US Debt-to-GDP Ratio Crosses 100% Mark - What does it mean, Its Causes, Consequences and Remedies

Added: 2026-05-11

[00:00:00]Welcome to USDMIS Academy. Myself HS Sidu, director of the academy.

[00:00:08]Debt to GDP ratio of the US economy has crossed 100% mark. Actually, it is 100.2% nowadays.

[00:00:20]It shows that US owes more than it is producing annually.

[00:00:26]Though it is not an immediate crisis but uh it indicates a fiscal stress on the US economy and if the conditions don't improve in the days to come then the economy may fall into crisis.

[00:00:44]In today's video, we shall discuss the reasons behind such a high debt to GDP ratio, its consequences and what the US can do to improve this situation.

[00:00:59]So as far as the debt to GDP ratio is concerned, it is simply debt divided by GDP multiplied by 100. So that means there are two components. One is the numerator component that is the debt uh which relates to the expenditure of the economy. If the expenditures shall be more and the fiscal deficit continues, obviously the economy had has to borrow more and more money in the future and uh that would lead to additional debt burden on the economy and due to this numerator effect the debt to GDP ratio increases and similarly if the economy is not performing well I mean the growth growth rate of GDP is not adequate enough. So then that will be the denominator effect and due to the low denominator debt to GDP ratio will increase. So as far as the reasons behind such a high GDP ratio the debt to GDP ratio of the US economy. So one reason which is there that is the persistent fiscal deficit. So US budget is showing the fiscal deficit persistently over the years. The fiscal deficit is around 6% of the GDP which is considered very high. If we compare it with the fiscal deficit of the Indian economy, it is around 4.5%.

[00:02:37]So in case of such a high fiscal deficit obviously the government uh needs to borrow to manage its expenditure. So it is adding to the debt burden over the US economy. So if the debt burden increases or is piling up so obviously the debt to GDP ratio will increase. And the second important reason that is the debt trap.

[00:03:08]So US economy is falling into the debt trap. That means the interest burden on the US economy has increased uh more than $1 trillion perom. So this is higher than even the defense budget of the United States which is around $950 billion.

[00:03:32]So in the scenario of such a high interest burden obviously it will add to the fiscal deficit and the government would have to borrow more money in the days to come and uh this situation may persist in the days to come also. And the third important reason that is the uh expansionary fiscal measures by the US government. After the COVID situation, the US government uh took many expansionary fiscal measures which include which include the tax cuts uh cut in tax rates and the second is increase in the social security expenditure as well as the Medicare also and plus high expenditure on the infrastructure buildup. So all this add to the expenditure. So more expenditure means a high fiscal deficit. High fiscal deficit means a high amount of borrowing. So that means the piling up of debt burden on the economy. And the next important point that is the aging population. As we know the population of Japan as well as many countries in the western world that is you can say aging.

[00:04:52]Aging means the relative proportion of the uh old aed people is increasing in the total population of those countries.

[00:05:05]So when the uh population becomes aged then obviously the number of retirees increase the pension burdens on the government increase and social security expenditure increases and there would be increase in the medical facilities or expenditure on the medical facilities as well. The next important point that is the uh geopolitical and strategic spending. You know that US always remain in the war mode. So US is very active in the geopolitics of the world. If we see the Afghanistan war so US was actively involved in that. If we see the current scenario that is we can say the Iran war in the western Asian part. So in this also US is actively involved and uh the second thing is that uh China is the major competitor of the US which is challenging the US hedgeimony in the present foreign order and US by any means wants to maintain its you can say hgeimony. So that is why US is doing such a vast strategic expenditure. That means establishing its uh uh this uh uh this military posts in various uh uh these countries and the strategic posts also in various countries, military establishments in various countries and uh research and development of the weapons and such type of expenditure that is increasing. So this is also contributing to the higher debt burden over the US. And the next important point which is there that is the sluggish performance of the US economy.

