America's debt-to-GDP ratio is projected to hit 116% in 2034
Citadel founder and CEO Ken Griffin is worried about the national debt — and what it could mean for your great-grandkids. Griffin called the “surging U.S. public debt” a “growing concern that cannot be overlooked,” in his year-end letter to investors on Monday.
The U.S. government’s outstanding borrowing currently totals $34.6 trillion, according to Treasury Department figures.
The real federal budget deficit more than doubled in 2023, jumping from $933 billion to $2 trillion, amounting to basically the same size as the current U.S. economy. The Congressional Budget Office projects that the ratio of public debt to gross domestic product will hit an all time high of 116% in 2034 (it’s expected to hit 99% by the end of this year). The average debt-to-GDP ratio over the last 50 years was approximately 48%.
And according to the CBO’s projections, the federal budget deficit will grow another $1.6 trillion this year.
Griffin called the U.S. government “irresponsible” for running a 6.4% deficit while unemployment sits at 54-year lows. Given the low unemployment rate, one metric that signals a relatively healthy economic outlook, the deficit should also technically be lower — instead, it is almost double its 50-year average of 3.7%.
More than just an operational headache for the government, both in the U.S. and elsewhere, these decisions will have knock-on effects for decades to come, Griffin warned.
“We must stop borrowing at the expense of future generations,” he wrote in Monday’s letter. “The Western world urgently needs a significant increase in productivity growth as the burden of rising government debt and entitlement spending strains almost every major economy.”
Federal Reserve Chair Jerome Powell has echoed those sentiments, calling the debt “unsustainable” in an interview with 60 Minutes in February.
And in BlackRock $BLK CEO Larry Fink’s letter to shareholders last month, he also warned that the U.S. debt “is just too high.” A debt crisis, however, is not inevitable, according to Fink, who suggested that efforts to tame debt should center around “pro-growth policies,” like investing in infrastructure.
It’s not just the U.S. that is facing a public debt crisis. Global public debt has tripled since the mid-1970s, hitting $91 trillion — or 92% of global GDP — at the end of 2022, the International Monetary Fund said. A post-pandemic bounce-back in economic growth partially offset some of that effect, bringing down public debt by 8 percentage points of GDP over the last two years. But even that decline is only roughly half of the increase brought on by the pandemic, according to the IMF’s Global Debt Monitor.
Griffin does continue to expect “modest” growth in 2024, as the central bank continues its efforts to wrangle inflation down to its 2% target. He also expects declining inflation and continued wage growth to result in an increase in consumers’ real income.
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