America’s budget, the bond market and the national debt at 250: Gradually, then suddenly

In late August, the bond market signaled a warning to Washington, as the 10-year Treasury yield soared to 5.04%, marking its highest level since 2007, while the Federal Reserve initiated its first rate hike since 2023. Inflation and soaring oil prices contributed to this rise, but mounting government debt remains a primary reason behind the increasing yields.

The gross national debt reached a staggering $40 trillion in August, surpassing the $38 trillion mark in October and the $39 trillion level in March, with an additional trillion dollars added every five months. The fiscal year saw a staggering $2 trillion deficit, despite one month remaining. In 2025, Moody's became the final credit rating agency to downgrade the United States from its AAA status, joining S&P in 2011 and Fitch in 2023.

The analogy of gradually descending into sudden bankruptcy prevails, as experts explain. The ramifications extend beyond the debt itself, as the status of the U.S. as a reserve currency holds immense power. This privilege relies on the confidence that America will pay its bills, and this confidence can be lost as quickly as it was gained.

America is now paying more to its creditors than to its military, with interest payments surpassing defense spending and projected to double to $2.1 trillion by 2036. The adjustable-rate loan, equivalent to the size of the economy, recently adjusted. For the first time in 200 years, Congress failed to live up to its financial responsibilities, as the Budget Act of 1974 created a process for budget resolutions and appropriations bills, which Congress completed four times in the following half-century.

However, this year, Congress has yet to pass even one of the 12 bills, with the deadline set for December 11. As a Senate budget staffer, the author witnessed the failure of a budget resolution motion in the summer of 2022, highlighting the lack of political will to address the issue. The gimmicks in place include the statutory PAYGO rule, which requires new spending to be offset with new revenues, but often fails to materialize.

Additionally, Congress waives these caps with emergency designations and waives the PAYGO scorecard, leaving mandatory spending and interest on the debt largely unchecked. With the fiscal battles focusing on only 27% of the budget, politicians can easily ignore mandatory spending and interest payments. The Congressional Budget Office predicts that rising debt will eventually lead to a fiscal crisis, causing investors to lose confidence, rates to surge abruptly, and the dollar's reserve status to erode.