[00:07:11]If we see that the growth rate of US economy is approximately 2% or sometimes even less than that and this growth rate of US economy is not sufficient is not enough to offset the rate of increase in the debt burden. So this is another reason we can say now we shall come on to the consequences. So before discussing the consequences, let me uh discuss one thing that the present problem of the US economy that is the high debt to GDP ratio. This is basically a structural problem. This is not a cyclical phase. So if this structural problem is not handled carefully then it may uh uh cause the landing of the US economy into a great trouble in the days to come. So as far as the consequences is concerned so if the debt burden on an economy increases obviously the interest burden will will increase and the government would have to borrow more to manage its expenditure. The more borrowing means uh or you can say the debt burden if increases then the uh yearly production of some economy. So that means the fiscal stress or in case of the fiscal stress the global credit rating agencies so do the poor credit rating of that particular country where such a scenario occurs. So if the uh credit rating becomes poor then obviously investors start uh start expecting high rate of return for the funds which they invest in some economy. So if such a scenario continue and uh so then the debt burden would be piling up because if the investor's rate of interest increases or or the rate of earning increases the US if if has to pay a higher rate of interest for borrowing more funds. So then obviously it will uh lead to piling up of the debt burden over the economy and the risk for the investors would increase and the investor would uh be preferring to withdraw their money from the US economy and shift it to somewhere else. So this is one consequence and the second consequence is that the high debt burden high interest rate or high fiscal deficit may lead to the inflationary pressure in the economy. So in the wake of the high rate of inflation the consumer's spending would come down. If the consumer's spending comes down that would lead to the slowdown of the US economy because if the spending comes down the production will also comes down. If the production comes down then it may lead to the spread of the you can say unemployment and in that scenario the economy may fall into a serious trouble. As you know the US economy is today integrated with the various economies of the world. So if the US economy suffers then the other economies of the world may also suffer and then it may lead to a global crisis as well. So this is the consequence which I can say. Now what the US can do to improve this situation as far as as far as the US what can do to improve this situation? The first point is that uh that is the fiscal consolidation measures which the country can take.

[00:11:04]Fiscal consolidation measure means to manage expend to manage expenditures in such a way so as to increase the uh efficiency of the spending uh means uh you can say the spending would generate more revenue for the economy. This is the one thing and uh cut of the unnecessary expenditure and third is lowering the uh fiscal deficit to approximately 3% of the GDP which is presently as I told you earlier around 6%. And this is the first thing which can be done. And the second thing is that is the targeted subsidies.

[00:11:46]As in the present scenario, the US government is following the uh this blanket approach as far as the uh welfare programs are concerned. So instead of following the blanket approach, if there is the fiscal success then it is better for the economy or for the country to uh follow the uh this targeted subsidies approach instead of the blanket approach that would lead to uh rationalization of the expenditure rationalization of the subsidies expenditure and lowering the expenditure also as well. So the third important point which is there uh that is the uh this uh uh that is the increase in the revenue. So how the revenue can be increased that is by expanding the tax base or by plugging the loopholes in the tax collection system or uh by uh you can say this increasing the uh this tax buoyancy rate as well. So these are the various measures that can be taken and uh uh the higher income people uh may be imposed higher rate of taxes as well. So such type of measures can be taken and the next important point which is there that is the uh uh try to improve the economic growth of the GDP. So as far as the economic growth of the US economy is concerned that means increase in the GDP growth which is at present only 2%. So if the GDP growth increases then obviously the debt to GDP ratio will come down or may come down. So how this can be done? This can be done by investing into the sunrise sector. For example, more investment into the artificial intelligence industry because this industry has the future and there is a tremendous potential uh of the you can say this uh uh earning in this particular industry and the investment uh uh efficiency would also be high there. Next is the semiconductor industry which is the future in the present scenario and uh similarly uh more spending in the infrastructure development that may help the uh this you can say uh coming the economy out of this fiscal stress by increasing the spending power of the people without uh this over production in the economy. And the next important point which can be there that is the uh in more investment in the human capital. So these are the important measures which the US government may take in the present situation. So this is all for today's video. I hope you enjoyed this video of the day and uh if you want to get uh similar informative videos in the days to come also. So you please uh follow us, you please subscribe our channel and we promise you to uh post more informative videos uh which are relevant for the UPSC and other competitive examinations.