For years, deficit hawks have been groping for ways to shock politicians and the public into getting serious about the skyrocketing federal debt. They hoped they had finally found the right talking point when the United States recently reached a disturbing new milestone: Debt had shot past 100 percent of gross domestic product.<\/p>\n
\u201cWe\u2019ve heard plenty of alarm bells in the past few years about our fiscal path, but this one rings especially loudly,\u201d wrote<\/a> the Committee for a Responsible Federal Budget, the organization that calculated the March level of federal debt held by the public as a share of G.D.P. The like-minded Peterson Foundation called it \u201can alarming fiscal milestone.\u201d<\/p>\n The problem is, few people seemed particularly alarmed, outside of a flurry of somber speeches and opinion essays.<\/p>\n Within a week of the reporting of the statistical landmark, Defense Secretary Pete Hegseth was on Capitol Hill defending the largest Pentagon budget request in American history. And the Senate proceeded with efforts to pass a $72 billion immigration enforcement package through reconciliation, bypassing a potential filibuster and waiving its own rules against deficit-increasing legislation.<\/p>\n It\u2019s not that surpassing the 100 percent milestone has meaningfully changed anything. Debt isn\u2019t like a reservoir that starts overflowing when it exceeds 100 percent of capacity. \u201cNinety-nine is a bad number. One hundred one is worse than 100. We make a big deal out of 100 because it\u2019s a round number,\u201d said Michael Peterson, the chief executive of the Peterson Foundation.<\/p>\n What should be more disturbing is this: There\u2019s no end in sight. And if debt hawks can\u2019t spur action with even this milestone, what is to be done?<\/p>\n How we got here<\/p>\n Debt has grown because of the costs of fighting the 2007-8 global financial crisis and the Covid-19 recession, the rising expense of caring for an aging population, repeated tax cuts that weren\u2019t matched by spending reductions, and a snowballing interest bill on the debt itself.<\/p>\n The last time federal debt held by the public was higher than G.D.P. was just after World War II. It didn\u2019t stay that way for long. After that spike, the debt-to-G.D.P. ratio declined to 23 percent by 1974 because of strong economic growth, occasional budget surpluses and inflation that eroded the real value of debt.<\/p>\n This time, in contrast, the Congressional Budget Office projects publicly held debt to keep growing and hit 175 percent of G.D.P. by 2056.<\/p>\n For years, ultralow interest rates made mounting debt affordable, but this week 30-year Treasury bond yields hit 5.12 percent, the highest rate since 2007, up from a 2020 low of 1 percent. Net interest payments by the federal government exceed<\/a> the defense budget. As debt grows, the government has to issue new bonds just to pay interest on existing ones.<\/p>\n Ellen Zentner, the chief economic strategist of Morgan Stanley Wealth Management, said clients constantly asked her if the federal government\u2019s indebtedness was on a sustainable path. \u201cTo me, it\u2019s one of the easier questions to answer,\u201d she said. \u201cWe are not.\u201d<\/p>\n Those who are less worried like to point out that Japan gets along with much higher debt ratio than the United States is carrying. The International Monetary Fund put<\/a> Japan\u2019s central government debt at 201 percent of G.D.P. in 2024.<\/p>\n On the other hand, Japan\u2019s debt is held almost entirely by domestic investors, while the United States relies heavily on foreign sources.<\/p>\n Laurence Kotlikoff, a Boston University economist, recently calculated<\/a> that the United States was in worse shape than Italy once you included Social Security, Medicare and other obligations that don\u2019t appear in the official debt figures. \u201cWe don\u2019t have any grown-ups in the room in Washington,\u201d he said. \u201cNobody picks it up and says, \u2018You have a problem.\u2019\u201d<\/p>\n Enrique Mendoza, an economist at the University of Pennsylvania, argues that even stabilizing the ratio wouldn\u2019t be enough. Bringing the ratio back down to 60 percent or below would give the government fiscal space to borrow heavily for the next emergency, and would allow the economy to grow faster because the federal government wouldn\u2019t be competing with the private sector for funds, he said.