US National Debt Reaches $40 Trillion

The US national debt reached $40 trillion for the first time on Wednesday. This figure includes debt the government owes itself, but economists typically focus on the roughly $32 trillion held by the public when assessing the debt's effect on the economy. President Trump's tax-and-spending law is projected to add trillions to federal deficits over the next decade, while the White House has sought additional funding for the Iran war.

Higher national debt could make mortgages, student loans, and small-business borrowing more expensive by putting upward pressure on interest rates. As the US debt grows, investors could demand higher yields if they become less confident in the government's fiscal position. This could lead to increased borrowing costs for expansion, hiring, and investment. Mortgage rates, for example, tend to move closely with the yield on the 10-year Treasury note, which reflects the return investors demand to lend money to the federal government.

The growing national debt also poses inflation risks if investors begin to fear that policymakers will rely on inflationary measures to deal with the government's fiscal problems. As the national debt grows, the federal government must devote more money to interest payments, leaving lawmakers with less room to fund priorities such as defense, infrastructure, and education. The federal government is projected to spend over $1 trillion on net interest in 2026, more than it will spend on any mandatory program other than Social Security or Medicare.