TRUTH DECAYTrump’s Claim That U.S. Debt Calculation May Be Fraudulent Could Put the Economy in Danger
The US president, Donald Trump, is challenging official figures around the country’s federal debt, suggesting possible fraud in its calculation. With Trump in the White House, distinguishing between politically charged rhetoric and fiscal sustainability of the US federal debt will be essential for maintaining trust in the US economy and the health of the global financial system.
The US president, Donald Trump, is challenging official figures around the country’s federal debt, suggesting possible fraud in its calculation. The president’s remarks have added a controversial twist to an issue that is both complex and consequential for the United States. And it has implications for the global economy and financial markets too.
US federal debt is the total amount of money the US government owes from years of borrowing to cover budget deficits (spending beyond its revenues). Over time, this amount has grown significantly, becoming a focal point for political debates and economic forecasts.
The US debt clock indicates an amount of debt of above US$36 trillion (£28.5 trillion), corresponding to US$107,227 (£84,795) per US citizen.
This figure is based on the US total public debt series. It is undeniable that the US debt has grown remarkably since the 2008 recession, with a further acceleration during the COVID pandemic. This brings the US federal debt in at around 121% of the size of the entire economy (GDP). For comparison, the UK’s Office for Budget Responsibility puts British national debt at 99.4% of GDP in 2024.
This pattern is common across advanced economies, given the necessity to spend to support their economies during recessions.
Trump has also claimed that, as the result of this alleged fraud, the US might have less debt than was thought. Potential fraud aside, it is common knowledge that the headline debt figure overstates the amount of federal debt. This is because it includes debt that one part of the US government owes to another part, as well as debt held by the Federal Reserve Banks.
Subtracting these debts from the US federal debt data gives us the debt held by the public. This is much lower but it still shows a similar growing pattern over time.
The conventional wisdom (courtesy of Mr. Micawber, a character in Charles Dickens’ novel David Copperfield) is that an income greater than expenditure equals happiness, while the opposite results in misery. But this does not necessarily apply to public debt.
This is ultimately a debt we have with ourselves (and our future generations). What really matters is its long-term sustainability, meaning that the debt-to-GDP ratio is not following an explosive pattern. This kind of pattern could increase the risk premium (effectively the interest) demanded by investors, with a negative impact on private investments and growth prospects. Also, it potentially raises the risk of default.
