US National Debt Surpasses $40 Trillion for First Time

The US national debt has surpassed $40 trillion for the first time, according to government data released Wednesday, exceeding earlier forecasts as borrowing accelerates amid rising interest costs, government spending and longer-term obligations.

Total US public debt outstanding reached $40.05 trillion at the close of business Tuesday, data from the US Treasury Department showed.

The figure is higher than an earlier Congressional Budget Office projection that total federal borrowing would reach $39.4 trillion by the end of fiscal year 2026.

The surge comes as the United States faces growing concerns over inflation, government spending and geopolitical tensions, including the war in Iran. At the same time, higher interest rates have increased the cost of servicing the federal debt.

Yields on long-term US Treasury bonds rose Tuesday to their highest level since 2007, reflecting concerns about inflation and the government’s widening budget deficit.

The higher yields mean the US government must refinance portions of its debt at borrowing costs not seen since before the 2008 global financial crisis.

The Treasury Department intervened in the bond market early Wednesday, helping push long-term yields lower.

Deficits remain a major concern

The US federal government operates with a budget deficit and relies on borrowing to finance its obligations, including government programmes, military spending and tax policies.

“It’s been well known for a while that the United States government was on a pretty unsustainable path with deficits,” said Jessica Riedl, a budget and tax fellow at the Brookings Institution.

She noted that the United States has recorded annual deficits of roughly $2 trillion in recent years, even during periods of peace and economic growth.

Riedl said deficits that once stood at around 3% to 4% of gross domestic product would have concerned financial markets, while current levels are closer to 6% to 7%.

“That has made markets more nervous,” she said.

Inflation-driven interest rates have also increased the government’s interest payments, while rising costs associated with an ageing population are adding further pressure to federal finances.

Risks ahead

Economists say there is no specific debt-to-GDP ratio that automatically triggers a financial crisis. While the $40 trillion threshold is largely symbolic, many economists consider debt held by the public to be a more important indicator of the government’s economic position.

“But psychologically, these are the landmarks that warn financial markets that they need to take another look at rising debt,” Riedl said.

US borrowing increased sharply during the Great Recession of 2007-2009 and again after the government introduced massive support measures in response to the Covid-19 pandemic.

Caleb Quakenbush, director of fiscal policy at the Bipartisan Policy Center, said neither Congress nor successive administrations had meaningfully or permanently addressed the country’s spending trajectory.

He warned that the unprecedented pace of borrowing could create significant uncertainty for financial markets.

In a severe crisis, the bond market could face major strains, he said. Even without a crisis, however, higher government borrowing could push up borrowing costs for households and businesses, potentially putting additional pressure on the wider economy.

Treasury Secretary Scott Bessent had previously set a goal of reducing the US budget deficit to 3% of GDP.