US debt is getting out of control

Picture Credit: The Dispatch

The US national debt has reached a record $40 trillion, underscoring growing concerns over the country’s long-term fiscal position. The milestone comes much earlier than previously expected, with the Congressional Budget Office having projected in 2023 that the threshold would not be reached until 2028. The debt has increased by $1 trillion in just five months, while the federal government has already recorded a $1.8 trillion deficit during the first 10 months of the current fiscal year.

Source: CNN

The rapid increase is being driven by a combination of rising government spending, tax cuts and growing costs from an aging population. Social Security and Medicare spending is increasing as millions of Baby Boomers retire, while previous tax and spending packages, including pandemic relief measures and the 2017 and 2025 tax cuts, have added trillions to projected debt. With government spending continuing to exceed revenue, the debt is expected to keep climbing rapidly.

One of the biggest concerns is the cost of servicing that debt. Higher interest rates have caused federal interest payments to more than triple in five years, with the bill expected to exceed $1 trillion this fiscal year. Interest payments are now approaching the cost of Medicare and have surpassed spending on national defense. As more government revenue is directed toward servicing existing debt, less is available for infrastructure, social programs and other priorities.

Source: CNN

The consequences are also spreading into financial markets. The yield on 30-year US Treasuries recently reached its highest level since 2007, while the 10-year yield remains elevated. Higher Treasury yields generally translate into more expensive mortgages, car loans and business borrowing, potentially weighing on consumer spending and investment. At the same time, higher yields make it even more expensive for Washington to finance its growing debt, creating a cycle in which higher debt leads to higher interest costs, which in turn creates even more borrowing pressure.

Despite growing warnings from economists and fiscal watchdogs, there has been limited political appetite in Washington for major spending cuts or tax increases. The Treasury has announced increased purchases of long-term bonds in an effort to support the market as yields rise, while the US has already lost its last perfect credit rating following a Moody’s downgrade in 2025. With debt now at $40 trillion and potentially heading toward $50 trillion within years, the challenge for policymakers is becoming increasingly difficult to ignore.