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The US gross national debt crossed $40 trillion on August 18, hitting $40.047 trillion according to Treasury Department daily statements.
What makes this milestone especially striking isn’t the number itself. It’s the speed. The debt blew past $39 trillion just five months ago in March 2026, and cleared $38 trillion in October 2025.
The interest bill is becoming the main event
In the first 10 months of fiscal year 2026, the federal government spent $931 billion on interest payments alone. That’s not building roads, funding schools, or paying soldiers. That’s just the cost of having borrowed money in the past.
Annual net interest costs are now projected to exceed $1 trillion for the full fiscal year. That figure rivals what the US spends on national defense. It’s closing in on Medicare outlays. Interest on debt has quietly become one of the three largest line items in the entire federal budget, trailing only Social Security and Medicare.
Higher Treasury yields mean every new bond the government issues carries a steeper interest rate. Those elevated yields don’t just hurt Washington’s balance sheet, they ripple outward, inflating borrowing costs for mortgages, car loans, and corporate debt.
How we got here
The national debt has more than doubled since January 2017. That’s not the work of a single president or party. An estimated one-third of the recent debt growth traces back to COVID-era borrowing under both the Trump and Biden administrations, when trillions were deployed to keep the economy from cratering during the pandemic.
But COVID relief was a one-time shock layered on top of structural forces that were already grinding away at the budget. Entitlement spending on Social Security and Medicare continues to grow as the population ages. Tax reforms reduced revenue without corresponding cuts to spending. Defense funding has remained elevated amid global instability.
The result is persistent annual deficits exceeding $2 trillion.
Of the total $40 trillion, approximately $32.27 trillion is held by the public, meaning investors, foreign governments, and institutions that buy Treasury securities. That figure is approaching US GDP levels, a ratio that fiscal watchdogs have long flagged as a warning sign. The remainder sits in intragovernmental holdings, essentially IOUs between different parts of the federal government.
What this means for markets and investors
Rising government borrowing costs tend to pull up interest rates across the broader economy. That pressure can weigh on equity valuations, particularly for growth stocks whose future earnings are worth less when discount rates climb. Fixed-income investors face a different kind of squeeze: higher yields on new bonds are attractive, but existing bond portfolios lose value as rates rise.
Corporate borrowers feel the pinch too. Companies that need to refinance debt or fund expansion face steeper costs, which can compress margins and slow hiring.
The more immediate risk for digital asset markets is regulatory. Governments facing fiscal pressure have historically looked for new revenue sources, and the crypto industry remains a target for expanded tax enforcement and compliance requirements. A Treasury Department under budget strain has every incentive to tighten reporting rules and close perceived loopholes in digital asset taxation.
Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.
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