Current Snapshot: Debt, Deficits, and the Debt-to-GDP Ratio
As of early July 2025, the U.S. national debt stands at approximately $36.2 trillion. That’s more than $106,000 per American citizen.
The debt-to-GDP ratio hovers around 121% — slightly down from 124% in late 2024 but still alarmingly high by historical standards.
The fiscal year 2025 deficit has already reached $1.3 trillion by June, as federal revenues have grown 7% year-over-year while spending has increased by 5%.
This means the U.S. is borrowing nearly 20 cents of every dollar it spends — a pace that would have been unthinkable outside wartime just a few decades ago.
The Liquidity Lifeline: Federal Reserve Repo Operations
The U.S. repo (repurchase agreement) market, a crucial short-term funding mechanism for banks and Wall Street, is massive — estimated at $11.9 trillion in 2024. Of this, about $4.6 trillion is in non-centrally cleared trades, making it less transparent and more vulnerable in a crisis.
In April 2025, the market remained orderly, with Treasury repo rates such as TGCR and SOFR staying within normal ranges. This stands in stark contrast to the chaos of March 2020, when repo rates spiked and liquidity froze.
The Fed’s ongoing presence in the repo market is keeping borrowing costs stable for financial institutions, indirectly supporting the broader stock and bond markets.
Investor Confidence and Credit Risk: Flashing Warning Lights
Ray Dalio, billionaire investor and founder of Bridgewater Associates, warns that the U.S. is drifting into a “debt death spiral” — where new borrowing is primarily used to service existing interest payments. Dalio likens this to “plaque before a heart attack,” a slow build-up toward sudden crisis.
In May 2025, Moody’s downgraded the U.S. credit rating, following earlier cuts from Fitch and S&P. This puts upward pressure on interest rates for new debt issuance and erodes investor confidence.
The U.S. Treasury issued $815 billion in new debt in the first quarter of 2025 — a 12% year-over-year increase — signaling accelerating funding needs that could test the market’s appetite for U.S. debt.
Weak Growth Meets Stubborn Inflation
The U.S. economy grew at just 1.2% annualized in the first half of 2025 — sharply lower than the 2.8% growth recorded in 2024.
The slowdown reflects a weaker labor market, with July’s jobs report showing soft hiring and declining wage growth. Added to this is the drag from new tariffs announced in April, which have raised costs for both businesses and consumers.
Federal Reserve Governor Michelle Bowman has voiced support for three potential rate cuts in the coming months to counter the slowdown, even though inflation remains above the Fed’s 2% target. This puts the Fed in a tight policy corner — loosening too much risks reigniting inflation, while tightening could tip the economy into recession.
What This Means for the Stock Market and the Economy
➊. Rising debt and deficits leave the U.S. more vulnerable to sudden financial shocks.
➋. Repo market interventions by the Fed are keeping liquidity flowing, but act as a short-term patch, not a permanent fix.
➌. Credit rating downgrades and investor anxiety risk pushing Treasury yields higher, which could ripple across mortgage, auto loan, and corporate borrowing rates.
➍. Weak growth plus high inflation — a stagflationary mix — complicates policy decisions and can undermine equity valuations.
➎. A sharp stock market correction or a deeper GDP slowdown could quickly turn the current fiscal imbalance into a debt crisis.
The Quiet Reckoning Ahead
The United States now stands at a fiscal crossroads:
$36+ trillion in debt
Multiple credit downgrades
An economy is slowing under the combined weight of high borrowing costs, trade restrictions, and elevated inflation
Markets are holding steady for the moment — largely due to Federal Reserve liquidity support and continued investor faith in U.S. assets. But if that faith falters, borrowing costs will spike, fiscal flexibility will collapse, and volatility will surge.
Bottom Line
This is not a distant theoretical problem. The debt load is real, the risks are real, and the warning signs are flashing. The U.S. still enjoys the privilege of issuing the world’s primary reserve currency — but history shows that such advantages can erode faster than expected.
The next financial shock — whether from markets, geopolitics, or policy missteps — could be the moment the bill truly comes due.
Written by
Eelaththu Nilavan
09/08/2025
The views expressed in this article are the author’s own and do not necessarily reflect Amizhthu’s editorial stance
