US national debt passes $40tn after doubling in a decade

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US national debt has more than doubled in a decade to reach a milestone $40tn (£29.4tn), Treasury figures show.

The rise reflects years of heavy spending under both the Donald Trump and Joe Biden administrations, along with higher interest payments that have steadily added to the total. In 2016, the national debt stood at just under $20tn.

The Congressional Budget Office (CBO) had projected overall borrowing would reach $39.6tn only by the end of fiscal year 2026.

The faster-than-expected rise has sharpened concerns about how quickly the government’s borrowing needs are growing, and what that means for future interest costs.

The CBO says the US is nearing its $41.1tn debt ceiling, with debt projected to climb to about $64tn by 2036.

As the federal government spends more money to cover its budget deficits, consumers have faced higher interest rates and inflation.

The $40.05tn sum, as of 18 August, covers all outstanding Treasury bonds, bills and notes, and underscores the scale of US borrowing under two presidents.

The interest rate on 30-year bonds, which are a type of debt used to raise funds from investors, hit 5.34% on Tuesday – the highest level in almost 20 years.

Those rates, known as yields, influence how much the US government, companies, and consumers pay to borrow – affecting mortgages, car loans, and credit cards.

The recent surge in bond yields has been driven by rising oil prices linked to the US-Iran war, with investors worried over inflation.

There are also concerns over government debt and the huge amounts of cash being borrowed by tech firms to develop artificial intelligence (AI), with the timeline and level of returns on investment uncertain.

The Treasury Department said its intervention reflected its “desire to provide greater liquidity support” for longer-term bonds.

It announced it would increase its buyback operations by “at least double” from $2bn to $4bn and will be effective from 9 September to 4 November.

The rate on borrowing costs over 30 years eased on the back of the move to 5.18%.

John Canavan, lead analyst at Oxford Economics, said the Treasury’s decision to increase purchases appeared to be an “attempt to provide relief” on long-term borrowing costs, which had been under “significant pressure from rising oil prices, inflation risks, and heavy supply due to global sovereign and corporate borrowing needs”.

But he said given the size of outstanding Treasury debt, the increase in buybacks from the government was “unlikely to provide meaningful long-term relief”.

Rene Albrecht, senior analyst at DZ Bank in Germany, said the US government feared the “pain of 5% or higher yields” over the long term not just because it raised borrowing costs for the government, but also the private sector.

“It’s only three months until the midterm elections,” Albrecht said. “They [the Treasury] have had to grab into the toolkit in order to get a hand on the recent rise in yields.”

But economist Mohamed A. El-Erian said that, beyond the bond market reaction to push down longer-term borrowing costs, the move by the Trump administration was about the possibility of a broader strategy to keep control of interest rates – known as “yield curve control”.

While the move can help bring down longer-end yields in the immediate and short term, and thereby help lower mortgage and other borrowing costs, “it risks collateral damage and unintended consequences”, he added in a social media post.

The amount the US owes compared to its annual economic output – known as its debt-to-gross domestic product (GDP) ratio – is 125.8%, according to the International Monetary Fund (IMF).

It is one of the highest among the world’s largest economies.

In comparison, IMF figures show the UK and China’s debt-to-GDP ratios are 103.6% and 106.9%, respectively.

After decades of spending to support an ageing population and weak economic growth, Japan has the highest debt burden amongst the world’s major economies with a debt-to-GDP ratio of more than 200%.

The US has longer-term fixed mortgage deals than other countries such as the UK.

Currently, the average interest rate on 30-year fixed mortgages is 6.67%, according to finance firm Freddie Mac. While borrowing costs for homeowners have been rising, they remain lower than in 2023 when such deals averaged 7.7%.

Minutes released on Wednesday by the Federal Reserve, which sets US interest rates, revealed that concerns over inflation deepened among policymakers at its last meeting.

It said there were “several participants” in favour of increased rates last month. The central bank ended up holding its benchmark interest rate in the current 3.50%-3.75% range for the fifth time in a row.

Many participants also said rate hikes would “likely be necessary if inflation did not decline”, with some suggesting interest rates were not high enough to see price rises fall back to the Fed’s 2% target for inflation.

The Fed is expected to hold its policy rate steady again at its September meeting after recent data showed inflation eased slightly and firms unexpectedly shedding jobs in July.

Reporting originally appeared via KBC Digital. Read the full source for additional context.