US national debt exceeds $40 trillion for first time

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The US gross national debt has surged past $40 trillion for the first time, government data showed Wednesday, outstripping earlier forecasts at a pace fuelled in part by President Donald Trump’s invalidated tariffs.

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The uptick in borrowing comes as longer term US obligations linked to social security and health care have been growing, while interest payments have climbed as well.

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Total public debt outstanding stood at $40.05 trillion at the close of business Tuesday, according to data released Wednesday by the Treasury Department.

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This stands in contrast to an earlier forecast by the Congressional Budget Office that overall borrowing would hit $39.4 trillion by the end of fiscal year 2026.

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Rising US debt comes as concerns over inflation, war in the Middle East and government spending have been driving investor worries, and the cost of borrowing has grown.

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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.

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The increase forces the US government to refinance debt at the highest rates since before the 2008 global financial crisis.

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But the US Treasury Department moved to steady the long-term bond market early Wednesday, sending yields lower.

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The federal government operates at a deficit and borrows money to help cover its obligations, including its war spending and tax cuts.

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“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.

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“Over the last few years, the United States has moved into roughly $2 trillion deficits, even during peace and prosperity,” she added.

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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.

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

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As inflation pushed interest rates higher, interest costs on the debt have risen as well, and costs linked to an ageing population are pushing up deficits.

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– Risks ahead –

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Analysts note that there is no debt-to-GDP level that automatically triggers a crisis.

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Although the gross debt marks a symbolic threshold, many economists consider debt held by the public to be the most economically meaningful measure.

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

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Federal borrowing surged during the Great Recession of 2007-2009 and increased following the government’s response to the downturn triggered by Covid-19, said Caleb Quakenbush, director of fiscal policy at the Bipartisan Policy Center.

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But he told AFP that the trajectory of US budget spending has not been addressed by Congress or US administrations in a “meaningful or durable way.”

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He warned of uncertainty surrounding the “unprecedented levels of borrowing that we’re seeing now.”

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Bond markets could face steep challenges in a crisis scenario, he noted.

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But even outside that situation, the United States could see higher borrowing costs for consumers and businesses, squeezing the economy.

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Treasury Secretary Scott Bessent had previously set a goal of cutting the US deficit to three percent of GDP.

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AFP

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