U.S. national debt has surpassed $40 trillion. Four questions about what this means and what the risks are

U.S. national debt has exceeded $40 trillion for the first time: as of the end of August 18, it stood at $40.05 trillion, Bloomberg reports, citing data released by the U.S. Treasury Department later that day. In less than five years, the debt has grown by about a third—the country only crossed the $30 trillion mark in January 2022. Washington is now approaching the statutory debt ceiling of $41.1 trillion: according to Fitch Ratings, the limit will be reached in mid-2027.

Oninvest has compiled answers to the main questions on this topic.

At the turn of the century, the national debt stood at less than $6 trillion—or about $12 trillion in 2026 prices—and the debt burden has doubled over the past decade, according to the Financial Times (FT). The growth accelerated sharply due to the global financial crisis and the coronavirus pandemic: tax revenues fell due to job losses, while spending on social support rose, Bloomberg notes. Over the past year, the increase amounted to $3 trillion—second only to the pandemic years, the FT calculated.

It’s not just about the crises. Decisions made by White House administrations also played a significant role, according to a compilation of estimates gathered by Deutsche Bank economists. For example, the tax cuts under George W. Bush cost the budget about $3.3 trillion in revenue by the mid-2010s, while Donald Trump’s 2017 tax reform cost at least another $1.5 trillion over its first ten years, the bank calculated. The wars in Iraq and Afghanistan cost taxpayers more than $1.6 trillion by the mid-2010s. And the economic stimulus plan passed in 2021 under Joe Biden—the American Rescue Plan Act—was expected to increase the deficit by $1.8–1.9 trillion over the decade, excluding interest, according to Deutsche Bank.

A political impasse is hindering efforts to reduce the deficit. Republicans oppose tax increases, but neither they nor the Democrats are willing to support unpopular cuts to health care and Social Security. Economists, the Congressional Budget Office, and Wall Street do not expect a significant improvement in the deficit-to-GDP ratio in the coming years. Many observers believe that Washington will take serious measures only after turmoil in the financial markets, according to Bloomberg.

Investor Scott Bessent, who took over as U.S. Treasury Secretary in 2025, wants to reduce the deficit to about 3% of GDP by the end of Trump’s second term in January 2029. According to him, that is why he entered politics. In July, the deficit stood at 6% of GDP, and it is unclear how it can be cut in half, Bloomberg notes. Trump is promising new tax cuts ahead of the November midterm congressional elections and an increase in defense spending, while the Department of Government Efficiency (DOGE), led by Elon Musk, has cut spending by less than it had projected, Bloomberg notes.

Reaching the $40 trillion mark in and of itself does not change the debt dynamics; it has long been factored into forecasts—what is far more important is the rise in the cost of servicing the debt, noted Matthew Luzzetti, Deutsche Bank’s chief U.S. economist. Last week’s issuance of 30-year bonds was the most expensive for the U.S. Treasury since 2001, and the issuance of 10-year bonds was the most expensive since 2007.

During the first ten months of fiscal year 2026 (which began in the U.S. on October 1, 2025), interest payments reached $1.17 trillion—a 15% increase from the same period a year earlier, according to Bloomberg. This is the third-largest budget item after health care and social security. It has already surpassed defense spending, the FT notes. This creates the risk of a “vicious cycle”: expensive borrowing increases spending and the need for new loans, while rising public debt forces investors to demand even higher yields.

On August 13, Fitch affirmed the U.S. credit rating at AA+ (indicating a very low probability of default), but noted that the government had not taken significant steps to reduce the budget deficit. An aging population will increase pressure on the budget over the next decade, and rising debt will make the country more vulnerable to future economic shocks, the agency warned.

The next crossroads is the debt ceiling: Reaching the $41.1 trillion ceiling is expected to trigger yet another bipartisan showdown in Washington—one of many that have already taken place—to prevent a default, Bloomberg notes.

Not all of the $40 trillion in public debt is traded on the market. It includes both tradable Treasury securities and intra-governmental obligations—such as accumulated social security surpluses invested in specially issued bonds, Bloomberg explains. Debt owed to private and institutional investors—which is tracked by the market and does not include intra-U.S. government obligations—exceeds $32 trillion and is roughly equal to the size of the U.S. economy, notes the FT.

From here on out, the burden will only grow. The Congressional Budget Office expects that debt held by foreign creditors will exceed the postwar high of 106% of GDP by the end of the decade and reach 120% by 2036, the FT notes.

The Ministry of Finance is trying to stem the sell-off of long-term Treasuries and the rise in borrowing costs. Ahead of the release of data on the $40 trillion debt, the ministry announced that it would double the volume of long-term bond buybacks. Bond yields subsequently fell, and the stock market began to rise.

The consequences are not limited to the government bond market. If the debt is not brought under control, it will take a toll on the quality of life, warned Michael Peterson, head of the Peter G. Peterson Foundation. Further accumulation of debt could make mortgages and auto loans more expensive and increase credit card debt, he said.

Mark Goldwyn, senior director of policy at the Committee for a Responsible Federal Budget ( CRFB), compared the $40 trillion figure to a “huge flashing ‘Check Engine’ light.” “This doesn’t mean the engine will melt down tomorrow, but it clearly shows that things have gotten pretty far out of control. And it’s not just about the size of the debt, but also how quickly we reached this milestone,” he told the FT.

Ed Yardeni, president of Yardeni Research, points out the self-perpetuating nature of the problem. “This is a huge amount of debt that will grow on its own due to interest expenses. If interest rates rise due to concerns about the heavy debt burden, even more will have to be paid in interest. It’s a vicious cycle,” he says (as quoted in the FT).

The U.S. budget deficit remains enormous even with a relatively strong economy, notes Shai Akabas, vice president for economic policy at the Bipartisan Policy Center. “We’re still running an annual deficit of around $2 trillion. If the economy slips into a recession or conflicts abroad escalate further, these figures will rise,” he warned (quoted in the FT).

Douglas Holtz-Eakin, head of the American Action Forum and former director of the Congressional Budget Office, took a harsher stance. “The federal budget is an enemy within,” he wrote on August 17, calling it “the primary threat to economic progress, U.S. international standing, and national security.” (quoted by Bloomberg). Real measures to combat the budget deficit would provide cause for optimism, but there are none, he noted.

The Conference Board has called on lawmakers to establish a commission tasked with developing measures to stabilize the public debt-to-GDP ratio and address the solvency of the Social Security and Medicare trust funds, according to MarketWatch. The CRFB made the same appeal. CRFB Director Maya McGinnis urged policymakers to act as soon as possible—whether under pressure from voters and the markets, due to competition with other countries, or at least out of fear of the consequences of delay. “No one knows how many more of these [debt] milestones America can withstand,” she said (quoted by MarketWatch).

Peterson of the Peter G. Peterson Foundation hopes that the $40 trillion mark will serve as a wake-up call for Washington. But if the U.S. continues to borrow at this rate, the financial markets could face a “moment of reckoning,” he warned: investors will demand higher yields or choose to invest their money elsewhere.

This article was AI-translated and verified by a human editor