America's $27 Trillion Debt, Explained

America has a debt problem. This is why.

America's $27 Trillion Debt, Explained

America has a debt problem. The country has a national debt of $27 trillion, and for the first time since World War II, the nation's debt is larger than its economy.

But being in debt is nothing new for this country. America was quite literally born into debt — we had a debt-to-GDP ratio of about 30 percent back in 1790. For America and its citizens, being in debt is as American as apple pie.

But debt is a difficult thing to visualize. These charts, maps, graphs and infographics can help. Take a look at America's debt problem — from its $27 trillion (and rising) national debt to the debts of its citizens.

Percentage of World Debt by Country

The United States owns over one-third of the world's $69 trillion debt.

It's more than that now, too, because this graph was created in November 2019 using 2018 numbers.

We now know U.S. debt is at $27 trillion and growing.

GDP by Country: The World's Biggest Players

For reference, this is what the GDP of every country looks like in relative size.

The United States accounts for roughly 25 percent of the world's economy, followed by China, Japan, Germany, India and the United Kingdom.

Who Owns America's Debt?

We've all heard that "China owns the majority of the U.S. debt" and they will, one day, somehow, own the entire country. It's not that simple.

Japan is America's largest debt holder, holding roughly 18.67 percent, or $1.27 trillion, of the country's debt. China owns 15.88 percent, or nearly 1.1 trillion.

The reason why these countries and others buy U.S. debt is because it's safe. Debt is sold in the form of Treasury notes, bills and bonds, which are historically a safe bet for long-term appreciation. Other countries' demand for our Treasurys keeps America's interest rates low, which increases federal spending and helps economic growth.

If China (or Japan) decided to call in its Treasurys, the dollar would collapse, and it would trigger a global economic depression worse than the 2008 financial crash. There are no winners in that scenario, especially not China, which relies on U.S. Treasurys to boost its economy and establish its creditworthiness.

Additionally, if China sold off its Treasurys, the cost of Chinese products would cost drastically more to produce, and China would effectively be crippling itself on purpose.

Debt-to-GDP Ratio Around the World

In this chart, countries in the red have a debt-to-GDP ratio of at least 50 percent with darker shades indicating a greater ratio.

Japan has an enormous debt-to-GDP ratio and makes up 17 percent of the world's debt, even though its GDP is about a quarter of the United States' GDP. The country breached the 100 percent debt-to-GDP ratio in the late 1990s and has a ratio of 240 percent in 2020. Japan is financed by its central bank with about 90 percent of its debt held domestically.

This map was created using 2018 numbers, so it's pre-pandemic.

Major Events That Increased U.S. Debt

The United States has never been without debt. When the country was established, it had around a 30 percent debt-to-GDP ratio with about $75 million in debt in 1790.

The country's debt-to-GDP ratio increased gradually since 1930. After WWII, in 1946, the debt hit 106 percent of the GDP. It would take another 74 years for the country's debt to become larger than its GDP, and that's because of the pandemic.

Of course, things really started going off the rails in the 2000s, thanks to tax cuts and the War on Terror/Iraq War, and then the Great Recession.

COVID-19's Impact on the National Debt Levels

National debt of the United Sates since 1934

Using exact dates, we can visualize just how much debt the COVID-19 crisis caused.

The United States spent $5.5 trillion from the spring to the winter of 2020 in economic relief.

Of that, just $290 billion came in the form of one $1,200 paycheck for most Americans.

Federal Spending Vs. Revenue Since 1985

America hasn't had a budget surplus since the late 1990s to early 2000s.

The Great Recession caused lots of federal spending in bailouts and quantitative easing to buoy the economy.

But even those expenditures pale in comparison to the government's pandemic relief measures.

Federal Spending Vs. Revenue: A Breakdown

This chart breaks down where the country's revenue comes from and how it spends it. Half of America's revenue comes from individual and payroll taxes, while corporate taxes only contribute 7 percent.

Of America's $1.3 trillion in discretionary spending, the majority of it — 15.4 percent — goes to funding the military. Education, housing assistance, science and health make up between 1 and 2 percent each.

Breaking Down the Defense Budget

The biggest expenditures in the country's defense budget are compensation and medical care, which make up 40 percent of the budget, while research and development make up 13 percent.

