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The USA has had one budget surplus in 23 years. Is the debt to GDP path unsustainable? 


The USA has had one budget surplus in 23 years. Is the debt to GDP path unsustainable? 

In the past 23 years, the U.S. has produced one budget surplus (fiscal 2001) and 22 budget deficits. The past four budget deficits, from fiscal 2020 to fiscal 2023, inclusively have seen an aggregate budget deficit of $9.0 trillion and an average annual budget deficit of U.S.$2.25 trillion.   

To pay for the deficit, the U.S. government borrows money by selling treasury bonds, bills, and other securities. As the deficits become common and the U.S. national debt stood at U.S.$33.2 trillion in fiscal 2023, up from U.S.$4.2 trillion in the past 40 years.   

Comparing the U.S. government debt to gross domestic product (GDP) ratio, it has more than tripled in forty years from 39 per cent in 1983 to 123 per cent (GDP of U.S.$27.0 trillion) in 2023. In fiscal 2023, the budget deficit of around U.S.$2.0 trillion hit 7.5 per cent of GDP when adjusting for student loans. Interest on debt accounted for 2.6 per cent or about 35 per cent of the deficit. 

In January 2020, the congressional budget office projections had gross federal debt eclipsing U.S.$34 trillion in fiscal 2029. Partially due to the expenditure on COVID-19 relief and heavy borrowing under presidents Trump and Biden, that figure has now been hit – more than five years early.  

The U.S. national debt does not currently appear to be a weight on the economy as investors are prepared to keep lending the federal government money. But the path of the debt to GDP ratio may threaten that hubris. Whether or when it turns into a more dire situation is just guesswork. It is believed foreign holdings of U.S. debt have already declined from 49 per cent in 2011 to 30 per cent in 2022.    

Others see a “boiling frog phenomenon” and assume higher deficits and ballooning debt service expenses become unsustainable over the balance of this decade. According to the congressional budget office, the U.S.’s entitlement spending, mandatory spending, and net interest expense will exceed the government’s total revenue by the early 2030s. 

JP Morgan strategist Michael Cembalest predicts that pressure from markets and rating agencies will force the government to make substantial changes to its taxing and entitlement spending programs, and issuing new wealth taxes seems possible. 

The U.S. ten-year government bonds sold off from a record low of 0.5 per cent in mid-2020 to 5.0 per cent by October 2023. After rallying to 3.8 per cent in December 2023, they have since moved above 4.0 per cent. One day, they may price in the “boiling frog phenomenon”.   


Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. Australia is not much better. FY22/23, we had a surplus of $22.1 billion (0.9 per cent of GDP), the first since 2007-08.

    Of course, we’re on track for another one but it is only because of high iron ore prices (2007 was thanks to the mining boom) and the amount of tax revenue (particularly on fuel), which leads into food prices (everything being brought on trucks) and thus, GST. Not hard to do, more ‘good fortune, blind luck’ than ‘hard work’ and ‘being smart’.

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