The total has topped $40 trillion for the first time, data released by the Treasury Department on Wednesday showed. According to the Treasury Department’s daily financial report, US debt reached $40.05 trillion on August 18, more than double its level in 2017. This includes Treasury securities held by the public of $32.266 trillion and intra-governmental debt holdings of $7.782 trillion.
What is pushing US debt?
Data showed that the largest federal budget items are Medicare/ combined (nearly $2 trillion), Social Security (over $1.6 trillion), national defense ($946 billion) and interest on the debt (over $1 trillion).
Quick answers to key questions
What factors are contributing to the surge in US national debt now exceeding $40 trillion?⌵
The increase in US national debt is driven by large federal budget items like Medicare/Medicaid, Social Security, national defense spending, and interest payments on existing debt.
How does the rising national debt impact average American households?⌵
As the national debt rises, taxpayers may face higher interest rates for loans and mortgages due to increased yields on Treasury securities, which can also strain government funding for essential programs.
Why is the national debt ratio to GDP important in assessing the US economic situation?⌵
The debt-to-GDP ratio provides insight into the country’s borrowing capacity and economic health; a rising ratio indicates increasing fiscal pressure and potential challenges in managing future debt.
What is ‘crowding out’ in the context of federal spending and national debt?⌵
‘Crowding out’ occurs when high interest payments on the national debt consume a significant portion of the budget, limiting funding for other programs and potentially leading to higher taxes.
Should the government be concerned about the sustainability of the rising national debt?⌵
Yes, economists express concern over the escalating national debt, as it not only raises borrowing costs but also signifies an unsustainable fiscal trajectory that may hurt economic stability in the long term.
According to Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, the $40 trillion figure was reached less than five months after debt reached $39 trillion, and has quadrupled in less than 20 years after taking until 1981 to reach $1 trillion for the first time.
“It is staggering how predictable the fiscal decline of a global power can become,” MacGuineas said in a statement.
“The more we borrow, the more we exacerbate inflation, squeeze out other priorities in the budget, and leave ourselves vulnerable to emergencies at home and turmoil abroad,” MacGuineas added.
According to the Congressional Budget Office, for fiscal year 2026, the federal government is projected to collect $5.6 trillion in revenue while spending about $7.4 trillion, resulting in a deficit of roughly $1.9 trillion.
Impact on average American household
The ballooning national debt is also more bad news for average American households.
The public holds about 80% of the nation’s debt, out of which more than two-thirds is held by domestic lenders such as mutual funds and the Federal Reserve System, while foreign investors hold the rest, according to the Peterson Foundation.
Taxpayers could also bear the brunt of rising federal debt because as the government issues more to fund government spending, it must offer higher yields to attract investors. That could contribute to higher interest rates for mortgages and other credit products.
“If the Treasury rate is going up, that means your mortgage rate is going up, your car loan is going up, your credit card rates are going up,” Peterson said.
Higher interest payments can also make it more difficult for the federal government to find the money to fund core programs, a phenomenon Peterson referred to as “crowding out.”
“It’s typically called crowding out when the interest costs represent such a big chunk of the budget that it puts downward pressure on every other program across the budget, and puts upward pressure on taxes because you know we need more money in the system to cover these interest costs,” he said.
According to AFP, yields on long-term Treasury bonds rose Tuesday to the highest level since 2007, reflecting growing price pressures due to war on Iran and anxiety over US deficit spending.
The increase forces the US government to refinance debt at the highest rates since before the 2008 global financial crisis.
But the US Treasury Department moved to steady the long-term bond market early Wednesday, sending yields lower.
“It’s been well known for a while that the United States government was on a pretty unsustainable path with deficits,” Jessica Riedl, a budget and tax fellow at the Brookings Institution, told AFP.
“Over the last few years, the United States has moved into roughly $2 trillion deficits, even during peace and prosperity,” she added.
While deficits of three percent to four percent of GDP used to worry financial markets, she noted that levels are closer to six percent to seven percent of GDP now.
“That has made markets more nervous,” she said.
