U.S. Federal Debt Surpasses $40 Trillion, Raising Economic Risk Concerns

September 20, Kathmandu – The United States, the world’s largest economy, has surpassed a federal debt level of $40 trillion. According to the U.S. Treasury Department, this milestone was reached on Tuesday, marking the highest outstanding debt in history.

CNN reports that in recent years, the U.S. government debt has risen much faster than expected. Along with the increased debt, the responsibility to service the interest payments has also become significantly heavy.

Despite a relatively strong economy, economists and budget experts have expressed serious concerns over the persistent rise in government debt.

Michael Peterson, CEO of the Peter G. Peterson Foundation, warned that if the current growth rate continues, the total government debt could exceed $50 trillion within the next six years.

“Just about a decade ago, debt was $20 trillion; now it has doubled to $40 trillion,” he said. “This puts the U.S. economy and the country’s long-term security at serious risk.”

Rapid Increase in Social Security and Healthcare Spending

Among the main drivers of the recent surge in U.S. federal debt are rising expenditures in social security and healthcare. As the U.S. population ages, approximately 10,000 baby boomers retire every day, with their life expectancy also increasing.

This debt milestone was reached sooner than previously anticipated.

Consequently, although government spending on social security and Medicare programs has risen, the lack of proportional growth in labor force and taxpayers adds long-term fiscal pressure.

Additionally, the U.S. Congress has enacted numerous programs over past decades, including tax cuts and spending increases. The 2017 Tax Cuts and Jobs Act and COVID-19 relief packages notably contributed to the debt rise.

In 2023, the Congressional Budget Office (CBO) had estimated that federal debt would reach $40 trillion by the fiscal year 2028, but current data show the debt has increased by an additional $1 trillion within just five months.

The government’s spending has outpaced its revenues, resulting in a budget deficit of $1.8 trillion in the first 10 months of the current fiscal year, which ends September 30.

Interest Payments on Debt Expected to Exceed $1 Trillion

Not only has the debt grown, but rising interest rates have substantially increased the government’s cost to service this debt.

In previous years, comparatively low interest rates allowed easier borrowing, but following the COVID-19 pandemic, the Federal Reserve increased rates to control inflation, driving up debt servicing costs.

This fiscal year, the government is expected to spend over $1 trillion on interest payments alone — an all-time record high.

According to Mark Goldwein, Senior Policy Director at the Committee for a Responsible Federal Budget, interest expenses have more than tripled in the last five years.

Interest payments now rival Medicare spending and have become the second-largest federal expense after Social Security.

The government currently spends more on interest payments than on defense and nearly 50% more than on children-related programs.

This mounting debt pressure is increasingly impacting bond markets and the overall economy.

Heavy debt burdens limit government resources for priorities such as education, healthcare, and infrastructure.

“We are spending more paying past debt than investing in the future,” Goldwein stated. “This creates a vicious cycle of borrowing to pay down debt.”

Debt Growth Exerts Pressure on Bond Markets

Rising debt levels have also pressured the bond markets.

On Tuesday, the yield on 30-year U.S. Treasury bonds hit its highest level since 2007. Similarly, 10-year Treasury yields are reaching levels last seen before President Trump’s second term.

The increase in yields is driven by the growing government deficit, increased supply of government and corporate bonds, inflation concerns, and Federal Reserve interest rate policy uncertainties.

Investor perceptions of heightened debt risk have led to demands for higher yields, directly impacting interest rates.

Since the 10-year Treasury yield influences mortgage, auto, and business loan rates, this may ultimately pressure consumer spending and private investment.

Higher borrowing costs also make it more expensive for the government to issue new debt, potentially exacerbating the debt burden.

Maya MacGuineas, Chair of the Committee for a Responsible Federal Budget, commented, “The $40 trillion debt is not just an accounting figure; its effects ultimately ripple through the economy and impact everyone’s pockets.”

The U.S. Treasury Department plans to increase long-term government bond buybacks in coming months, signaling government concern over rising yields and debt costs.

At the beginning of August, a 30-year Treasury bond auction saw yields reach their highest since 2001, indicating investor demand for higher returns on U.S. government debt.

In 2025, Moody’s downgraded U.S. debt credit ratings, effectively stripping the country of its top credit status, although U.S. debt still holds the highest rating among developed economies.

Similarly, developed nations such as the United Kingdom, France, Germany, and Japan face pressure from rising government spending, budget deficits, and debt, with their government bond yields also near multi-year highs.

– Source: CNN