Why the US economy is ringing alarm bells
US national debt passed $40tn (£29.4tn) this week, a milestone economists say marks a significant warning sign for the world's largest economy, even as they stop short of calling it a crisis. The debt has doubled in the decade since 2016, driven by rising spending on social programmes, crisis responses such as the 2008 financial crash and the Covid pandemic, and tax cuts that have eroded revenue, all compounded more recently by higher interest rates that make servicing the debt increasingly costly.
The debt is growing by roughly $90,000 a second, or $7.8bn a day, and interest payments are now 15% higher than a year ago, consuming almost 20% of tax revenue — more than defence spending. The US is nearing its $41.1tn debt ceiling, with the Congressional Budget Office forecasting debt could reach $64tn by 2036. Economists note the US retains a "longer runway" than other nations thanks to the dollar's reserve currency status and comparatively lower debt-to-GDP ratio than Japan or Italy, but warn that diminishing investor appetite for US bonds is pushing borrowing costs higher for America and other countries alike.
- US national debt has passed $40tn, doubling since 2016
- Interest payments now exceed defence spending, at 20% of tax revenue
- Economists call it a "flashing yellow light", not yet a crisis
New here? Start with this
The national debt is the total amount the US government has borrowed over time to cover the gap between its spending and income, mainly from taxes. It borrows by selling government bonds, which investors buy in return for interest.
The main players are Congress, which sets taxes and approves spending, and the Treasury, which borrows money and pays the bills. The Federal Reserve influences interest rates, while investors around the world decide whether to buy US bonds.
The dollar’s role as a major global currency has helped the US borrow relatively cheaply, but rising debt can mean more public money goes towards interest and less investor demand can push borrowing costs up. Because US borrowing affects financial markets worldwide, changes in those costs can also matter to other countries.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
The rapid doubling of debt in a decade and interest payments now consuming nearly one-fifth of tax revenue represents an unsustainable trajectory that will increasingly constrain future policy choices and crowd out investment in productive areas. The rising interest burden, driven by declining investor appetite, suggests markets are recognising genuine fiscal stress, and the Congressional Budget Office's projection toward $64tn by 2036 indicates the problem is accelerating rather than stabilising.
The case against
US debt sustainability cannot be assessed through absolute levels alone; what matters is the debt-to-GDP ratio relative to growth and inflation, where America compares favourably to other developed economies like Japan and Italy. The dollar's privileged reserve currency status allows the US to borrow at rates unavailable to other nations, and provided government spending funds productive investments with long-term returns, higher debt levels need not signal imminent crisis—a lesson reinforced by repeated historical predictions of fiscal collapse that have not materialised.