The Debt and Deficit Dilemma

February 13, 2025 | Peter Como, CFA, CAIA, Associate Research Analyst, Frank Valle, CFA, CAIA, Associate Director of Fixed Income

The new year brings a new political administration with fresh approaches and drastically different perspectives on topics ranging from immigration to foreign policy. As the Biden era exits and another Trump era begins, federal spending and the deficit persists. Borrowing began with financing the Revolutionary War, and it is as American as baseball and apple pie. The national debt clock in Manhattan has a massive figure of over $36 trillion that is owed by the government to holders of Treasuries. Talks of the deficit and debt ceiling emerge every year and politicians put off the issue rather than finding ways to reduce borrowing by increasing taxes and/or reducing spending. Will there ever be any repercussions to running such a high deficit?

While you will never see an explicit bill from the government with your family’s share due, there is a limit to the amount the U.S. can borrow without any consequences. This paper will give the reader an anatomy of the deficit and debt, consequences of running such a high deficit, and summary of the high-level solutions that have been proposed.

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