Ep. 15 - The Debt Bomb Is Ticking

A 38 trillion dollar debt is a big number, but the ratio is the real warning sign. We walk through a century of U.S. debt-to-GDP, from a lean 16 percent in 1929 to a wartime peak after WWII, and finally to today’s structurally heavy load near 120 percent. The difference matters: wartime borrowing was a temporary surge with a clear cause and a path to unwind; our current weight is the result of demographics, health care inflation, persistent deficits, and a political culture that promises more than growth can cover.

We dig into the math behind Social Security’s stress test: a worker-to-beneficiary ratio that slid from 5:1 to near 3:1 and is heading toward 2:1. That simple shift drives the entire fiscal outlook, especially when paired with longer lifespans and rising medical costs. Defense outlays won’t shrink in a riskier world, and interest payments now act like an interest-only mortgage on the nation’s balance sheet. Add in uneven growth, tax cuts that didn’t fully pay for themselves, and crisis spending from 2008 and COVID, and you get a debt burden that behaves less like a speed bump and more like a chronic condition.

We also revisit missed chances to turn the ship. Simpson-Bowles outlined a credible path to reduce the ratio toward 60 percent, eventually lower, blending spending reform with new revenue. Politics balked. That leaves a menu of hard but workable steps: gradually raising the retirement age in line with longevity, adjusting benefits progressively, lifting the payroll tax cap, pursuing health care payment reforms and price transparency, broadening legal immigration to strengthen the workforce, and rebuilding a broader tax base. None is a silver bullet; together they form a realistic plan to trade short-term discomfort for long-term stability.

If you care about financial resilience, this conversation offers a clear framework, historical context, and practical moves for households and policymakers. 

Subscribe, share with a friend who loves data-driven arguments, and leave a review with the one reform you’d accept today to avoid a harsher reckoning tomorrow.

