US Debt Tops $40 Trillion: Even the Doves Are Calling Themselves Hawks Now
The 2010 paper claiming growth halves once debt passes 90% of GDP was used by politicians as a red line for over a decade; now even the dove economist who argued for spending boldly calls herself a hawk, but nobody can say where that line is.
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The argument · tap a timestamp to hear it
The real fuse on the debt snowball is interest
The textbook worry isn't the debt itself but that interest costs feed on themselves: pay more interest, the deficit grows; a bigger deficit pushes debt higher; next period's interest is even bigger, and so on compounding worse and worse. The other path is investors losing their appetite for Treasuries, forcing the government to keep raising rates to attract buyers, and the snowball rolls faster. Neither of these terrible outcomes happened after the financial crisis, and in hindsight the people who argued the government should spend more were on the right side of history — Karen Dynan even thinks it should have spent more at the time and the recession could have been shorter.
— Karen DynanThe 90% line was read into the paper
The 2010 six-page paper by Reinhart and Rogoff, “Growth in a Time of Debt”, studied decades of debt data across 20 advanced economies and concluded that when debt reaches 90% of GDP, growth is only half its normal level. But what the paper actually did was sort countries into four buckets — low, medium, high and very high — with the very high bucket containing countries whose debt was far above 90%, and technically it said that this bucket, on average and over long stretches, was associated with lower growth. Politicians and the media read it as a red line: ‘cross 90% and the economy crashes.’ The paper never said that.
An Excel error detonated the austerity fight
The argument the paper sparked raged across blogs and newspapers, with calls for austerity and belt-tightening on one side and don't-kill-the-recovery, you-can't-stop-spending-now on the other. Later, economists more friendly to debt pointed out that the Excel spreadsheet Reinhart and Rogoff used contained a big error, and the paper's final sentence said that since their findings were wrong, the austerity agendas in Europe and the US should be reassessed. Correcting the error weakened the claim everyone had seized on, but did not overturn it — the updated paper still showed high debt generally associated with slower growth, just not as steeply.
— Andrea PresbiteroLow growth can also cause high debt
High debt being correlated with low growth does not mean high debt causes low growth. Andrea Presbitero points out the causality may run the other way: when the economy underperforms, policymakers want to stimulate it, which means public consumption and public investment, and one way to pay for that is borrowing — borrowing pushes debt up, so you see low growth and high debt in the data at the same time. He and his coauthors ultimately reached the same conclusion as most people: based on the empirical evidence, no definitive answer can be given, and causality may run both ways. On top of that, the debt threshold varies by country — it might be 90%, it might be 45%, it might be 100% — and depends on who the creditors are, whether they are domestic or foreign investors, and whether the debt is short- or long-term.
— Andrea PresbiteroRates at zero shelved the whole issue
What makes high debt destructive isn't the debt itself but the interest paid on it. After the financial crisis global rates fell to near zero and stayed there for years, so many macroeconomists figured maybe there was no need to worry much about debt at all, and attention drifted away from the topic. Then the world changed twice: the pandemic and the spending that followed pushed debt higher, and more importantly rates rose again. Today the cost of carrying a large debt is much higher for the US and other countries than it was five or six years ago, and the question that had been shelved is relevant again.
Rogoff says 91% and all hell breaks loose is a misreading
Ken Rogoff is still annoyed about how the paper was interpreted. He says 90% was just their highest bucket, they never said that at 91% all hell suddenly breaks loose — that's like a 55 mph speed limit, you drive 56 and you'll crash the next minute. He thinks that reading was used and distorted polemically. But he also stresses you can't conclude from that that there is no threshold and any level of debt is fine — that's crazy too. His basic intuition hasn't changed: constantly levering up is playing with fire, and the US trajectory needs adjusting — not just debt, but also Social Security and Medicare.
