The United States has been in debt since its very beginning. The American Revolutionary War led to significant liabilities, reaching over $75 million by January 1, 1791. Over the subsequent decades, the national debt experienced fluctuations. Notably, it decreased in 1835 due to revenues from federal land sales and government budget reductions. However, this period of surplus was short-lived as an economic downturn soon caused the debt to rise again.
The American Civil War caused a dramatic increase in the national debt, growing by over 4,000%. From approximately $65 million in 1860, it surged to $1 billion by 1863 and nearly $3 billion shortly after the war ended in 1865. In the 20th century, the debt continued its upward trajectory, reaching around $22 billion after the financial demands of World War I.
More recently, several major events have triggered substantial increases in the national debt. These include the wars in Afghanistan and Iraq, the 2008 Great Recession, and the unprecedented COVID-19 pandemic. Between Fiscal Year 2019 and Fiscal Year 2021, government spending saw an increase of roughly 50%, largely as a response to the COVID-19 crisis. Factors like tax cuts, economic stimulus packages, increased government expenditure, and decreased tax revenues resulting from widespread unemployment are generally the primary drivers behind sharp increases in the national debt.
To better understand the scale of a country’s debt, economists often compare it to its Gross Domestic Product (GDP). This debt-to-GDP ratio provides a more insightful perspective on a nation’s fiscal health than the absolute national debt figure alone. It indicates the burden of the debt in relation to the country’s total economic output and its capacity to repay its obligations. The U.S. debt-to-GDP ratio exceeded 100% in 2013, a point when both the national debt and GDP were approximately $16.7 trillion.
Understanding the national debt is crucial for assessing the economic stability and future prospects of a country. While the raw number can seem abstract, considering its historical context, the events that cause it to rise, and comparing it to the GDP provides a more comprehensive picture of its significance.