Transcript

Debt To GDP Across A Century

World War II And Aftermath

From Reagan To The Great Recession

The 400-Pound Analogy

What’s Driving The Debt

Social Security’s Math Problem

SPEAKER_00 0:07

Welcome back to the Radical Moderate podcast. I am your host, Pat O'Brien. This week I'm going to ask a question, and that question is: how concerned should we be about our national debt? Our national debt is over$38 trillion and growing in the United States. This is something I've talked about in previous podcasts, but this entire episode is just going to be about how big of a deal is this? Is this something that is overwhelming, or is this something that in relative terms maybe isn't as bad as we've been led to believe? So I'm going to answer the question right off the bat. I think we should be very concerned about our over$38 trillion national debt, but I want to frame it in terms of how big is our current debt relative to the economy that has to carry it and relative uh to what has happened in the past. And, you know, let's let's go back a hundred years uh basically to the to the 1920s and just see, you know, what does this thing look like? Um and then, you know, we'll get into the consequences of it and all that. And it's, you know, for a lot of people, they may say, Pat, that's a pretty easy topic. But I think really it's not maybe even people who listen to this podcast right now, but that it's your neighbor, it's your relatives. They're not thinking about the national debt. And they're not thinking about it because no one's talking about it. And no one's talking about it probably because no one has a solution, or the solutions that they have they know are not gonna work or be incredibly unpopular. But we have to talk about it because it's it's something that we're eventually going to deal with. And I think it's probably something that we're gonna be forced to deal with as opposed to something that we can attack as adults and as citizens. So let's let's go back roughly a hundred years. And that's kind of interesting because um I'm just finishing the book 1929, written by Andrew Sorkin, and it essentially talks about the run-up to the stock market crash in 1929, and then looks like it goes about five years after that of just kind of the aftermath of that and what the beginning of the Great Depression looks like. And it's it's a good read, uh, but it more than anything, it was it's a good reminder of history tends to repeat itself. And I think while while a lot of different things are going on right now, there's definitely similarities in in the two situations. But I want to go back to 1929. So the framework I'm gonna use is what is our national debt relative to our gross domestic product? And I think everybody knows the gross domestic product is one way of accounting for the size of our economy. What is what is the dollar amount of our economy that we produce in goods and services and consume and this sort of thing, economic activity. And that involves everything, what you buy at Walmart or how you know, consulting services, the gas that fuels your car, everything is involved in GDP. Well, what I think's really interesting about the year 1929 specifically is that our debt relative to GDP was actually only 16%. Now, it's about 120% now. So roughly six times more weight being carried by the economy. Now, uh I don't know a deep dive on all this, but I'm gonna kind of speculate here a little bit that one of the reasons why it's only 16% is the government didn't play much of a role in the economy prior to the 1920s. There was not a lot of government intervention. That really was a product of the Great Depression, that the government started regulating the economy more. And of course, the Neil New Deal programs, et cetera, et cetera. And just keep in mind, uh, during that time frame of, you know, like 1929, once the stock market crashed to really the beginning of the war, you had situations with 15 to 20% unemployment. No one in my lifetime has seen anything like that. I think even during COVID and the Great Recession, I mean, during COVID, maybe for two months we did, but that was a one-off event. But during the Great Recession, I think unemployment got up to 10 or 11% for a year or two. And that that was very bad back in 2008, 2009. It was regular business from 15 to 20 percent unemployment in the 1930s, and really the war, the World War II helped us get out of that. So 16% debt, and and we're gonna, I'm gonna make an analogy here in a minute that hopefully will be easy to resonate with everybody, but to go through these numbers, I like I like to focus on the math first. 1929, 16% debt relative to GDP, meaning no debt at all. Like that's that's incredible. That's awesome, fiscally sound. In 1934, which was the depths of the Great Depression, we're up to 44%. We would kill to be at 44% debt load right now relative to GDP. Uh 1946, though, we get up to 106%. So uh during World War II, we were forced into that situation. We had to do what we had to do. We had to create a lot of debt to build up the military war machine to fight uh the Japanese uh in the Pacific and to fight the Germans uh in Europe. And that that's just what we had to do. And so 106% uh debt load relative to GDP was very high, but everybody understood why. And it was something that that was forced upon us. It was not a choice. It would, you know, somebody, it was self-defense, basically, and uh and and it proved to be the right move, and we won the war. And and it it doesn't get won without us. I think history is very clear about that. So it was the right move, it was the right decision for the American people, and you know, the greatest generation fueled that. And and then we start coming back and we start coming back strong. So I'll skip way ahead to 1974. Our debt load is only 23%. So the national debt relative to GDP in 1974 is only 23%. That's fantastic. We've come out of the 1960s. Uh, you had LBJs, great society programs, where you've got Medicare, Medicaid. Of course, Social Security comes out of the 1930s. We're really doing great economically. Now, I did a prior episode on how tumultuous the 1960s were politically, but from an economic standpoint, we were in tremendous shape. And the United States was still a creditor nation. Times were really good, that the fiscal house was sound in 1974. Well, a lot happens between 1974 and the 1980s. Many would argue that Ronald Reagan increased spending quite a bit, or definitely of the military, but then did tax