The US national debt has soared to an unprecedented $40 trillion, according to recent Treasury Department data. This marks a significant milestone, as the debt has more than doubled in less than a decade, from $19.4 trillion ten years ago and $19.95 trillion when former President Donald Trump first took office in January 2017. The increase includes substantial borrowing to fund COVID-19 pandemic responses under both Trump and former President Joe Biden, as well as long-running tax-and-spending imbalances.
Experts and watchdog groups are issuing stark warnings about the implications of this escalating debt. Michael A. Peterson, CEO of the Peter G. Peterson Foundation, emphasized the need for lawmakers to put the nation on a more sustainable path to improve living standards. Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, stated that the $40 trillion debt is felt throughout the economy and contributes to inflation, crowding out other budget priorities, and vulnerability to emergencies. The most recent monthly accounting showed a $432.3 billion deficit in July, the highest monthly total in over five years, with the year-to-date shortfall nearing $1.8 trillion.
The rising debt is already impacting Americans' finances, leading to increased borrowing costs for mortgages, car loans, and credit cards. It is also believed to lower wages by reducing available capital for businesses to invest and contribute to more expensive goods and services. The federal government's increased need to issue Treasury securities to fund spending means it must offer higher yields to attract investors, which in turn pushes up interest rates across the board. This situation could also make it harder for the government to fund core programs, a phenomenon referred to as "crowding out" by Peterson.
The U.S. fiscal situation has had market ramifications, evidenced by surging Treasury yields hitting levels not seen in nearly two decades. In response, U.S. Treasury Secretary Scott Bessent announced a doubling of buyback sizes for 10- to 30-year Treasuries to at least $4 billion per operation to push long bond yields back down. Adding to concerns, foreign investor demand for U.S. debt, which holds nearly one-third of all Treasuries, has been declining over the past year, potentially exacerbating market volatility.
While some experts, like Baker, are less concerned about an immediate economic threat, citing a strong U.S. economy, others highlight that a full-blown debt crisis could erupt if lawmakers do not address the unsustainable fiscal outlook through tax increases, spending cuts, or both. Margaret Spellings, CEO of the Bipartisan Policy Center, warned that federal debt is already raising the cost of living and threatening long-term prosperity.
