The $40 Trillion Question
The United States national debt has just passed $40 trillion, and as of mid-October, the Treasury has put it at about $40.4 trillion, which, if you do the math, works out to around $118,000 for every person in the country.
The national debt is the total amount of money the federal government owes. Every year the government spends more than it collects in taxes, and it borrows the difference by selling bonds called Treasuries. Investors, banks, other countries and regular people buy these bonds, and the government pays them interest.
That interest is now the problem. In fiscal 2026, which ended in September, the government paid more than $1 trillion in interest. That is about $3 billion a day, or over $33,000 every second, and all of it goes toward money that was already borrowed.
How the Debt Got So Big
It took the U.S. from 1776 to 1981 to borrow its first trillion dollars. Today, the debt grows by a trillion dollars in just a few months.
There is not one cause, and both Republicans and Democrats have added to it. The 2008 financial crisis caused tax revenue to fall while the government spent heavily on bailouts and stimulus. In 2020 and 2021, Congress approved more than $5 trillion in COVID relief, including stimulus checks, unemployment benefits and small business loans.
Tax cuts have also played a role. The 2017 tax cuts lowered how much the government collects, and a 2025 law made most of them permanent. The Congressional Budget Office (CBO), Congress’s nonpartisan budget office, estimated that the 2025 law alone will add about $3.4 trillion to deficits over ten years.
Additionally, the country is getting older. As baby boomers retire, more people collect Social Security and Medicare. In fiscal 2026, Social Security cost about $1.65 trillion and Medicare cost about $1.07 trillion.
In total, the government spent about $7.4 trillion in fiscal 2026 and collected about $5.4 trillion in taxes. The $2 trillion difference is called the deficit, and it was borrowed. That means about 27 cents of every dollar the government spent was borrowed money.
Why Interest Rates Matter So Much
The national debt has been growing for decades, so why is it such a big deal right now? The main reason is that interest rates are much higher now.
For most of the 2010s and into the early 2020s, interest rates were extremely low. This meant the government could borrow trillions of dollars without having to pay much in interest. But when inflation started rising, the Federal Reserve raised interest rates to try to bring it back down. Suddenly, borrowing money became much more expensive. And the average interest rate that the U.S. government now pays on its debt is around 3.5%, which is more than double what it was just 5 years ago. On top of that, the 10-year Treasury yield (which is pretty much what investors can earn for lending the government money) has now climbed above 5%, compared to just 4% around a year ago. That is a pretty big change from when the government could just borrow money for pretty much nothing.
Another issue is that the government does not really pay off its debt. When old bonds come due, it borrows new money to pay them back. More than $10 trillion of the debt comes due in the next twelve months, and all of it will be borrowed again at today’s higher rates.
This can turn into a cycle where more debt leads to higher interest payments, which leads to bigger deficits and even more borrowing. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, described it this way: “Higher interest begets more debt, and greater debt begets higher rates and higher interest.”
Because of this, interest is now one of the three largest parts of the federal budget, along with Social Security and Medicare. In fiscal 2026 it cost more than the $916 billion the Department of Defense spent on the military. About one out of every five dollars the government collects in taxes now goes to interest.
What This Could Mean
The U.S. is very unlikely to default. The government borrows in dollars, and the dollar is still the world’s main reserve currency. However, there are still real risks.
The first is higher borrowing costs. For example, mortgages, car loans, and a bunch of student loans are tied to Treasury rates, so heavy government borrowing can push rates up for everyone else as well, and this is one of the reasons why buying a first home is becoming extremely hard for the next generation.
The second is less money for everything else. Interest has to be paid regardless, so every dollar spent on interest is a dollar that cannot go to something else.
The third is that it’s possible that lenders could then lose trust in the U.S. For example, in May 2025, Moody’s took away America’s last AAA credit rating, and previously, S&P already downgraded the U.S. in 2011, and so did Fitch in 2023. It didn’t cause a crisis, but it was definitely a warning sign for what could come.