Defense Spending Compared to Other Countries

U.S. defense spending vs. other countries

The United States' defense spending absolutely dwarfs all other countries.

If you add up the defense budgets of the next 10 countries that spend the most on defense, the United States would still spend $6 billion more per year on its military than all of them combined.

Breaking Down the Federal Tax Dollar

Here's a visualization of where one federal tax dollar is spent. The 2018 tax dollar breakdown is virtually identical to the 2019 tax dollar.

You might be thinking, "Hey, we spend a lot on health. That seems weird, because our health insurance system is broken and an ambulance trip without insurance would bankrupt me." You'd be right.

Health spending is categorized as major health programs like Medicare, Medicaid, income security programs (like SNAP), Social Security, federal retirement programs and veteran's programs.

Visualizing $1 Million

All of these numbers are so enormous they're incomprehensible, practically speaking.

To get a feel for just how much money we're talking about, Visual Capitalist made some nifty graphics using stacks of $100 bills. Each of the tiny stacks wrapped in paper are worth $10,000.

This is what $1 million looks like. The median U.S. household will earn $1 million in gross pay over 19.3 years. Not including taxes, of course.

Visualizing $100 Million

The pallet of money is worth $100 million, and the couch is worth $46.7 million. Woman for scale.

Visualizing $1 Billion

This is what $1 billion worth of $100 bills looks like.

Multiply this image by 182, and you'll have Jeff Bezos' net worth.

You would quite literally need an Amazon warehouse to store it all.

Visualizing $1 Trillion

A trillion dollars is something else entirely. This amount of money is just staggering.

It's more square footage than the White House and enough bills to cover several football fields from end to end.

Visualizing $20 Trillion

This is $20 trillion in 2017, when the U.S. had significantly less debt.

It's enough to brick-in (money-in?) the Statue of Liberty with towers of money as tall as skyscrapers.

Spending on Interest Vs. Other National Priorities

The other terrible thing about debt is that it accumulates interest. While the national interest rate has been very low, the amount of interest accumulated is staggering because of the debt's size.

Between 2010 and 2019, the government spent $2.5 trillion just on its net interest costs compared to $4.5 trillion in total on veterans services, education, transportation, administration of justice, and the environment.

Debt Owned by the Public Vs. Debt Owned by the Government

There are two types of debt.

One is called intragovernmental debt, which is a debt owed by one government entity to another government entity (usually held in trust funds, like Social Security and Medicare trust funds). The other is public debt, which is held by any non-government entity. That includes individuals, corporations, banks, small businesses, insurance companies, and local governments.

Public debt accounts for the majority of the U.S. debt.

Debt Per Capita in Every State Compared to the National Average

States can also operate in the red, and many of them do. This chart visualizes how much debt per capita each citizen shoulders in their state. The national average is $3,566.

Tennesseans carry the lightest amount of debt, with a per-capita share of $924. Massachusetts has the highest amount of debt per capita, with each resident owning $10,989.

It's not as simple as saying states with the most debt are worse off, though. States that take on more debt may be more willing to invest in its citizens and its infrastructure, while states that have little debt may be unwilling to borrow and do little to reinvest back into the populace.

State Spending Vs. State GDP

California has the highest GDP out of all states, nearing $3 trillion. Texas comes up second with $1.74 billion, followed by New York with $1.65 billion and Florida with $1.05 billion. Vermont has the least amount of GDP, followed by Wyoming, Montana and Arkansas.

The good news is that every state has a GDP that vastly dwarfs its debts.

Total Debt Per Capita in Each State

When you hear people talk about the debt crisis, this is usually what they mean. Looking at the nation as a whole, the average American is $90,460 in debt. This chart breaks down consumer debt per capita in each state. It includes mortgages, student loans, credit cards, car loans and any other consumer debt.

The top five states with the most debt per capita:

1. District of Columbia: $86,730
2. Hawaii: $72,590
3. California: $71,860
4. Colorado: $71,340
5. Maryland: $71,120

The bottom five:

1. West Virginia: $29,430
2. Mississippi: $32,100
3. Arkansas: $32,790
4. Kentucky: $34,010
5. Oklahoma: $34,370

Breakdown of Debt-Per-Capita in Each State

While the previous chart looks dire, there is some good news.

