U.S. Federal Debt Has Passed 120% of GDP
Public debt as a percentage of GDP since 1966
U.S. federal debt-to-GDP surpassed 120% during COVID and remains elevated. Despite doomsday predictions, the stock market has continued climbing alongside rising debt. The historical correlation between debt levels and equity returns is weak.
What history says
Editorial commentary written by ALAN analysts. Figures cited below are analyst-authored context — they are not derived from the chart above and may reflect different windows or sources.
Japan has had 200%+ debt-to-GDP since the 2000s with low but positive equity returns. The US had 120%+ debt-to-GDP during WWII followed by the strongest bull market in history.
At 2% interest rates, 120% debt-to-GDP costs 2.4% of GDP to service. At 5% rates, it costs 6%. The fiscal squeeze comes from RATE, not from LEVEL. Current rates make the debt more binding.
Investors who have sold equities due to debt concerns over the past 40 years have consistently underperformed. The timeline on which debt becomes a binding constraint is unknowable.
File debt-to-GDP under monitor, not trade: the productive response is stress-testing your bond allocation against the higher-rate world that makes debt service binding — duration, inflation-protected exposure, maturity laddering — not cutting equities on a concern that has underperformed as a sell signal for four decades.