United States debt has reached record highs, but what does it mean for investors?

History was made once again last week, when it was announced that the national debt of the Untied States of America has exceeded $34 trillion for the first time ever.

On December 29^th last week, the US Treasury’s official FiscalData site released an update which stated that the nation’s national debt had gone over $34 trillion for the first time.

This is officially the highest level of national debt the country has ever had.

According to US Debt Clock, the national debt of the United States was around $34,003,388,900,000 at the time of this article going to press. At the same time, US total federal tax revenue is just over $4.5 trillion and its official federal spending amount is around $6,334,396,500,000 at the time of writing.

Understanding the US debt figures

Here are these figures again as they would be if the United States was an individual with a budget sheet:

• Income from tax: $4.5 trillion (approximately)
• Expenditure: $6.3 trillion (approximately)
• Budget deficit: over $1.7 trillion
• Total debt: over $34 trillion

This means that, even if the United States spent its income from taxes on nothing but paying down debt, it would need to increase its total amount of tax revenue almost eight times over in order to pay off all its national debt.

It also gives us a debt to GDP ratio for the country of roughly 136 percent.

Opinions on the current status of US debt

The White House had this to say:

They're not the only ones with strong feelings about this. On November 10^th last year, Moody’s accordingly downgraded its US debt rating outlook to 'negative'.

The current debt and the US debt ceiling

Last year, America made headlines around the world when hardball negotiations between the Republicans and Democrats left less than a week to what is known as ‘X date’ – the day when the country officially runs out of having enough money to cover its costs – before suspending the debt limit until January 2025.

However, it’s crucial to note that the debt ceiling amount of $31.4 trillion was not raised by the government. This means that, by 1 January 2025, US national debt must be sitting at $31.4 trillion or less… and it’s currently at a record $34 trillion.

That’s $1.7 trillion more than when the debt ceiling was first suspended last year… with almost a full year still to go until D-Day.

What's the significance of the US debt ceiling being reached?

Simply put: the American government is not allowed to borrow any more funds – and, if a solution isn’t made before 1 January 2025, an ‘X date’ will be announced. This would be when the US government can no longer cover its bills, basically.

And if this happens, there’s a chance that the United States will default on its sizable debt – an event which has never happened before in the history of its economy, and would throw markets around the world into chaos as the dollar likely nosedives in value.

Again, here’s what the White House had to say on the matter: