Atlantic Edge Insights
June 2025
A Tale of Two Balance Sheets
With a new spending bill in Congress, a recent downgrade of U.S. Treasury bonds, and another debt ceiling showdown on the horizon, concerns about the federal debt are rising again. Since 2000, federal debt has more than doubled relative to GDP—from 54% to over 120%. The proposed congressional budget does little to stem this growth, and the federal government’s current fiscal trajectory appears unsustainable.
But focusing on federal debt alone misses the broader picture of the nation’s financial health. While Washington has continued to borrow aggressively, both households and corporations have strengthened their balance sheets since the 2008 Global Financial Crisis (GFC).
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When When people talk about “the national debt,” they usually mean federal government borrowing. But the full picture of U.S. debt also includes household and corporate debt—and that part of the story is more encouraging. Unlike the federal government, which continues to run large deficits and rack up interest payments, households and businesses have largely improved their finances over the past decade. They've benefited from paying down debt, rising incomes, and a long stretch of low interest rates.
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Since 2008, household debt has declined as a share of GDP and now stands around 70%. Much of this debt is tied to mortgages with low fixed rates, backed by assets that have appreciated significantly. Corporate debt has also moderated, falling below 50% of GDP. A large share of which is held by profitable firms with strong balance sheets and ample access to capital.
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Still, federal borrowing remains a key economic risk. According to the US Treasury, interest payments on the national debt were $1.2 Trillion last year. As long as economic growth rates outpace Treasury interest rates, the government can manage its debt load. However, persistent deficits risk driving up long-term borrowing costs and could create a debt death spiral, which would likely result in austerity measures being implemented. Despite the fearmongering, this is not today’s problem – but it will be tomorrow’s constraint if Washington cannot reign in future deficits.
Atlantic Edge Insights
Matthew Cochran, CFA
Robert Filosa, CFA
Ethan Caldarelli, CFA
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