Although the United States carries a lower debt-to-GDP ratio than countries such as Japan and Singapore, economists argue that America’s fiscal position may be more vulnerable because of how its debt is financed and the limited room policymakers have to respond during future downturns.
The US national debt climbed beyond $39 trillion in May, according to International Monetary Fund data cited by Fortune. While that represents roughly 126% of the country’s economic output, Japan’s debt stands at around 204% of GDP and Singapore’s at approximately 172%. On the surface, those figures suggest the United States is in a stronger position. However, several economists say the headline ratio alone does not capture the risks facing the world’s largest economy.
Debt ratios tell only part of the story
The United States continues to hold the largest nominal public debt in the world, exceeding China’s estimated $18.7 trillion, based on the IMF’s latest World Economic Outlook released in April.
Debt-to-GDP measures compare government borrowing with the size of a country’s economy. A ratio above 100% indicates government debt exceeds one year’s total economic output. While economists use the measure as a broad indicator of fiscal sustainability, there is no universally accepted threshold at which debt automatically becomes dangerous.
Apollo Global Management chief economist Torsten Slok believes the pace of US borrowing is a more pressing concern than the ratio itself. He estimates the federal government is adding roughly $7 billion in debt each day, steadily reducing its ability to cushion the economy during a future recession.
According to Slok, traditional recession responses may become less effective if government borrowing is already elevated. Additional fiscal stimulus, including tax cuts or infrastructure spending, would require even more borrowing, while aggressive interest rate cuts by the Federal Reserve could complicate inflation and bond market dynamics.
“The U.S. has never entered a recession with this little fiscal buffer,” Slok wrote in a recent research note.
Why Japan has avoided a debt crisis
Japan’s considerably higher debt burden has not produced the same level of market concern because of several structural differences.
Around 90% of Japanese government debt is held domestically, largely by local banks, insurance companies and institutional investors. That significantly reduces the country’s dependence on overseas investors who might rapidly sell government bonds during periods of financial uncertainty.
Japan also maintains one of the world’s largest household savings pools. Household savings amount to roughly one-third of national GDP, about twice the level seen in the United States. Those domestic savings provide a stable source of demand for government debt.
Jack Salmon, a research fellow at the Mercatus Center at George Mason University, argues these factors make direct comparisons between Japan and the United States misleading.
“Japan’s debt dynamics are fundamentally different from those of the United States,” he wrote. “Japan is the world’s largest creditor nation. The U.S. is the world’s largest debtor.”
Even so, Japan is not immune to fiscal pressure. A weaker yen, higher energy costs and rising long-term government bond yields have increased concerns over debt servicing costs. Prime Minister Sanae Takaichi has proposed additional deficit spending to support economic growth, although economists warn that further borrowing could also fuel inflation if price pressures remain elevated.
Economists remain divided over debt measures
The broader debate extends beyond comparing countries.
Some economists question whether debt-to-GDP is the best gauge of a government’s financial health. Stanford Graduate School of Business professor Jonathan Berk argues the ratio oversimplifies a much more complex picture by focusing on debt while overlooking factors such as government assets, future tax capacity and long-term spending obligations.
He has compared the metric to measuring a homeowner’s financial health solely by dividing the mortgage balance by one year’s rental income, a calculation that ignores many of the variables determining whether the debt is manageable.
Additional context also highlights why investors increasingly focus on debt servicing costs rather than debt totals alone. As interest rates have risen globally over the past several years, governments have devoted a growing share of tax revenues to interest payments. According to the International Monetary Fund, higher financing costs are becoming an increasingly important driver of fiscal sustainability assessments across advanced economies.
That shift means investors are paying closer attention to borrowing costs, budget deficits and refinancing risks alongside traditional debt ratios.
What markets will watch next
For policymakers, the challenge is balancing economic growth with long-term fiscal stability.
Investors are likely to monitor whether future federal budgets slow the pace of borrowing, while also watching Treasury yields, inflation trends and Federal Reserve policy for signs that financing costs may continue climbing.
Although America’s debt burden remains below Japan’s when measured against GDP, economists increasingly argue that the composition of the debt, the country’s reliance on foreign investors and the shrinking flexibility available during future recessions may ultimately matter more than the headline percentage alone.