— Kenneth RogoffThe dove who argued for spending has changed her tune
Two years on, debt has grown by more than $4 trillion, the large tax cuts Congress passed in 2025 further cut revenue, and interest alone costs over $1 trillion a year, a record. Karen Dynan, who thought the spending was worth the risk back then, now says ‘I'm a debt hawk now,’ because changes in financial markets, especially the rate on Treasury borrowing, make her think this is trickier than she thought two years ago. She describes it as walking on ice and comforting yourself that it hasn't cracked yet. Last week the 10-year Treasury rate hit its highest level since before the Great Recession, and the CBO projects debt will exceed 120% of GDP by 2036, higher than at any point in US history including World War II.
— Karen DynanRogoff puts the odds of a big problem above half
Rogoff thinks the biggest misunderstanding is the belief that rates will stay low forever, and that if they're high for a while it's just a bad dream that will pass. He says he thinks the probability of something very serious happening is greater than 50% — not the end of the world, a debt crisis isn't the end of the world either, but something very significant will happen and we are not prepared. He also says we need to reflect on how wrong everyone was and for how long, because that belief hasn't gone away — what mainstream opinion leaders thought then is basically what they still think now. As for the red line, neither economist can draw it, but both agree the fix is spending cuts, tax increases, or both, and that looks impossible to push through.
— Kenneth RogoffIn their own words · checked verbatim
So the scary thing about high debt is that you can get a snowballing of debt because of interest costs. And when you're paying a lot of interest and then you're running a larger deficit because you're paying a lot of interest, that adds to the debt. And then you get to the next period and you have more debt. And then you have more interest. And so it just keeps compounding and getting worse and worse and worse.
Karen Dynan2:05
It seems like we don't have a good way of knowing whether we're 5% away from the ice cracking or 50% away from the ice cracking.
Karen Dynan4:18
The fact that Reinhardt and Rogoff's findings are wrong should therefore lead us to reassess the austerity agenda itself in both Europe and the United States.
Andrea Presbitero12:28
But we didn't say that suddenly you go to the devil when you get to 91%. That's a little bit like saying if you're driving in a car in a 55-mile-an-hour speed limit and you go to 56, you're going to crash the next minute.
Kenneth Rogoff20:57
But I do want to qualify that a little bit by saying to say, therefore, there's no threshold. Therefore, any level of debt is fine. That's kind of nuts also.
Kenneth Rogoff21:05
I am a debt hawk now. Given how things have evolved, we have seen things happen in financial markets, particularly treasury borrowing rates, that have made me think this is a bigger challenge than I thought it was a couple years ago.
Karen Dynan25:22
I do think that the odds that we have a very significant problem are bigger than 50-50. They're not the end of the world. And frankly, having a debt crisis is not the end of the world. But I think something very significant is going to happen and we're not ready for it.
Kenneth Rogoff28:32
Figures
| US total public debt in 2008 | about $6 trillion | 2:05 |
| US total public debt in 2012 | $11 trillion | 2:05 |
| Current US total debt | $40 trillion | 5:19 |
| US debt as a share of GDP in the early 2000s | about 35% | 9:24 |
| US debt as a share of GDP when the 2010 paper was published | 60% | 9:24 |
| Threshold of the paper's very high debt bucket | debt above 90% of GDP | 9:24 |
| Debt added over two years | more than $4 trillion | 25:22 |
| Interest the US pays on its debt each year | more than $1 trillion | 25:22 |
| CBO projection for debt as a share of GDP in 2036 | 120% | 26:23 |
| Rogoff's estimate of the probability of something very serious happening | greater than 50% | 28:32 |
Glossary
- deficit hawk / deficit dove
- Hawks favor cutting deficits and austerity; doves believe in spending boldly to stimulate the economy when necessary.
- crowding out
- Government borrowing soaks up capital, reducing private investment (building plants, R&D) and thus dragging down growth.
- debt to GDP ratio
- A country's total debt as a percentage of the value of a full year's output, a common measure of the debt burden.
- Treasury bonds
- IOUs issued by the US government to borrow money, regarded as one of the safest investments in the world.
How to listen
Investors and founders watching macro, rates and Treasuries; anyone who wants to understand where the ‘debt red line’ debate came from and why even doves have changed their tune.
The show intro at 0:00-1:00 and the NPR promo for other programs at 6:19-7:19 can be skipped.