Timothy Nash, Bob Thomas & Anthony Storer | May 29, 2025
(RealClearWire) — Recently, Moody’s Investors Service became the final major bond rating agency to strip the United States of its coveted AAA credit rating. Citing the ballooning national debt, chronic budget deficits, and the burden of rising interest rates, Moody’s downgraded U.S. debt to Aa1—placing America on par with Austria and Finland, and below countries like Germany, Switzerland, and Canada who carry the highest rating.
In their May 16 Wall Street Journal article, “U.S. Loses Last AAA Credit Rating,” reporters Matt Wirz and Sam Goldfarb highlighted the agencies’ growing skepticism. Moody’s joined Fitch (2023) and S&P Global (2011) in expressing deep concern about the U.S. government’s lack of a credible plan to bring spending in line with revenue. The trend reflects a two-decade failure of successive administrations and Congresses to correct course.
The agencies’ message is simple: Investors from Wall Street to Main Street are losing confidence in America’s fiscal discipline and now demand higher returns to lend money to the U.S. government.
Finally, the U.S. treasury’s 20-year bond auction on May 21 was unusually weak, raising concerns about investor’s willingness to fund government, particularly amid worries about the deficit and the “Big, Beautiful Bill.” Investors demanded a higher yield than expected, indicating a desire for a greater return to compensate for the perceived risk of lending to the U.S. government.
The Real Cost of Spending Without Limits
As of May 18, 2025, the U.S. national debt stood at $36.8 trillion, about $108,000 per citizen or $323,000 per taxpayer. That total equals nearly 123% of America’s GDP, a sharp contrast to the 34.6% debt-to-GDP ratio in 1980 or even the 53.9% ratio at the close of 2000.
Add in state and local debt, $1.063 trillion and $2.091 trillion respectively, and the debt load climbs even higher, with an additional $9,250 burden per person.
Much of this stems from unrelenting federal spending. The current budget (President Biden’s last) proposes $7.1 trillion in expenditures, including a staggering $2 trillion deficit. One of the most alarming figures? The federal government now spends more on interest payments—over $1 trillion annually—than on national defense. Interest is the third-largest line item in the entire federal budget, following only Social Security and Medicare/Medicaid.
So how did we get here?
In 2001, the national debt was a manageable $5.7 trillion. The previous administration, under President Clinton, worked with a Republican-led Congress to balance the federal budget for the final two years of his term. But since then, bipartisan discipline has evaporated. Federal spending as a percentage of GDP has surged, even as economic growth and inflation alone can’t explain the increases.
To put it into perspective: since 2000, the U.S. consumer price index has risen 90.4%, GDP has nearly tripled, but the national debt has grown more than 547%. That’s not just unsustainable, it’s irresponsible.
Federal Spending as a Share of the Economy: A Troubling Trend
We propose that American voters focus on two essential metrics when evaluating federal fiscal health:
- National debt as a percent of GDP
- Annual federal spending as a percent of GDP
Both tell a story not just of fiscal responsibility, but of the federal government’s growing reach into the economy.
According to data from the Federal Reserve Bank of St. Louis:
- In 1929, before the Great Depression, federal spending was just 2.99% of GDP.
- By 1945, during World War II, it peaked at 40.66%.
- In 2000, when the budget was balanced, it was a modest 17.45%.
- In 2019, before the pandemic, 20.65%.
- Then came COVID: 30.69% in 2020 and 28.81% in 2021.
- As of this year, it’s still at 24%, well above pre-pandemic levels.
The pandemic required emergency spending. But that emergency has long since passed. Why, then, are we still spending at near-crisis levels?
A Call for Fiscal Restraint and Accountability
If Washington were to return federal spending to the 2019 level of 20.6% of GDP—a level that sustained the economy and preserved key services—the federal government could cut nearly $1 trillion from its current budget. This would bring the nation significantly closer to fiscal balance.
To start, Congress and the President should commission a straightforward report comparing the 2019 and 2025 budgets, detailing:
- Which programs have grown beyond their original scope
- Which temporary COVID-era initiatives remain
- Which entirely new programs have been introduced
With that information in hand, voters and lawmakers alike could identify areas for responsible reduction by asking questions like: why do we need to continue Biden-era massive subsidies for windmill and solar panel farms across the U.S. if they are the cutting edge wave of the future? Or, why should the U.S. government continue to subsidize the food and housing of immigrants who entered the United States illegally?
This isn’t a radical idea. It’s a reasonable, transparent, and necessary step toward restoring trust and efficiency in government.
Warnings We’ve Heard Before
The late historian George Santayana famously wrote, “Those who cannot remember the past are condemned to repeat it.” Our current fiscal trajectory suggests we’ve forgotten important lessons.
Consider three wise voices of warning—one from the past, two from the present:
Ronald Reagan, reflecting on his presidency, regretted the 168% increase in national debt on his watch—even as he presided over economic growth, defeated inflation, and helped end the Cold War. Reagan recognized that national security and prosperity should not come at the cost of runaway borrowing.
Federal Reserve Chair Jerome Powell echoed a similar concern in a 60 Minutes interview in February 2024:
“Now is the time to start addressing our $34 trillion and rising national debt. The U.S. federal government is on an unsustainable fiscal path…. It’s probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path.”
Powell, like most economists, acknowledged the necessity of emergency pandemic spending, but insists that time has passed.
Finally, legendary Wall Street investor and founder of Bridgewater Associates Ray Dalio, in his soon-to-be released book, How Countries Go Broke: The Big Cycle (June 2025), maintains a nation’s annual deficit should not exceed 3% of GDP, while our current deficit is running at almost 6.6%.
Growth Helps—But Only If Paired With Spending Control
There is hope. History shows that sustained economic growth can reduce debt as a share of GDP. After World War II, U.S. debt exceeded 120% of GDP, similar to today. By 1980, it had declined to just 34.6%, largely due to robust private-sector expansion.
Economic growth matters. But it must be accompanied by spending restraint. Tax policy and regulatory reform can help spur innovation and productivity, but those gains must not be erased by unchecked government expansion.
In that spirit, the American people must demand:
- A return to pre-pandemic spending levels where appropriate
- Annual comparisons of budget categories
- Clear justification for any increases above historical norms
- A long-term plan to reduce debt as a percent of GDP
Conclusion: Restoring Confidence Starts With Us
The Moody’s downgrade is more than a symbolic gesture, it’s a wake-up call. It reflects real concern from global investors, economists, and everyday Americans about the long-term sustainability of U.S. finances.
We, the voters, must own part of the responsibility. Have we held our elected officials accountable? Have we asked tough questions about budget priorities? Have we accepted endless spending because the bill doesn’t come due right away?
This isn’t a partisan issue, it’s a national one. Fiscal discipline, transparency, and accountability are not radical demands. They are the foundation of sound governance.
Let us learn from our past. And let us work together across political lines to return America to a sustainable, responsible, and respected fiscal path.
Dr. Timothy G. Nash is director of the McNair Center at Northwood University. Mr. Bob Thomas is COO of the Michigan Chamber of Commerce. Mr. Anthony Storer is an Economics major at Northwood University.
This article was originally published by RealClearMarkets and made available to WMAL via RealClearWire.
