Federal Debt: Total Public Debt Amount of Federal Debt in Millions of Dollars (1966–2020 2nd qtr.) Source: Federal Reserve Economic Database (FRED) based on data from the U.S. Treasury
Federal Debt and Income To better gauge the magnitude of federal debt outstanding, the amount of federal debt outstanding is often compared to the Gross Domestic Product (GDP). GDP not only measures output in the economy, it also reflects income. When goods and services are created, income is also created, split between individuals, corporations, and the government. Federal debt as a percentage of GDP is a measure of a country’s ability to pay its debt. If you have $100,000 of debt is it a lot? The answer is probably yes if your income is $50,000; the answer is probably no if your income is $50,000,000. The more income, the more debt you can generally financially afford. Federal debt as a percentage of GDP provides a relative measure as to how the federal debt financially burdens the country. The graph below puts some historical perspective on the amount of federal debt outstanding relative to the amount of income (GDP) generated in the U.S. Relatively speaking, federal deficits and increasing federal debt were not much of an issue until the 1980s. Federal debt as a percentage of GDP rose to over 50% by the end of the decade. In the 1990s, following a decade early recession, federal debt as a percentage of GDP topped 65%; federal budget surpluses helped reduce the level to approximately 55% by the end of the decade. The return of budget deficits after the turn of the century increased federal debt as a percentage of GDP to nearly 65% prior to the financial and economic crisis of 2007-2009; it increased to 84% be the end of the crisis. The COVID-19 economic contraction and stimulus brought federal debt as a percentage of GDP new heights. At the end of the second quarter of 2020, federal debt to GDP stood at 135%, a 50% increase from a decade earlier.
Federal Debt as a Percentage of U.S. GDP 1966–2020 2nd Qtr. Source: Federal Reserve Economic Database (FRED); U.S. Office of Management and Budget
Central Wisconsin Report - Fall 2020
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