The majority of outstanding debt is mortgage debt, which is a good debt.

Total Outstanding Mortgage Debt Since 1953

As housing prices increased, so has mortgage debt. And they really did have it easier in 1940. When adjusting for inflation, the median cost of a house in 1940 was $30,600. That's basically the price of a decent car today.

By 2019, the median home price across all housing units was $217,500.

So it's no surprise the total outstanding mortgage debt had soared to $15.44 trillion by 2018.

Assets and Debts Across Millennials, Gen Xers and Boomers (Adjusted for Inflation)

Assets and debts for millennials, boomers and gen xers

This graphic compares the assets and debt across three generations, with numbers adjusted for inflation.

According to HowMuch, millennials have more equity in their homes than baby boomers in 1989, but much less than Gen Xers, who had more equity in their homes in 2001.

Millennials have more savings than previous generations but are saddled with more debt.

Student Debt Balance Per Capita By State

Talking about student debt is tricky, because on average, it costs around $100,000 for a four-year degree at a public college with in-state tuition, and the average total debt of college graduates who took out a loan is $30,000.

This graphic takes a look at student loan debt burden per capita by state.

The top five:

1. District Of Columbia: $13,320
2. Georgia: $7,250
3. Maryland: $6,740
4. Minnesota: $6,280
5. Ohio: $6,220

The bottom five:

1. Wyoming: $3,610
2. Hawaii: $3,780
3. West Virginia: $4,020
4. Alaska: $4,030
5. New Mexico: $4,070

Average Credit Card Debt in Every State

Americans owe around $1 trillion in credit card debt. This graphic shows the average amount each person in each state owes.

The yellow dot indicates how many months it would take to pay off that debt by applying 15 percent of a household's monthly income (as determined by the state's average household income) to the balance.

Most people require at least a year to pay off their credit card debts this way.

Biggest Owners of Corporate Debt

Generally, corporations don't pay much in taxes. But they hold a good chunk of debt, with non-financial corporate businesses holding about $9 trillion of America's debt. These are the companies with the most long-term debt.

The top five with the most long-term debt:

1. AT&T (Telecommunications): $166.3B
2. Comcast (Telecommunications): $107.3B
3. Verizon (Telecommunications): $105.9B
4. Ford Motor (Motor vehicles & parts): $100.7B
5. General Electric (Industrials): $95.2B

The top five companies with the highest debt-to-equity ratios:

1. General Electric (Industrials): 8.35
2. UPS (Mail, package & freight delivery): 6.56
3. Ford Motor (Motor vehicles & parts): 2.
4. FirstEnergy (Utilities): 2.61
5. Amgen (Pharmaceuticals & Health Care): 2.36

The Debt Ceiling Always Rises

The whole debt ceiling debate, which we will all hear about in the near and far future, is moot. If we can learn anything from history, the debt ceiling will always be raised when it needs to be, regardless of who is in office.

The debt ceiling doesn't address why the debt is so high, or how to fix it in any way. It's basically a political tool so people can sit around, point to government spending, and then go back to ignoring why the debt is where it is.

On the plus side, it shifts the news to start talking about the debt and serves as a reminder.

One-Year Change in Debt-to-GDP Ratio Around the World

This chart illustrates the continual rise of debt-to-GDP ratios in countries around the world from Q4 2019 to Q3 2020. Due to the pandemic, global debt has increased by $20 trillion since Q3 2019. The global debt is projected to reach $277 trillion by the end of 2020.

Canada's debt-to-GDP ratio increased by almost 80 percent over this period, largely due to the Canada Emergency Response Benefit, which provided up to $2,000 a month to struggling Canadians at the cost of $80 billion.

On the flip side, Australia reduced its debt-to-GDP ratio, but that's not all good news. Australians took out $42 billion in their superannuation savings, akin to Americans cleaning out their 401(k) to pay the bills now.

Projected Income Loss Due to Federal Debt

The national debt isn't just abstract numbers.

According to the Congressional Budget Office, a family of four will lose an average of $16,000 over the course of 20 years if the debt rises as it does under current law.