According to the U.S. Treasury, as of 1/31/2022, the U.S. national debt currently stands at just over 30 trillion dollars. The national debt is different from the budget deficit in that the national debt is the total amount owing (collectively, from all years past). And the budget deficit is reflected on an annual basis, which was $2.77 trillion in 2021. And, if history repeats itself, this staggering amount will likely increase over time, given a general willingness for Washington to keep its head in the sand on the matter.

The Federal Reserve acts as a lender, and together with the U.S. treasury, they provide funding to the U.S. government when it runs a budget deficit. Much like household finances, when consumers spend more than they earn, consumers pay for the deficit with debt (think credit cards, lines of credit, or even a mortgage.
 

Source: Department of the Treasury

The U.S. government is no stranger to running deficits. For example, Washington ran budget deficits every year from 1970 through 1997. It wasn't until 1998 when under President Bill Clinton, the U.S. Government recorded a surplus. After that, there also were budget surpluses in 1999, 2000 and 2001. After 2001, the U.S. government has recorded budget deficits every year since.

Yet, unlike the U.S. government, when it comes to our own financial health, it's generally accepted that we keep as little (high-interest) debt as possible, so that one day, we become financially free in retirement. It goes without saying, having debt payments in retirement quickly eats into one's fixed income.

But, here's the thing: Governments don't typically retire.

Does any of it matter?

Some subscribe to the modern monetary theory (MMT) - a relatively new economic theory that suggests that the U.S. government can spend as much money as it wants, as economic growth will cover the costs of borrowing. In other words, the government can never go bankrupt because it can always print more money. Yet, like consumers, Washington still maintains a debt limit, and the U.S. government can ask for a limit increase.

Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit. Congressional leaders in both parties have recognized that this is necessary. The most recent raise came on Dec. 14, 2021.

Critics of MMT argue that it's not sustainable to print unlimited amounts of money and that it will lead to hyperinflation. Supporters of MMT argue that these concerns are overblown and that MMT is a more responsible way to run a nation's economy, as it removes the fear of financial collapse.

According to MMT:

1. Large government debt isn’t the precursor to collapse that we have been led to believe it is;
2. Countries like the U.S. can sustain much greater deficits without cause for concern; and
3. A small deficit or surplus can be extremely harmful and cause a recession since deficit spending is what builds people’s savings.

Is it a big deal?

According to the Peter G. Peterson Foundation, the debt is equivalent to $231,000 per U.S. household and $90,000 per person. Indeed, it's a staggering number. And, it's natural that it has many people wondering how much of a problem this is.

So, does this mean that the national debt doesn't matter? If you're asking me, I'd say it's a pretty big deal. While it may not be as serious as some other issues we face, like gun violence, it still needs to be addressed. Between interest payments, and hesitation to raise the debt limit, the government risks a "day of recording" when it can no longer afford to pay its bills.

According to the U.S. treasury, if the government defaults on its debt, it "would precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession."

In recent decades, Argentina, Russia, and Lebanon have all defaulted on their debt. And, 30 June 2015, Greece became the first developed country to fail to make an IMF loan repayment on time.

Something needs to be done, but what?

Given the current interest rates, and the countries current credit rating, no one thinks the United States is going bankrupt any time soon. Similarly, Congress has a duty to its citizens to pay its bills. That said, something will likely need to be done.

When it comes to finances, when we as consumers can't make ends meet, we have two levers at our disposal:

1. Reduce expenses; and/or
2. Increase revenue.

And the same goes for business, as it does for the government.

To a consumer, reducing expenses means cutting down on the big stuff - think luxury items, vacations, and new cars. And increasing revenue might mean starting a side hustle, getting a higher paying job, or even a second job.

For the U.S. government, reducing expenses means cutting down on expenses. For example,  the largest expense is social security. Social security makes up over 38% of the U.S. government budget. Yet, if the government cuts social security, we run the risk of having future generations affected. And, don't forget military and healthcare costs either. Similarly, increasing revenue means collecting more tax revenue which could stifle growth in GDP.

Final thoughts

While the national debt may not be the biggest issue the country faces, it's still an important one. And to me, it would seem the best way to approach the matter is by considering how our finances work. For example, optimizing expenditures, and continuing the discussion with our elected leaders to agree on what we need -- and how we'll get there.
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Rick Orford is a nationally recognized author on topical, easy-to-understand personal finance matters, whose work has been published in The Wall Street Journal, USA Today. He is also the author of the best-selling Amazon book, "The Financially Independent Millennial: How I Became a Millionaire in My Thirties."

An investor and mentor, Orford has appeared on Good Morning America and been featured in the Washington Post, Yahoo Finance, MSN, Insider, and more.