The U.S. Treasury Department announced on Wednesday that total public debt has surpassed $40 trillion, marking the first time in history, drawing significant concerns about a potential fiscal crisis. The latest daily cash and debt balances statement revealed that the total public debt outstanding at $40.047 trillion on Tuesday, including Treasury securities held by the public of $32.266 trillion and intra-governmental debt holdings of $7.782 trillion, exceeded expectations. This represents a doubling of the debt from $19.95 trillion when President Donald Trump was sworn in in January 2017.
The federal government’s IOU has now more than doubled in less than a decade, from $19.95 trillion when Trump was first in office, and roughly one-third of that increase occurred during two years of frantic government borrowing to fund the COVID-19 pandemic responses undertaken by Trump and former President Joe Biden, with the fiscal policy choices of both presidents combining with long-running tax-and-spending imbalances contributing to the rest. Budget watchdog groups have been anticipating this milestone for weeks. Margaret Spellings, CEO of the Bipartisan Policy Center, stated last week that a full-blown debt crisis could erupt unless lawmakers confront an unsustainable fiscal outlook and raise taxes, cut spending, or both.
The federal government’s IOU has now more than doubled in less than a decade, from $19.95 trillion when President Trump was sworn in for the first time in January 2017. Days after a $25 billion auction of 30-year Treasury bonds went off at the highest yield since 2021, yields on so-called long bonds on Tuesday hit their highest levels in nearly two decades. Treasury Secretary Scott Bessent took a bold step to push long bond yields back, announcing a doubling of buyback sizes for 10- to 30-year Treasuries to at least $4 billion per operation. This represents a significant increase in the term premium for 10-year Treasuries, rising to its highest level in more than a dozen years.
Global U.S. creditors may already be growing wary. A report by the Congressional Budget Office estimated that demand for U.S. debt by foreign investors has been declining over the past year, leaving more bonds to fall to more price-sensitive buyers, which can exacerbate market volatility. John Canavan, lead financial market analyst in Oxford Economics’ Macroeconomic and Investor Services group, wrote on Tuesday that the trend of declining demand for U.S. debt is a worrying signal.
The Treasury last week reported the fourth-highest monthly deficit in U.S. history — $432 billion for July — as tariff refunds turned customs receipts negative for the third month in a row and outlays for Social Security and Medicare benefits for seniors continued to grow. The deficit for the first 10 months of fiscal 2026 has already exceeded the total gap for all of fiscal 2025 with two months to go in the current fiscal year. Trump has largely ignored the dwindling number of fiscal hawks in his Republican Party, championing prolific spending across his two terms. Public debt increased by $7.8 trillion during Trump’s first term, marked by heavy COVID-19 recovery spending, but also driven by big-ticket outlays for infrastructure investment, clean energy subsidies, and other priorities championed by his Democratic Party. The non-partisan Committee for a Responsible Federal Budget estimates that the policy choices of Trump and Biden have increased the federal debt trajectory beyond what would have accumulated under the existing spending statutes when each took office.
For instance, Trump’s landmark second-term legislative package — the One Big Beautiful Bill Act — will add another $4.7 trillion in debt, according to the Congressional Budget Office, the non-partisan bookkeeper for federal lawmakers. Trump has branded his second presidency as one focused on cost-cutting, marked by early federal agency job cuts ordered by the non-governmental Department of Government Efficiency. But much of his spending reductions have targeted so-called ‘discretionary’ programs, the smallest portion of the federal budget. The U.S. spends roughly $7 trillion annually, and 60% of it is earmarked for so-called ‘mandatory’ programs, including payments for Social Security, Medicare, and Medicaid, that generally grow to keep pace with living costs. Another $1.1 trillion pays the interest on U.S. borrowing, the cost of which rises as the debt pile grows and as interest rates climb. The 2025 fiscal-year budget marked the first time debt service costs exceeded Pentagon funding. In the first 10 months of the 2026 fiscal year, interest costs have eclipsed Medicare healthcare outlays to become the second-largest line-item in the federal budget, behind the Social Security pension system.
The U.S. is spending more to fund the retirement and healthcare costs of the ‘baby boom’ generation, straining the trust funds behind Social Security and Medicare even as payroll and income tax revenues fall short of covering federal costs.
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Source: NBC News
