The U.S. Debt Spiral

Creditworthiness — or the capacity to repay debt productively — is at the heart of credit analysis and credit ratings.

After the Moody’s downgrade, the United States has lost its AAA rating — and very likely its status as a trusted, creditworthy partner.

To avert that scenario, U.S. Treasury Secretary Scott Bessent has announced that he wants to “grow the economy at a rate faster than the growth in U.S. debt."

As a numeric example, consider that, if the U.S. economy grows 5% per year and debt grows 2%, then the remaining 3% could be used to pay down the existing debt.

What is the actual U.S. performance in that regard? The U.S. economy is currently growing at 2.9% a year — while debt is growing at 7.5%.

Since 2000, U.S. debt has grown by over $30 trillion. In 2000, public debt was around $6 trillion. Now, it is over $36 trillion.

That is a 500% increase in U.S. debt in 25 years — or a 7.5% compound annual growth rate (CAGR).

In the same period, the U.S. economy grew from $10 trillion to $28 trillion — an $18 trillion increase. That is 180% total growth — or about 4.3% per year.

So, to grow the U.S. economy by less than two times, U.S. debt had to grow by nearly 5 times. In other words, 500% in new debt just to get under 200% in GDP growth.

Very significantly and revealingly, while U.S. debt has increased by 7.5% annually since 2000, the U.S. stock market has delivered the same rate of return over that time.