The United States’ gross national debt topped $40 trillion (€34.25 trillion) for the first time Wednesday, an ominous milestone for an economy that sits on a shaky fiscal foundation after decades of borrowing to pay for the rising costs of the military, social safety net programmes and President Donald Trump’s tax cuts.
The shortfall between what the United States spends and what it earns through taxes and other revenue now exceeds the size of its entire economy. It has grown by $3 trillion over the past year, its fastest ever pace outside the pandemic era, according to calculations by the Financial Times.
“It’s that gigantic flashing ‘check engine’ light,” said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget think-tank.
“It doesn’t mean that your engine’s going to melt down tomorrow, but it’s a good signal that things are pretty out of control. And it’s not just the magnitude, it’s the speed at which we’ve hit it.”
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Debt held by the public – a key metric monitored by markets that excludes intragovernmental holdings – now exceeds $32 trillion.
As the debt has swollen, investors have demanded a rising premium to hold US bonds. That has pushed up interest rates so that the cost of servicing the debt now exceeds federal spending on national defence.
This year alone, the United States is on track to borrow more than $2 trillion to help pay for its obligations, including spending on the war in Iran and the sweeping tax cuts that Republicans enacted in 2025.
Whether the mounting debt load is a problem to be solved or a function of America’s economic strength remains a matter of debate. Deficits are also a point of political gamesmanship, with Republicans most passionate about eliminating them when they are out of power.
“The scariest thing about this is how we’re starting to see the debt spiral begin,” said Goldwein, referring to interest on the debt.
The inability of lawmakers to confront the debt comes with long-term risks. While the United States remains the world’s largest economy, its mounting debt load could lead investors to demand higher interest rates for US bonds or raise questions about the nation’s creditworthiness, which could erode confidence in the dollar as the world’s reserve currency.
Both Republicans and Democrats are responsible for America’s borrowing burden. The United States has had to sell an increasing amount of debt to cover the costs of health programmes, stimulus benefits, disaster relief and daily government operations.
Trump promised to restore fiscal order, yet many of his policies have only exacerbated America’s financial woes.
When he first ran for the White House in 2016, Trump said he would eliminate the national debt within eight years by making new trade deals and jump-starting economic growth. Since then, the national debt has doubled.
In his second term, Trump’s biggest initiatives to cut spending and increase revenue have failed to materialise.
The Department of Government Efficiency (Doge), led initially by Elon Musk, promised to reduce federal spending by $1 trillion. So far it claims to have produced savings of just over $200 billion. The US government accountability office said this month that the department’s estimate lacked reliability and transparency.
The Trump administration was making progress in collecting additional government revenue by imposing sweeping tariffs on imports. Those plans were derailed this year when the supreme court ruled that some of those tariffs were illegal, forcing the federal government to refund more than $160 billion of the money to companies that paid the import duties.
Treasury secretary Scott Bessent, who set a goal of reducing the deficit to 3 per cent of gross domestic product by 2028 from over 6 per cent when Trump took office, acknowledged last week that deficits were going in the wrong direction this year.
In an interview with Newsmax, Bessent offered several reasons to explain why deficits are growing. He said that spending associated with the war with Iran had forced the country to spend more on the military, and that tariff refunds had undercut the Trump administration’s progress toward reducing the deficit as a share of GDP in 2025.
The war in Iran, which has caused energy prices to rise in the United States, has also been a drag on economic growth and diminished the expansion that Trump administration officials had hoped would increase tax revenue.
Bessent also said last year’s tax cuts were adding to deficits because businesses were taking advantage of a provision allowing them to immediately deduct the cost of factory construction and equipment. According to estimates from the joint committee on taxation, those measures could cost $100 billion this year. However, the treasury secretary said that despite their initial cost, the cuts would pay off in the future with additional revenue.
“That is a hit now to the deficit, but we are creating productive assets for future growth which will be paying taxes down the line,” Bessent said. “I think of that more as like pulling back a slingshot and creating a lot of potential energy that becomes kinetic.”
Despite his confidence that the fiscal trajectory will stabilise, investors have been demonstrating their anxiety over US deficits by demanding greater compensation for holding American bonds. The yield on 30-year US treasurys hit its highest level in nearly two decades this week, meaning higher borrowing costs for inflation-weary consumers and businesses.
A degree of concern within the Trump administration was evident when Bessent made a rare intervention in currency markets to prop up the weakening Japanese yen. The move was intended, in part, to prevent Japan from selling its holdings of US treasurys to prop up its currency.
And on Wednesday, Bessent said the treasury department would double the amount of its own debt that it is permitted to buy back from investors in a bid to contain borrowing costs.
Traders in the treasurys market have often brushed aside concerns about the amount of US government debt outstanding. There is no market that is as deep, liquid or central to the global financial system, meaning there are few real competitors and it would take a seismic shift to suddenly deter buyers in a material way.
But changes are potentially afoot that have kept investors on edge. One source of uncertainty stems from the Federal Reserve, which maintains a $6.8 trillion portfolio of government bonds and mortgage-backed securities.
Kevin Warsh, who took over as chairman in May, has made it a top priority to reduce those holdings, which grew primarily during past crises as the Fed stepped in to shore up markets. Warsh has yet to lay out a specific plan and is likely to wait until the taskforce he charged with reviewing the balance sheet completes its work by year-end.
Changes to the composition of the Fed’s balance sheet – meaning a larger portion of the central bank’s holdings are held in short-term notes versus long-term bonds – may have only a modest impact on the market. But any attempt to substantially shrink the Fed’s holdings, especially if it is through outright sales, would be much more disconcerting, traders say.
In the meantime, the costs of funding the military and paying for programmes such as Social Security, Medicare and Medicaid continue to rise, and lawmakers facing elections are loath to push too hard for spending cuts or tax increases.
“Our federal programmes spend much more than the government takes in, and the biggest-ticket items in the federal budget are all running on autopilot,” said Margaret Spellings, president of the Bipartisan Policy Center, a think tank. “Even in the rosiest scenarios, we’re speeding toward a cliff and refusing to turn the wheel.” – This article originally appeared in The New York Times; Additional reporting The Financial Times Limited 2026
