On August 18, the U.S. national debt surpassed the $40 trillion —that’s twice as much as it was in 2017.
What does that actually mean? And what are the implications?
The debt figure alone doesn’t tell us much. It only becomes meaningful when broken down into three parts: what it costs, who finances it, and at what price.
Where does the debt come from?
The U.S. government consistently spends more than it takes in and closes this gap through bonds. For the current half-year, the figures look like this:
- Deficit according to the Congressional Budget Office: $1.9 trillion or 5.8% of GDP
- Expenditures: $7.4 trillion · Revenues: $5.6 trillion
- July alone: $432 billion deficit, the highest monthly figure since March 2021
This is driven by two areas that are virtually untouchable politically: Social Security and Medicare, whose number of beneficiaries is growing along with the aging population. Added to this is last year’s tax package (The Big Beautiful Bill), which permanently reduces revenue. The CBO estimates its impact at $4.7 trillion in additional deficits by 2035.
Debt isn’t a problem as long as it’s cheap.
That is precisely what is changing now: Interest payments this year already total ~$1.2 trillion —more than the U.S. spends on defense or Medicare. This figure is projected to double to $2.1 trillion by 2036—rising from 3.3% to 4.6% of GDP.
From this point on, the debt feeds on itself: Old, low-interest bonds mature and are refinanced at today’s (very high) interest rates. Every dollar of interest must be borrowed again. This effect is called crowding out: the interest burden eats into the leeway for everything else in the budget.
Why are interest rates so high right now?
The 30-year U.S. yield rose above 5.3% in August, the highest level since 2007; the 10-year yield stands at around 4.7%.
Three factors are at play here:
Supply: The government must issue over $2 trillion in new debt annually
Competition: Record volumes of corporate bonds issued to finance AI expansion are competing for the same buyers
Inflation risk: Inflation remains above the Fed’s target, recently exacerbated by higher oil prices
The Treasury Department has responded by doubling its repurchases of long-term securities to at least $4 billion per operation, effective September 9. Yields fell briefly and rose again the following day—a sign that the market views the measure more as liquidity support than as a response to the underlying cause.
What are the implications?
The 10-year yield serves as the benchmark for mortgages, auto loans, and corporate financing. If it rises, the cost of borrowing rises across the entire economy. For stocks, this same interest rate acts as a discount rate:
The higher it is, the less future profits—which lie far in the future—are worth today, which particularly affects highly valued growth stocks.
As for bond portfolios themselves: Rising yields mean falling prices, and the longer the maturity, the more severe the impact.
Overall, , the 40-trillion mark is primarily symbolic. The more meaningful figure is the debt-service ratio: Unlike social spending or defense, debt service cannot be cut or deferred. And as long as the interest rate exceeds the growth rate, it grows faster than the economic output that is supposed to support it. A large economy can certainly bear a heavy debt burden—but what matters is how things proceed from here.
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Sources:
https://www.cbo.gov/publication/61882
https://www.cbsnews.com/news/national-debt-tops-40-trillion-doubles/