cuts, uh, which, you know, so you don't have as much money coming in. Republicans would argue that you do because we grew the economy, whatever you want to say about it. That's not really my point. My point is by 1989, our debt load relative uh to GDP was only 51%. So it's very good, actually, and and slightly higher than the depths of the Great Depression. The problem was the structure was not built well. The structure was built to fail. And that's the problem that we see escalating and accelerating. So by 2009, when the Great Recession hits and the consequences of that are coming out, the debt load is up to 82%. And there's a lot of factors for this. But, you know, on the one side, if the economy's not growing consistently all the time, the you're you're getting underwater. So just like if you've ever been underwater at a house or know somebody who has, you bought the house, you know, it's 300,000 is what you paid. And then the value of the house goes down to 200,000 and you got a$275,000 mortgage, you're underwater because the valuation change. You're you were hoping, those people were hoping that they bought it at$300, but then it's going to be worth$400. And that different discussion, but that's that's growing your way out of debt. But when you stop growing the economy, and in 2009, we were headed backwards for a couple of years, the debt load goes up to 82%. Most recently that I could find with full year was 2023, 122% debt load. And so to put that into perspective, that means the federal debt, we owe more than our entire economy produces in one year. We're over-leveraged. We're over-leveraged. Now, I'm gonna I think we know the reasons. Uh, I'll come back to those drivers in a minute. But let me let me go for the analogy here. Hopefully you like numbers as much as I do, and hopefully you already care about the debt or at least willing to listen at this point. But here's the analogy. Let's say that you're a person who should weigh 180 pounds, and that's what you weighed when you were 16 years old and and and you know, active and that sort of thing. And then you start gaining weight and you're up to to say 250 pounds. So that's very heavy. That's very overweight, and we know that's gonna cause problems. But folks, that's not where the U.S. is right now. Like, so let's take a baseline of an individual who should be 180 pounds, talking about a guy, should be 180 pounds, he's at 250. That's very overweight, that's very bad for your health. It's gonna cause all kinds of issues, but it's not completely unsustainable. But then imagine you're up to 300 pounds. Okay, so now you've got a person who should be 180, and they're 300 pounds. That's when the body can't even do the basic things like walk around, and and then it's a spiraling effect downward that you can't exercise, and and other negative things happen, sometimes depression and a feeling like it, I there's no way I can get out of this. That's not where we're at, in my opinion, either, currently in the U.S. economy. Imagine that that person is 360 pounds. So they should be 180 and they're 360. The weight that they carry around on a daily basis is just not sustainable. It isn't. And everybody would look at them and say, that's not sustainable. And they would know that's not sustainable. I'm not sure exactly in this analogy where you know the relativity is, but I think it's more right now, like 400 pounds. So 180 per 180-pound person ideally weighs 400 pounds. I'm gonna use that as a rough analogy for our current debt load. It's bad. It's very concerning. And it's different to go back to think about like when I was talking about World War II, somebody who got had to muscle up, and maybe for my football people, somebody who was an offensive lineman and got up to 340 pounds. And these people do a big, huge offensive lineman get up to 340 pounds. But that was a little bit artificial during their playing days. And then when they quit playing football and they quit eating differently and all that, they go down to like 250 pounds, which is closer to what they should be. Muscling up for World War II is exactly what we needed to do, and that's why we were over 100% debt relative to GDP. 120% debt to GDP right now is awful. And the bigger problem is that it's structural, and I'm gonna come to that in a second. But I wanna I want to take a moment and say that this isn't a partisan thing, just like everything I'm trying to do with this show, it's I'm not trying to be partisan. And I I'm not because I think it doesn't work, is the biggest reason. But it's not because of tax cuts that we have such a large debt. Although it when you have a lot of tax cuts, like we've had, say, in the last, I'll just say 20 years, it does hurt. It doesn't help because you're ultimately, I would say the evidence is going to show that you bring in less money. With with the tax cuts. We can argue about that all day long. But in general, the tax cuts have made the situation worse, not better. Entitlement spending growth hurts. So Medicare, Medicaid, Social Security, these programs, which are very well-meaning and which help so many people uh do, you know, live a better life, especially into their older years. Well-intentioned, all that, structurally, they're growing faster than what we can support. They just are. And so that hurts. The Great Recession, COVID spending, that has made it worse. But I think the biggest reason why we're in this situation ultimately is the expectations of the American public. We somehow think, oh, if we just didn't fight that war in Afghanistan, we'd have money to, you know, we wouldn't have a debt. Wrong, not true. Or if we just didn't have uh the big beautiful bill, we'd have enough money. Wrong, not true. It it we're or we just cut Head Start, or we just cut um name your prog snap, whatever. We wouldn't have the national. That's just all wrong, folks. That's the little stuff. That's the stuff that isn't gonna make the difference. It's the big stuff like Social Security. So let's talk about Social Security math here just for a second. And I already understand the attacks of Pat, you want people to work till they're 100 years old. And that's fine. What I don't really care what you think about that if it's unless it's math based. If you're just giving me an opinion of, oh, you're a bad person because you want everybody to work till they're 75 years old, um, I'm not interested in that opinion, but I am interested in the math. So if you look at this, in 1960, there were about five