Intro
Gross domestic product (GDP) is the total value of goods and services produced in a country for a year. Federal debt relative to GDP is a function of the nation’s overall economic condition. Governments tend to increase borrowing to stimulate growth and boost demand during periods of unrest, such as recessions or wartime, but high levels of debt can slow economic growth.

Debt-to-GDP Ratio
A country’s debt-to-GDP ratio is an indicator of how well the country can continue paying interest on its debt; the higher the ratio, the higher the risk of default, and the more difficult it will be for the country to pay off its debt. The United States debt-to-GDP ratio has risen steadily since 1980, and then jumped sharply following the 2008 housing crisis and subsequent financial meltdown.

The Past
The 2008 recession had a great impact on the debt-to-GDP ratio of the United States. In 2008, the ratio was approximately 36%, which rose to 59% in 2009, and has continued to increase in the years since. In addition to the adoption of the Dodd-Frank Act, which implemented regulations based on the financial crisis, the United States undertook various other actions to mitigate and stabilize the economy after the housing crisis, including the Housing and Economic Recovery Act (HERA) and the Emergency Economic Stabilization Act (EESA). Of the government’s total debt at the end of the fiscal year 2008, approximately 58% was held by the public.

During the 2020 pandemic, the United States Treasury ramped up borrowing, causing debt held by the public to increase by $4,210 billion - the largest annual dollar increase in history. This trend continued in 2021 as the government worked to implement legislation that would mitigate the effects of COVID-19, such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act. 2020 saw an all-time high debt-to-GDP ratio of approximately 103%, which again increased in 2021 to 105%.

Looking Ahead
As the United States continues to reel from the lasting effects of COVID-19 and new legislation is enacted, such as the American Jobs Plan (AJP) and American Families Plan (AFP), the debt-to-GDP ratio is likely to continue increasing before stabilizing. Projections show the ratio starting to rise again by the middle of the decade, reaching 110% of GDP by 2032 and continuing to rise. This projected increase is largely due to the aging of the population and increases in health and interest costs, which will cause spending to grow faster than GDP while revenues continue to grow proportionally to GDP.

GDP Limitations
GDP as an economic welfare indicator has its limitations. The rationale of using GDP as a welfare indicator is based on the assumption that economic activities directly indicate the economic welfare of citizens, but it is argued that these simply coincidentally correlate. Further, GDP doesn’t consider the distribution of wealth of a nation or the total production of a nation since the number only reflects the average net production of the country. Perhaps the biggest GDP flaw is the failure to differentiate between detrimental and beneficial production. GDP increases in the presence of detrimental activities such as oil spills, pollution, and disease outbreaks, because the government invests heavily in resources to mitigate effects. During these activities, the welfare of the population remains the same or is worse due to the detriment.

Summary
Despite the limitations GDP poses, the historical analysis of a country’s debt-to-GDP ratio continues to be a prime indicator of economic welfare and sheds light on the country’s responses to various important events.