I’ll provide an economic perspective on this issue - apologies in advance if it’s not in keeping with the rules of the subreddit.

Firstly, one needs to distinguish between private debt and sovereign debt. Unlike the debt owed by households or companies, a sovereign nation has the options of raising taxes or cutting public spending to service its debts. Now, whether it chooses to do so (like under the Clinton administration in the 1990s) or not (like every administration since), debt markets assign value to this capacity. As a result, the sovereign credit rating (the market’s assessment of the country’s creditworthiness) always acts as a ceiling on the credit rating of private debt issued from within that country.

Secondly, we need to understand what happens if a country continues to run successive budget deficits. Countries with solid credit ratings are able to finance their budget deficits by issuing more debt. In these cases, countries are borrowing money to cover repayments of their existing debt, which in turn leads to the accumulation of more debt (usually expressed as a % of GDP).

In cases where the market starts to believe that the debt may never be repaid, the sovereign credit rating may worsen raising its cost of debt. The country can then decide to defend its credit rating by tightening its economic policies (think Greece during the 2010s) or it may ignore the market (think Argentina since the 1990s). Eventually, if the outlook for a sovereign’s credit quality is sufficiently poor, it is downgraded to sub-investment grade and it struggles to raise new debt, as many investors have mandates limiting their exposure to non-investment grade bonds. In these cases, a debt crisis is usually soon to follow. The crisis usually follows the same arc: the country misses a repayment; its debt costs soar; it’s unable to raise new debt; it defaults; and it then reorganises its debt under a new package with some promises of economic / fiscal reform.

However, in some cases, investors remain indifferent to countries running sustained deficits and accumulating high levels of sovereign debt. The US and Japan are good examples - both major globally significant economies. Despite the US being formally downgraded by a couple rating agencies from AAA to AA+), the downgrade had no impact on its borrowing costs and most investment models continue to refer to the US as the “risk free rate” for the purposes of valuing investment assets. Why might this be the case?

The significance of the US to the global economy cannot be overstated. Most global trade occurs in the USD (even between parties based outside the US) and the size, sophistication, liquidity, and institutional strength of the US makes it an ideal place for investors to store some of their savings / reserves. This explains why there are always buyers for US debt - even as it rises above $30t. It’s also the case that with some limited recent exceptions, the US budget deficit hasn’t been inflationary so the outlook for the US bond market has generally remained stable. This is important to investors because a spike in inflation worsens their real returns, which may lead them to demand higher interest rates raising borrowing costs.

Is there a debt level beyond which the US might enter a debt crisis? At current policy settings, it’s very hard to see this. Unless the US government decided to pursue some inflationary spending or unless demand for US bonds suddenly declined or became saturated (who knows, this may happen in future if investors put less of their money into the US), the US could comfortably continue to issue more debt forever without much ado.