Back in 2011, while other kids were having fun, I was following the increase to our national debt. US federal debt was above $14 trillion, Standard & Poor’s had just lowered our credit rating, and economic papers were saying a country has entered the danger zone when its debt to GDP ratio reaches an excess of 90%. An economic crisis had to be just around the corner. Except it wasn’t and the US stock market would go on one of the greatest bull runs in history.

What I wrote above is not to minimize Moody’s recent downgrade of US debt, but to illustrate that newsworthy events rarely translate into something actionable for a financial plan. However, I do think Moody’s downgrade provides us with a chance to be responsible citizens and explore what we are spending on and how little of our spending is covered by revenue collected through taxation.

**Source:** 2019-2023 from FiscalData.Treasury.gov ; 2024 from the Congressional Budget Office.

Above is a chart depicting federal revenue, spending, and debt issued from 2019-2024. It is important to note that all values are in trillions of dollars. A simple way to look at this chart is:

Red – Green = Orange

The red is stuff we want to spend money on, the green is money the federal government collects, and since we don’t collect as much as we want to spend, orange is the debt we issue to bridge the gap. To use 2024 as an example, the federal budget spent $6.8 trillion, collected $4.9 trillion in revenue, and had to issue $1.9 trillion in debt (borrow money), to meet its spending goals.

Why the Downgrade?

Just as people have credit scores, countries have credit ratings. Higher scores/ratings mean that the person or institution is very likely to pay back a debt and entitles them to a lower interest rate. A lower score/rating means a borrower is less likely to meet its obligations and must pay a higher interest rate to justify the increase in risk. In the case of the United States, US Treasury bills, notes, and bonds are still the safest asset on the planet. So, the most recent downgrade by Moody’s is effectively saying, “US Treasuries are the safest asset, but less safe than they were a few years ago.”

While a downgrade isn’t the end of the world, it is still worth exploring why there was a downgrade. The simple answer is that we are in a structural deficit where annual deficit spending is too high relative to annual GDP growth. According to the Congressional Budget Office, the average annual deficit relative to GDP for the past 50 years has been 3.8% while it was 6.4% in 2024. A more responsible deficit to GDP ratio would be 3%.

**Source:** Congressional Budget Office, values in trillions of dollars.

Let’s look at the above chart to explore what we spend money on; blue spending items are mandatory, green is easier to cut departments/programs, and red is the interest on the debt. Once again, all values are in trillions so for example, when looking at Net Interest 0.881, that means interest payments for the national debt in fiscal year 2024 were $881 billion. To put that in perspective, we spend more on interest payments than we do on Medicare, Medicaid, or the military.

What’s the Point?

This article is simply a public service announcement to stay informed about our federal budget. When writing this article I quickly realized I could go down rabbit trails that would turn this into 10,000+ word article on tax collection as a percentage of GDP, the role of government, solutions etc. And I may cover those topics for fun someday! But for now I’ll leave it at this: I’ve always found the federal budget to be an interesting topic because budgets reflect the values of people. When I look at our federal budget I see a people that cares about seniors, wants the less fortunate to have healthcare and some income support, a strong defense, and to not pay for all of that out of pocket. Maybe we can sustain that strategy if interest rates go down in the near future, but if not, it may become increasingly important to know where money is spent and how that impacts the US government’s relationship with its citizens and the world.