workers for every Social Security beneficiary. And that was a good ratio. And I've gone, I've already told you that if you go back to 1973, 1974, our debt to relative debt to GDP was only 23%. So in the 1960s, Social Security was working really well. Today, that ratio is about three to one. So three people work to support one person on Social Security. It's a big difference. The five to one versus the three to one is a massive, massive, massive, massive difference. The bigger problem, though, certainly there's fewer people working to support more retirees, and that's structural. The bigger issue is we're headed to two to one. So two people have to go to work to support one person who's on Social Security. The math does not work. It is not sustainable. And it's, you know, I'd be happy to have a guest on to talk about the math of Social Security and the effects of that. You don't have to be an expert, you don't have to be a mathematician. These facts are hard-wired truths. That's just the way it is. And so what are we doing about it? Not a whole lot. And I could talk about Medicare and Medicaid. I won't because it's it's a little more complicated on those. Our healthcare system is much more complicated, but Social Security is very simple. Like I work right now, Social Security taxes are taken out of my check. That money is essentially going straight to a retiree, which is that's the bargain that was made in the 1930s. And it was a good idea. The issue is people are living a lot longer now. And that's a good thing. And and and there's ways to combat that. There, there's ways to fix the problem because at the end of the day, ultimately, it is a math problem. So, what if anything has been done about this? So we established that I'm very concerned. I think you should be very concerned about how heavy our debt load is. Has anybody really tried to fix it? Well, there was what I would call, what I, to me, what I've seen as the most credible attempt to fix it in probably the last 25 years was under President Obama around 2010, and it was called Simpson Bowles. You had uh Senator Alan Simpson, I'm not, I can't remember if he was retired at that time or not. You had Erskine Bowles. So Simpson was a Republican from Wyoming, and uh Erskine Bowles was a Democrat, former chief of staff, I believe, that for one or two presidents. But some renowned guys, some serious guys, and they formed a commission that was bipartisan and they were tasked with fixing the debt. And they had uh a number of different solutions for that. But basically, if they if their plan had passed, it would have initially brought the debt load down to about 60% of GDP. So I just told you earlier that we're at 120-ish. That would have brought it down to 60%, with eventually if they would stick to it, bringing it down to 40%. This was real reform. This was real, let's put our fiscal house in order. And it was uh it was an attempt and and that got quite a bit of an had a quite a bit of inertia behind it, and ultimately it failed. And that is interestingly, that's the time period in 2010 where I was involuntarily resigned from politics. And I was kind of optimistic back in those days because I thought there, that there were serious people working on this problem and maybe we could do something about it. And when that failed, that took a lot of my optimism out. I had to become more realistic about we don't seem to have the political will to do anything about this. Within a year or so later, though, there was an attempt again by President Obama to do what they generally called the grand bargain. There were discussions um working with Republicans and like making this his legacy moment, I think is the way with John Boehner. I don't know if you remember, they used to have beers together and golf together. So they're trying to build an old school Washington friendship. And I don't know, it worked for a minute. I think Obamacare probably killed it. But there was discussion of a grand bargain and maybe some serious talk, but I don't think it got as serious even as uh the Simpson Bowls Commission did. And it didn't work out. Um, each side rejected their part of it because it hurt their votes. And I go back to the biggest problem we have is the expectation of the American people. I think that Social Security is an amazing program, has an amazing history. I think there's so many good government programs. I also think that higher tax rates are fine. I certainly don't mind paying higher tax rates. This country was very good to certainly my family, my father, and it's been incredibly good to me. You know, the tax rates are probably actually where they are right now, are probably fine. That's not going to fix the overall problem. The debt is going to continue to grow and grow and grow. So there's a pattern. Everyone agrees there's a problem, but nobody wants to own the solution. And so that's going to cause all kinds of issues. Like with Social Security, if they don't do anything, if they don't make any substantive changes, and an easy change is just you increase the retirement age a year every one, you know, maybe every 10 years. So it, you know, it's 66, 67, 68, 69, it's it that's the direction we're heading. And the math becomes so much easier. And I get that people um think that that, you know, you're cutting what somebody earned, but that that's not really the case. In 1935, when Social Security was coming on board, not that many people lived to be 65 years old. And because of the marvels of modern medicine and this sort of thing, uh, we we live longer. And that's that's great. But the program needs to be connected to a uh you know how long a person lives and the longevity of a person's life. So, you know, where are we at? Like where is this whole thing gonna end? Well, I don't think it's gonna end in a good place. So we'll I'm gonna introduce a book to you uh that's called Prosperity in the Age of Decline. It's written by Brian Belou. I'm not sure how to say that, B-E-A-U-L-I-E-U, if you want to get your copy on Amazon or something. And then I'm not sure if Alan is his brother, but Brian Beleu and Alan Belou, and it's called Prosperity in the Age of Decline. I've read it, and the short of it is this it's all the things that you would imagine that are structurally causing this problem. It's Social Security, the growth of it, Medicaid, it's our national defense. You know, there was a time uh in the 1990s when Bill Clinton was president and the Iron Curtain had fallen, that we they called it