financial sustainability. For example, if Congress takes no action over the next eight years, the depletion of the Social Security trust funds is projected to add another $2.7 trillion to the federal debt held by the public. Social Security alone could soon contribute nearly half a trillion dollars annually to the deficit.
Several theoretical methods for addressing our upcoming debt challenge include:
- Extraordinary economic growth.
- Government default.
- Large-scale money creation.
- Substantial spending cuts.
- Large tax hikes.
Nevertheless, the likelihood of any of these occurring is low. Today’s national debt represents a major inter-generational wealth transfer.
Over the last 20 years, governments, businesses, and households have been heavily borrowing, encouraged by low interest rates. Now that rates have increased, concerns about sustainability have grown. Governments are hesitant to make unpopular decisions, such as raising taxes or cutting services. If policymakers want to keep their economies sustainable, they may have little choice but to pursue these measures or continue borrowing. Central banks will continue to be pressured to decrease interest rates.
Over the past year, global net interest payments on government debt increased by 11.2% to $2.72 trillion; this trend is expected to continue. Interest costs, driven by aging populations and health care costs in the U.S., now exceed defense budgets, contributing to ever-increasing government debt. The recent federal government shutdown and the next debt ceiling showdown further underscore these sustainability concerns, serve as reminders of the fiscal and political pressures underlying current budget debates—and how difficult it has become to achieve consensus on policies that could restore long-term financial stability.
The IMF warns that the U.S. needs to get its finances in order “sooner rather than later.” Kicking the can down the road is not a sustainable strategy. A major unanswered concern for actuaries is when will a debt tipping point be reached—and what follows after.
Sam Gutterman is chairperson of the Social Security Committee and member of the Retirement Practice Council.