$40 Trillion Debt Mark Crossed with Rising Interest Rates

The US national debt has quietly crossed the $40 trillion mark this summer, sparking concerns at home and abroad. It took nearly 200 years for the country's debt to reach $1 trillion in 1981, with President Ronald Reagan declaring it a wake-up call. Today, the country spends more than that just on interest payments.

The steady rise to $40 trillion was driven by public spending surges under both the Trump and Biden administrations, outstripping revenues undermined by tax cuts and fueled by borrowing in response to crises like the 2008 financial crash and the Covid pandemic. Recent inflation shocks and higher interest rates have made matters worse.

At the start of Trump's first term in 2016, debt stood at just under $20 trillion, it has doubled in the decade since, now rising by roughly $90,000 every second. Eric Swanson, a former Federal Reserve economist, notes the key difference from a decade ago: interest rates.

Long-term rates are at multi-decade highs, partly reflecting inflation fears and partly investors' wariness of massive government borrowing. Tech firms borrowing heavily to fund AI are also competing with the government for capital. Rising rates make funding the deficit pricier. Interest payments on government debt are now 15% higher than a year ago and consume nearly 20% of tax revenue, more than the defence budget.