the peace dividend. And we did, we closed a lot of bases and we didn't have to spend as much on defense. And that was because we won. Similar, go back to World War II. We won the war, so then you the troops come home and you don't need as massive a military. And so it was a good thing that we won the Cold War. Uh, but more recently, we just keep spending money on the military and it it grows, and it's just such a it's not gonna get small, is my point. It might stay where it's at relative to GDP a little bit, but it's it's not gonna get smaller. So that's a massive expenditure. Healthcare, and and when I say healthcare, both the cost of healthcare, which everybody hears about all the time, but also the fact we are this country is getting older. And that's good in some ways uh because you know, people live longer, and that's it's a very that's a very positive thing. It represents real mathematical challenges because you got to take care of those folks. They can't take care of themselves when they get to a certain age, so they require a tremendous amount of health care, and those costs go up, you know, when you have a a graying population. But then the other point of the flip side of that is you don't have a relatively speaking, you don't have as young a population who's contributing to the economy. And I'm a big proponent of legal immigration. And I think one of the ways to potentially solve our way out of this would be to have a lot, lot, lot more legal immigration, younger uh immigrants coming to this country who could help with those the math on Social Security. I don't see that happening, especially under the current Trump administration. It's probably quite the opposite. And then interest on the debt. And, you know, if you've got a banking background, accounting background, or you've just over had a loan, kind of what's going on right now is we're not, so we're not paying back any principal. It's like the debt is an interest-only loan. So if you think about it, let's say you you got a lot of money and you go buy a million-dollar house. Well, if you can, if you got the income to do it, that's fine. But then if if I were to tell you, yeah, but you're not even paying principal. You're just paying interest only, like five years at a time and hoping the interest rates go down, you're just renting a million-dollar house at that point. You don't own anything because you're not paying down the debt. So there's a lot of consequences to this. And uh, this is a great book. And in in short, it it kind of predicts uh a depression that probably round about 1930. So not long from now at this point, four or five years from now, that could last a decade. And uh it it's a sober read. I'll just leave it at that. So but I think the struct structurally, none of this stuff is I just don't think it's up for debate. Now, as I kind of bring bring this episode more toward a conclusion, where does this end? Like what happens? For a long time, I hoped the way that it ended was we as an American people and as a U.S. government did something about it. I I don't see it happening. I I see no evidence that that's gonna happen. I think what's gonna happen is we're likely to have another Great Depression. And whether or not you believe that's that's the the premise of this book that I just told you about, is that we're gonna have another Great Depression. But even if you don't believe that, you got to believe there's got to be some type of reckoning. Because go back to my analogy. You got a 180-pound person who's at 400 pounds, some negative health consequence is gonna happen. The good news is the this country won't die. I believe that. I'm optimistic about our institutions and about the freedoms we have. I'm optimistic about the capitalist way of life, you know, properly regulated, that we can come out of it. But in general, I think that we might suffer a major heart attack as a country because we weigh 400 pounds as our debt when we need to weigh 180 pounds, and that that major heart attack or stroke is going to be crippling for quite a while. And there's all kinds of consequences for that. It's gonna hurt us as the American population, it's particularly gonna hurt people who are on government benefits. It's I would think that the unemployment rate will go up a lot. So it's gonna hurt everybody. It's gonna anybody who doesn't have savings, and that's most of the country, I'd say at least half the country. And also it's it hurts our ability to be a dominant power in the world. It because when when someone has leverage over you, when you owe the bank a lot of money, and when you own a house, and I'm I'm sure there's people out there, again, who've been in this situation, listen to this podcast, when you buy a house at the top of the market and the price of that home goes down, and then you lose your job, you can't sell it. Your asset, you put you paid too much for it, and it's devalued, and you can't make the payments, it's gonna be foreclosed upon. I'm not, I don't know the perfect analogy, folks, of what's gonna happen, except I'll kind of move to the end of this episode by saying this. How concerned should we be about the debt of over$38 trillion in the United States? Very concerned. That's point number one. Point number two, it's not a partisan issue, it's not a left-right issue, there's no silver bullets out there. There just aren't. And I quite frankly, people who are politicians who are telling you that are purposely being deceptive for their own individual interests. And number three, I think I'll just say there's a 95% chance that the way we come out of this is basically a massive economic depression that could quite frankly last for years, could be, could last for five or 10 years. And it would be a reset of everything, a reset of expectations, a reset of our economy. And I don't, you know, whether it's something like AI that precipitates it, I think that's all a factor. But I think this is, by the way, this book was written like 14 years ago or something. Like it, this isn't a new prediction. So the only thing I can be optimistic about is some of us, I think, are preparing for that. I want you to be one of the people who's preparing for that. And if you disagree with me, if you've got a counterpoint, uh, especially on my Instagram, reach out to me. But I think this is a math-based argument, and I don't see a way out of it short of some real pain being if economic pain be inflicted upon our country. So that is for this week, that is the POV of POB.