<\/p>\n Mendoza\u2019s prescription is an extreme long shot at this point. The White House is requesting<\/a> $1.5 trillion for defense in its 2027 budget, a 44 percent increase, while saying little about the entitlement programs that drive long-run spending. The Elon Musk-led deficit commission last year produced only $1 billion in durable savings, Politico estimated<\/a>. That was about one-tenth of 1 percent of what Musk aimed for.<\/p>\n Concern but no action<\/p>\n There are signs that Americans are getting restless for action. The rise in Treasury yields has pushed up mortgage rates, hitting Americans where they live and making budget deficits more salient, said Desmond Lachman, a senior fellow at the American Enterprise Institute.<\/p>\n In a Gallup poll<\/a> in March, half of Americans said federal spending and deficits worried them a great deal, roughly tying it with inflation and the economy among their concerns. The only thing they worried about more was the availability and affordability of health care.<\/p>\n Deficit hawks are trying to figure out how to capitalize on that concern. The press releases about hitting the 100 percent ratio of debt to G.D.P. were one attempt. But Benjamin Larin, an economist at Sweden\u2019s Jonkoping University who has studied how crossing round-number thresholds affects inflation expectations, said he didn\u2019t think that crossing a round-number threshold for debt would be equally impactful.<\/p>\n Government debt is \u201cdistant from daily experience, and processed mostly through media and political intermediaries,\u201d he wrote in an email.<\/p>\n Oddly, Gallup found that Americans were more concerned about deficits in 2011, when the debt-to-G.D.P. ratio was only 66 percent and the economy needed the stimulus provided by budget deficits to get growing again. Plus, nothing really happened when the economy blew through 100 percent. The figure has lost its power to frighten.<\/p>\n Jason Furman, a Harvard economist, worries about debt but acknowledges that it\u2019s hard to see much evidence of its harm so far.<\/p>\n \u201cIf you had asked someone in 2000 to predict what the economy would look like in a world where the debt was 100 percent of G.D.P. and the deficit was 6 percent of G.D.P., they would likely have expected extremely high interest rates and possibly even a dramatic economic crisis,\u201d he wrote in an article<\/a> for the Aspen Institute in 2024.<\/p>\n Such a disaster hasn\u2019t happened yet, so at the moment, doing nothing is a lot easier for politicians than doing something, which would involve some painful combination of raising taxes and cutting spending.<\/p>\n That passivity irks Peterson, the deficit hawk. \u201cI think this is a moment where leadership is really necessary,\u201d he said. \u201cIt\u2019s not really up to the American people to fix this. It\u2019s up to their elected leaders.\u201d<\/p>\n IN CASE YOU MISSED IT<\/p>\n President Trump\u2019s meeting with Xi Jinping resulted in few deals. Despite optics<\/a> of cooperation, concrete agreements and breakthroughs were scarce<\/a>. Trump said that he and Xi had talked about a long-delayed arms sale to Taiwan, that they hadn\u2019t talked about tariffs and that Trump had not asked \u201cfor any favors\u201d in reopening the Strait of Hormuz.<\/p>\n The Senate confirmed Kevin Warsh as Federal Reserve chair. One of his first tasks will be establishing credibility as an independent chair, rather than someone under the control of Trump, who has put pressure on the central bank to lower interest rates. Jerome Powell, whose term as chair ended Friday<\/a>, will serve until Warsh is sworn in and then remain<\/a> as one of seven members of the Fed\u2019s Board of Governors.<\/p>\n Two inflation measures released this week could complicate Warsh\u2019s job. Tuesday\u2019s Consumer Price Index<\/a> data showed inflation accelerating to a three-year high<\/a>, while Wednesday\u2019s Producer Price Index<\/a>, a measure of the costs businesses pay for goods and services, showed its fastest one-month increase since March 2022.<\/p>\n In 2011, Eric Ries\u2019s book \u201cThe Lean Startup\u201d created a popular blueprint for starting companies. Since then, the entrepreneur has been more focused on keeping them alive.