The United States has reached a record-high national debt of US$38.5 trillion early in 2026, surpassing previous estimates and raising fresh concerns over long-term fiscal sustainability, mounting interest costs and the broader economic outlook.
Federal debt has climbed sharply over the past decade, driven by persistent budget deficits, emergency pandemic spending, expanded social and defence programmes and tax policy changes. The latest figure of $38.5 trillion marks a significant milestone, reaching a level that analysts previously projected would not be hit until around 2030.
At this scale, the national debt now exceeds 120 percent of U.S. gross domestic product (GDP), meaning the federal government owes more than it produces in a year. More than 70 percent of the debt is owed to domestic lenders such as U.S. individuals, banks and institutions, with the remainder held by foreign governments, including Japan, China and the United Kingdom.
Annual interest costs on the debt have now surpassed US$1 trillion, making debt servicing one of the largest items in the federal budget, on par with or exceeding defence spending. Analysts have warned that interest payments are rising faster than many other categories of spending, which could crowd out other priorities such as infrastructure, healthcare and education.
The rapid accumulation of debt has also fuelled debate over whether the U.S. will enter a period of “fiscal dominance,” where monetary policy becomes constrained by the need to keep borrowing costs manageable. In such an environment, central banks may feel compelled to maintain lower interest rates to make debt servicing more affordable, potentially complicating efforts to control inflation or normalise monetary policy.
Economists point to several factors behind the accelerating debt trend. Emergency pandemic spending in 2020 and 2021 introduced trillions of dollars in deficit financing, and subsequent years have seen continued high outlays on social programmes such as Social Security and Medicare alongside defence, infrastructure and interest costs. Persistent annual budget deficits, often exceeding US$1 trillion, have meant that borrowing remains a central feature of U.S. fiscal policy.
The debt-to-GDP ratio exceeding 120 percent places the U.S. among the highest-leveraged advanced economies, a level that historically prompts scrutiny from credit rating agencies, investors and international policymakers. In past years, ratings firms have already signalled concern: for instance, Moody’s downgraded the U.S. credit rating in 2025, a rare move for a global reserve currency issuer, citing long-term fiscal trends tied to rising debt burdens.
Policymakers on both sides of the aisle have expressed differing perspectives on the debt trajectory. Some argue for fiscal restraint through spending cuts and structural reforms, while others advocate for targeted revenue increases or economic growth strategies to expand the tax base. Regardless of approach, there is increasing recognition that managing the debt burden will be a defining policy issue in 2026 and beyond.
For ordinary Americans, the implications are multifaceted. High national debt can influence interest rates, inflation trends, tax policy and government spending priorities. Rising interest costs may put pressure on discretionary spending, while debates over entitlement reform or tax changes are likely to intensify.
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