US National Debt Hits $40tn Milestone, Doubling in a Decade

The US national debt has surpassed $40tn, a milestone reached after doubling in a decade. This significant increase reflects years of heavy spending under both the Trump and Biden administrations, as well as higher interest payments that have steadily added to the total.

The Congressional Budget Office (CBO) had projected overall borrowing would reach $39.6tn by the end of fiscal year 2026. However, the faster-than-expected rise has sharpened concerns about how quickly the government's borrowing needs are growing and what that means for future interest costs.

The CBO also noted that the US is nearing its $41.1tn debt ceiling, with debt projected to climb to about $64tn by 2036. As the federal government spends more to cover its budget deficits, consumers have faced higher interest rates and inflation.

The $40.05tn, as of 18 August, covers all outstanding Treasury bonds, bills, and notes, and underscores the scale of US borrowing under two presidents.

The interest rate on 30-year bonds, which are a type of debt used to raise funds from investors, hit 5.34% on Tuesday - the highest level in almost 20 years. Those rates, known as yields, influence how much the US government, companies, and consumers pay to borrow - affecting mortgages, car loans, and credit cards.

The recent surge in bond yields has been driven by rising oil prices linked to the US-Iran war, with investors worried about inflation. There are also concerns over government debt and the huge amounts of cash being borrowed by tech firms to develop artificial intelligence (AI), with the timeline and level of returns on investment uncertain.

Economics professor David Jacks from the National University of Singapore warned that difficulties in managing the debt could eventually trigger disruptions on a scale similar to the 2008 financial crisis.

The Treasury Department has announced that it will increase its buyback operations by "at least double" from $2bn to $4bn from 9 September to 4 November. This move is intended to provide greater liquidity support for longer-term bonds.

However, John Canavan, lead analyst at Oxford Economics, said that the increase in buybacks from the government was "unlikely to provide meaningful long-term relief" given the size of outstanding Treasury debt.

Rene Albrecht, senior analyst at DZ Bank in Germany, noted that the US government feared the "pain of 5% or higher yields" over the long term, not just because it raised borrowing costs for the government but also the private sector.

Economist Mohamed A El-Erian suggested that the move by the Trump administration was about the possibility of a broader strategy to keep control of interest rates - known as "yield curve control".

The amount the US owes compared to its annual economic output - known as its debt-to-gross domestic product (GDP) ratio - is 125.8%, according to the International Monetary Fund (IMF). This is one of the highest among the world's largest economies.

The US has longer-term fixed mortgage deals than other countries, such as the UK. Currently, the average interest rate on 30-year fixed mortgages is 6.67%, according to finance firm Freddie Mac. While borrowing costs for homeowners have been rising, they remain lower than in 2023 when such deals averaged 7.7%.

The Federal Reserve has released minutes revealing that concerns over inflation deepened among policymakers at its last meeting. The central bank ended up holding its benchmark interest rate in the current 3.50%-3.75% range for the fifth time in a row.