The United States has crossed a daunting new fiscal marker: government figures show the nation’s gross debt has climbed above $40 trillion for the first time, racing ahead of earlier projections amid a surge in borrowing that has been fuelled in part by President Donald Trump’s invalidated tariffs.
The rise comes as the country’s longer-term obligations — including social security and healthcare commitments — continue to expand, while interest payments on the debt have also moved higher.
Total public debt outstanding reached $40.05 trillion at the close of business on Tuesday, according to data released yesterday by the US Treasury Department.
That tally outpaces a prior estimate from the Congressional Budget Office, which had projected overall borrowing would stand at $39.4 trillion by the end of fiscal year 2026.
The increase forces the US to refinance debt at the highest rates since before the 2008 financial crisis
The debt milestone arrives at a time when investor unease has been sharpened by concerns over inflation, war in the Middle East and government spending — pressures that have also pushed up the cost of borrowing.
Yields on long-term Treasury bonds climbed to their highest point since 2007, reflecting growing price pressures tied to war on Iran and renewed anxiety about US deficit spending.
Those higher yields mean the federal government must roll over and refinance its obligations at the steepest rates seen since before the 2008 global financial crisis.
But early yesterday, the US Treasury Department took steps aimed at calming the long-term bond market, a move that helped send yields lower.
The federal government runs a deficit and borrows to meet its obligations — a list that includes war spending as well as the effects of tax cuts.
“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.
“Over the last few years, the United States has moved into roughly $2 trillion deficits, even during peace and prosperity,” she added.
Ms Riedl noted that markets once became uneasy when deficits reached 3-4% of GDP, but said levels are now closer to 6-7% of GDP.
“That has made markets more nervous,” she said.
Higher interest rates — driven in part by inflation — have increased the government’s interest bill, while the costs associated with an ageing population have continued to push deficits upward.
Risks ahead
Analysts stress that no single debt-to-GDP ratio automatically sets off a crisis.
Michael Peterson, chairman and CEO of the Peter G.Peterson Foundation, said the debt buildup reflects several forces, including an aging population, escalating healthcare expenses and tax policies that fail to raise enough revenue to cover federal spending promises.
“Interest is our fastest-growing government program,” Peterson said, adding that the government spends more than $3 billion a day on interest and will spend $16 trillion over the next decade.
Debt milestone ‘culmination of years of fiscal irresponsibility’ – Michael Peterson
While gross debt is a headline-grabbing threshold, many economists place greater weight on debt held by the public as the more economically significant gauge.
“But psychologically, these are the landmarks that warn financial markets that they need to take another look at rising debt,” Ms Riedl said.
Federal borrowing ballooned during the Great Recession of 2007-2009 and rose again as the government responded to the downturn brought on by Covid-19, said Caleb Quakenbush, director of fiscal policy at the Bipartisan Policy Center.
Still, he told AFP that Congress and successive US administrations have not tackled the underlying trajectory of federal spending in a “meaningful or durable way.”
He said uncertainty is growing around the “unprecedented levels of borrowing that we’re seeing now.”
In a crisis scenario, he added, bond markets could confront severe strains.
Even short of that, the US could face higher borrowing costs that filter through to consumers and businesses, tightening financial conditions and weighing on the economy.
Treasury Secretary Scott Bessent had previously set a goal of cutting the US deficit to 3% of GDP.
