Federal Debt Is at 122% of GDP

122%

The U.S. national debt is sitting at 122% of GDP.

To put that in context: going into the 2008 financial crisis, it was 67%. The crisis response pushed it to 101% by 2013. COVID pushed it to 133% in 2020. It's since come down, but only to 122% and it's been steadily rising.

The chart below shows the full trajectory since 1966. The downward slope from the late 1960s to 1981 is the last extended period the U.S. was meaningfully paying down its debt relative to the size of its economy. Everything since has been an upward ratchet, interrupted briefly by the Clinton-era surplus in the late 1990s before resuming its climb.

That trajectory has consequences that show up in two places.

The dollar. The U.S. Dollar Index is sitting near 98. That's well off its 2022–2023 highs when it touched 114. A government carrying 122% debt-to-GDP is a less attractive borrower than one carrying 70%, just as a person carrying a 122% debt-to-income ratio would never qualify for a mortgage. The U.S. government doesn't get rejected outright, but foreign buyers of Treasuries do get more selective. As U.S. rate advantages narrow, the dollar loses the confidence premium it's historically commanded.

International stocks. The EuroStoxx 600 is up more than 17% this year. In 2025, international equities beat the S&P 500 by nearly 14%. Part of that is valuation: European stocks trade at roughly a 30% discount to U.S. stocks. Part of it is earnings growth from ECB rate cuts and fiscal stimulus. But part of it is dollar math: when the dollar softens, foreign returns translate back stronger for U.S. investors.

Until next week,
Jacob

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