<\/p>\n Ries won approval<\/a> from the Securities and Exchange Commission in 2019 to found the Long-Term Stock Exchange, an alternative market designed to reduce the short-term pressure on public companies. His upcoming book, \u201cIncorruptible: Why Good Companies Go Bad \u2026 and How Great Companies Stay Great,\u201d gives strategies for protecting a company\u2019s original mission as it grows.<\/p>\n \u201cWe built this financial system that has this gravitational pull down into mediocrity and to extraction and exploitation,\u201d Ries told DealBook\u2019s Sarah Kessler. \u201cYou can imagine building a different financial system, but until we get there, my goal is simply to have people be able to build organizations that can resist that.\u201d<\/p>\n The interview has been edited and condensed for clarity.<\/p>\n How does \u201cIncorruptible\u201d connect with your work with the Long-Term Stock Exchange?<\/p>\n I learned a ton about how corporate governance actually works and how financial systems actually work in the building of LTSE.<\/p>\n What did you learn?<\/p>\n This is going to sound nuts to many of your readers, but a large number of the so-called best practices we teach about how companies should be built, structured and governed actually destroy shareholder value. And that\u2019s not my opinion. We have all this academic evidence.<\/p>\n Companies since 2008 that are rated to have bad governance have outperformed the companies that are rated to have good governance.<\/p>\n Which best practices should I ignore while I\u2019m building my company?<\/p>\n Today we think that investors should be able to redirect or take over a company at will. But the data shows that that\u2019s actually not very helpful.<\/p>\n A good example is Costco. Every couple years, Wall Street gets mad at Costco because they deviate from best practices, and they have this structural strength to resist that pressure.<\/p>\n Last year, the LTSE petitioned the S.E.C.<\/a> for a rule change that would allow companies to report earnings twice instead of four times a year \u2014 which the S.E.C. formally proposed<\/a> last week. How does reducing reporting requirements support companies who want to think long term?<\/p>\n We have really good evidence from other countries that when companies switch from semiannual to quarterly reporting, they lose approximately 5 percent of their market cap. Companies are being run to produce the correct quarterly report instead of for the long-term benefit of anybody, including their shareholders.<\/p>\n Just getting rid of the report is not the win. I hope the proposal, when we finally see it, will also have protections that allow companies to make more long-term disclosures so that long-term investors are better informed.<\/p>\n What would that look like?<\/p>\n Most companies today are being counseled by their legal advisers not to make any forward-looking statements at all, and therefore never to actually talk about what their actual long-term strategy is.<\/p>\n It would be nice if we could develop a liability-limited way that long-term investors and long-term companies could get together and actually talk about the qualitative side of what is happening in the business without triggering a Reg FD violation.<\/p>\n That sounds like a pretty big change.<\/p>\n We already do it when there\u2019s an activist attack. Activists routinely will sign a six-month NDA with a company, in which they can no longer trade. They can come in and get more information.<\/p>\n So why couldn\u2019t we have a simple moratorium that says, yeah, if you give up your right to trade for some period of time, you can get material information that\u2019s not public?<\/p>\n Quiz: Subscription fatigue<\/p>\n This question comes from a recent article in The Times. Click an answer to see if you\u2019re right. (The link will be free.)<\/p>\n Almost 75 percent of companies that sell directly to customers offer subscriptions<\/a>. according to a 2023 Harvard Business School study. That includes subscriptions for beds, bikes, dating apps and even underwear \u2014 and some customers are getting sick of the ubiquitous business model,<\/a> reports The Times\u2019s Sopan Deb.<\/p>\n What is the average number of subscriptions that Americans have?<\/p>\n Thanks for reading! We\u2019ll see you Monday.<\/p>\n