The United Kingdom is an example of what can happen if lenders lose trust. In 2022, Prime Minister Liz Truss announced large tax cuts, but because she didn’t have a plan to pay for them, British borrowing costs jumped within days, and the Bank of England had to step in to bail out the bond market.
On the other hand, Japan’s debt is more than twice the size of its economy, and it has not had a debt crisis. However, most of Japan’s debt is owned by its own citizens and its central bank. The U.S. relies much more on outside investors, so I don’t think we can expect the same treatment.
Why It Matters for Our Generation
Today, the debt held by the public is about the same size as the entire U.S. economy, around 100% of GDP. That debt is about $32.5 trillion. The $40 trillion total is bigger because it also includes money the government owes its own trust funds, like Social Security. The only time that share of GDP was higher was right after World War II, when it reached 106%.
The CBO projects that the U.S. will exceed that record by the year 2030 and reach 120% of GDP by 2036. By then, interest is expected to cost just about $2.1 trillion a year, which is almost double what it costs today. That’s assuming the interest rates will be lower than they are right now.
By 2036, someone who is a high school senior today will be about 28 years old. They’re going to be starting a career and maybe even trying to buy a home. All the debt being built up now will show up later as higher taxes, higher interest rates, and budget cuts for people our age when we’re older.
Social Security is another concern. The 2026 trustees report projects that the retirement trust fund will run out in late 2032. If Congress does nothing, benefits will be cut automatically by about 22%. Fixing this will mean higher taxes, smaller benefits or more borrowing.
How It Could Be Fixed
There are four main ways to bring the debt under control, and all of them have downsides.
The first is economic growth. Treasury Secretary Scott Bessent has said that 3% growth could let the U.S. grow its way out of the problem. CBO Director Phillip Swagel disagrees. He has said the economy would need real growth of about 5 to 6% a year at today’s interest rates, and that growth alone probably will not be enough. Real growth was about 2.2% in the second quarter.
The second is raising taxes. This would bring in more money, but it is unpopular and could slow down the economy if it is not done carefully.
The third is cutting spending. The problem is that Social Security, Medicare, defense and interest make up most of the budget. The first three are very hard to cut politically, and interest cannot be cut at all.
The fourth one is inflation, because inflation technically makes old debt worth less, but a consequence of that is it makes everything more expensive for regular people and also pushes interest rates higher. The real fix will probably need a mix of all four over many years, which is a big reason politicians keep putting it off.
Could the Dollar Lose Its Power?
Right now, the dollar is the most trusted currency in the world. Countries around the world hold it in their reserves, and a huge amount of global trade is done in dollars. That trust is a big reason the U.S. is able to borrow so much in the first place. But if the debt keeps growing faster than the economy, that trust could start to slip. If that happened, lenders would demand higher interest rates, the dollar would get weaker, and prices for everyday things would go up.
I’m not saying this is going to happen tomorrow. But it is one reason some people buy crypto. Bitcoin, for example, has a hard cap of 21 million coins, so no government can print more of it or inflate it away. Supporters argue that if people ever start losing faith in the dollar, a currency that no single country controls could become a lot more valuable.
However, crypto has real problems as a hedge. It’s extremely volatile, and in 2022, when interest rates went up, Bitcoin fell more than 60% instead of holding its value. Gold has always been the more traditional hedge, and central banks have been buying a lot of it.
Final Thoughts
While I don’t think this is a super urgent problem or that the U.S. is going to go bankrupt anytime soon, it is definitely something we have to address and figure out. And waiting clearly isn’t the answer, because that will cost us trillions of dollars in interest.
Here’s what I think needs to happen. We need a politician who will make the hard trade-offs and fix the problem, even though it will be painful in the short term. Unfortunately, that’s very hard, and I don’t think it will ever happen, because that’s not how you win elections.
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