US national debt exceeds $40 trillion for first time

The gross US national debt has surpassed the $40 trillion mark for the first time, government figures revealed on Wednesday, surpassing preliminary estimates. This substantial increase in borrowing can be attributed, in part, to former President Donald Trump's invalidated tariffs. The rise in borrowing has been driven by longer-term obligations linked to social security and healthcare, alongside rising interest payments.

As of Tuesday's close, the total public debt outstanding amounted to $40.05 trillion, according to data released by the Treasury Department on Wednesday. This figure contrasts with an earlier prediction by the Congressional Budget Office, which projected borrowing to reach $39.4 trillion by the end of the 2026 fiscal year. The surge in US debt coincides with growing concerns over inflation, the Middle East conflict, and government spending, leading to increased investor apprehension and pushing up borrowing costs.

Yields on long-term Treasury bonds surged to their highest level since 2007, reflecting heightened price pressures due to the Iran conflict and anxiety about the US deficit spending. In response, the Treasury Department sought to stabilize the long-term bond market early Wednesday, causing yields to decline. The federal government operates at a deficit, borrowing money to fund its obligations, including war spending and tax cuts.

Jessica Riedl, a budget and tax fellow at the Brookings Institution, noted that the US government has been on an unsustainable fiscal path for some time, with recent deficits reaching three to four percent of GDP, even during periods of peace and prosperity. As inflation has driven interest rates higher, interest costs on the debt have increased, and demographic factors are also contributing to rising deficits.

While there is no specific debt-to-GDP level that automatically triggers a crisis, many economists view debt held by the public as the most economically significant measure. However, the milestone of surpassing $40 trillion has raised concerns among financial markets, with analysts warning of potential challenges in bond markets and potential higher borrowing costs for consumers and businesses, which could weigh on the economy.