Global debt levels are climbing to historic highs, and the U.S. is no exception. With our national debt now exceeding 128% of GDP, the financial patterns unfolding in Japan—where debt sits near 260%—may offer a glimpse of what’s ahead. For retirees and those approaching retirement, understanding how these trends influence inflation, interest rates, and long-term stability is essential. This analysis explores what Japan’s experience can teach us about the growing debt challenge and why disciplined planning matters more than ever.
How does our debt in the United States stack up against the other countries of the world. Take a look, and focus on the column, second from the right titled “As a % of GDP”:
Worldwide government debt as a percentage of GDP — a snapshot revealing how nations like Japan and Ireland carry the world’s highest debt burdens.
Source: NDR
Ireland and Japan have 800%+ and 600%+ debt to GDP (Gross Domestic Product). These countries should be a bug on a windshield soon. How can they support that much debt? For those worried about the US debt, just watch Japan for clues of what lies ahead for us.
How did we get here?
The U.S. debt-to-GDP ratio is estimated to be 128%. It was 124% at the end of December 2024. To put the current numbers into perspective, total public debt relative to the economy’s annual output has fluctuated significantly over time, reflecting wars, economic crises, and policy shifts.
Here’s an overview of U.S. historical trends:
- Early Republic (1790s–1860): The ratio started high at ~30% post-Revolutionary War but dropped to near 0% by the 1830s under fiscal restraint. It remained low, averaging under 10%, until the Civil War.
- Civil War (1861–1865): Debt surged to ~30% by 1865 due to war financing, but declined steadily to ~10% by 1900 as the economy grew and surpluses reduced debt.
- World War I and Interwar Period (1914–1939): The ratio spiked to 33% by 1919 due to war bonds, then fell to ~16% by 1929. The Great Depression and New Deal spending pushed it to ~40% by 1939.
- World War II (1941–1945): The ratio peaked at 112.7% in 1945, driven by massive war expenditures, but rapid post-war growth and inflation cut it to ~50% by the early 1950s.
- Post-War to 1980s: Strong economic growth kept the ratio low, dipping to 31.8% in 1974. Reagan-era tax cuts and military spending raised it to ~50% by the late 1980s.
- 1990s–2000s: Fiscal discipline under Clinton reduced it to 55.5% by 2000. However, tax cuts, wars in Iraq and Afghanistan, and the 2008 financial crisis drove it to 82.4% by 2009.
- From the Post-2008 Great Financial Crisis to 2020 (TARP programs, QE infinity, Zero interest rate policy), combined with a slow economic recovery, pushed the ratio to 100.1% by 2012. It stayed around 100–105% until the COVID-19 pandemic, when massive relief spending spiked it to 123.4% in 2020.
- 2020–2025: As of December 2024, the ratio stood at 124.3%. Current projections for 2025 estimate 128–130% due to persistent deficits and policies like the 2024 One Big Beautiful Bill Act, which lifted the debt ceiling by another $5 trillion.
- Long-term forecasts from the Congressional Budget Office suggest the debt-to-GDP ratio could hit 166% by 2054 without reforms. Source: CBO
Let’s pray not, but there are some significant economic headwinds, such as aging demographics.
Key drivers include war spending, economic downturns, tax policies, and entitlement growth. When you factor in poor demographics (aging populations) in much of the developed world, the pressure mounts. However, AI and Robots are coming, which could accelerate growth. No opinion on this yet… We watch, measure, and position.
Compared to Japan’s ~260%, the U.S. ratio is high but not seemingly as dire. I’ve long said that the U.S. is following Japan’s footprints. The path they take is the path the U.S. will most likely follow. Not a guarantee, just my observations.
I believe the masses will vote for the politicians promising more sugar. 5,000 years of human behavior give us a sense of probable outcome—a playbook of sorts. Last week’s election of a new Prime Minister in Japan should not come as a surprise.
Debt is the problem. The money printing continues until we reach a point where inflation and higher interest rates cause enough pain, and a restructuring must occur. Until then, there exists no political will to change the course.
There is a funny line, “the beatings will continue until the morale improves around here.” It’s an ironic one-liner that highlights a self-defeating, authoritarian approach: punishing people and expecting morale to rise. Meaning: “I’ll keep punishing people until they feel better” — intentionally backwards, so it’s sarcastic. In the current story, I believe the beating will continue. The punishment is inflation or worse, stagflation. Half the population already doesn’t fully understand what is hitting them.
A Fed Chairman Paul Volcker moment will come
Paul Volcker, Federal Reserve Chairman from 1979 to 1987, is revered for his decisive role in taming the rampant inflation that gripped the U.S. economy in the late 1970s and early 1980s, earning him a reputation as one of the most impactful central bankers in history. Facing “stagflation”—double-digit inflation (peaking at 14.8% in 1980) combined with high unemployment and stagnant growth—Volcker implemented a bold and controversial monetary policy. He sharply raised the federal funds rate, peaking at 20% in 1981, to crush inflation expectations, prioritizing long-term price stability over short-term economic pain. This “Volcker Shock” triggered a severe recession (1980–1982), with unemployment hitting 10.8%, but successfully reduced inflation to ~3% by 1983, laying the foundation for decades of economic stability.
When will she or he arrive? On our current course, my best guess is 2028. But it really is just a guess.
Watch Japan. The U.S. is following just a few steps behind. Next week’s confirmation is an important marker.
Great Quotes
“I have no special talents. I am only passionately curious.” – Albert Einstein
Picture of the Week
La Morne Brabant peninsula, Mauritius
La Morne Brabant Peninsula, Mauritius — where vibrant waters and calm horizons remind us of balance amid a shifting world economy.
All content is the opinion of Brian Decker
