US national debt exceeds $42 trillion for first time

Increase from pre-pandemic levels fuelled by trillions of dollars spent on aid programs for small businesses, workers and others.

The US national debt exceeds $42 trillion for first time. Picture: Daniel Slim/AFP

The US national debt exceeded $US30 ($A42) trillion for the first time, reflecting increased federal borrowing during the coronavirus pandemic.

Total public debt outstanding was $30.01 trillion as of January 31, according to Treasury Department data released Tuesday. That was a nearly $US7 trillion increase from late January 2020, just before the pandemic hit the US economy.

The total debt comprises debt held by the public and intragovernmental debt. The debt milestone comes at a time of transition for US fiscal and monetary policy, which will likely have implications for the broader economy. Many of the federal pandemic aid programs authorised by Congress have expired, leaving Americans with less financial assistance than earlier in the pandemic.

Meanwhile, the Federal Reserve has signalled it could soon begin to raise short-term interest rates from near zero in an effort to curb inflation, which is at its highest level in nearly four decades.

“This is a jaw-dropping number that is a real cause for concern,” said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. “It is the result of both borrowing for really important crises, most notably the Covid pandemic, but also trillions and trillions of borrowing for no reason other than politicians have stopped being willing to pay the bills.”

Congress during the Trump and Biden administrations authorised trillions of dollars in spending for pandemic programs aimed at supporting small businesses, unemployed workers, families with children, renters and other groups. Those programs included the expanded child tax credit, enhanced unemployment benefits and the Paycheck Protection Program.

The Treasury Department declined to comment on the public-debt milestone. “In responding to the downturn in the economy induced by the pandemic, we felt and I strongly believe that it was appropriate to engage in spending that wasn’t financed by tax increases,” Treasury Secretary Janet Yellen said at the World Economic Forum last month.

“It’s important to evaluate debt sustainability in the context of the interest-rate environment,” she said, adding that the interest burden of U.S. debt is “very manageable” because of low interest rates.

Some economists and budget experts argue that current levels of US borrowing aren’t sustainable and could impede the ability of the US government to respond to future economic crises or other shocks.

“The milestone of $US30 trillion in debt should be a giant red flag for all of us about America’s future economic health, generational equity, and role in the world,” said Michael Peterson, chief executive of the Peter G. Peterson Foundation, a nonpartisan group that advocates for deficit reduction, in a statement.

In the fiscal year that ended September 2021, the federal budget deficit was $US2.8 trillion, equal to 12.4 per cent of US gross domestic product, according to the Congressional Budget Office. In the fiscal year that ended September 2019, before the pandemic, the US deficit was equal to 4.7 per cent of GDP, the CBO said.

Concerns over US debt levels have impaired President Biden’s ability to pass his proposals for education, healthcare and climate-change programs. Senator Joe Manchin, whose vote is key in the closely divided Senate, rejected the roughly $US2 trillion legislative package passed by the House after repeatedly questioning how the plan might affect inflation and the US debt.

The Wall Street Journal