The National Debt
The U.S. owes $36 trillion — but the political conversation about what that means gets almost everything wrong.
The short version
- The U.S. national debt exceeded $36 trillion in 2025, making the United States the world's largest debtor in absolute terms; as a share of GDP, the debt-to-GDP ratio exceeded 120%, a level not seen since the immediate aftermath of World War II.
- Approximately one-quarter of the national debt is owed to other U.S. government accounts — primarily the Social Security Trust Fund — rather than to external creditors; the debt owed to outside investors is known as 'debt held by the public,' a distinction that matters for understanding actual fiscal exposure.
- The Congressional Budget Office projects that interest payments on the federal debt will exceed defense spending by 2027 and represent the fastest-growing component of the federal budget, driven by the combination of rising debt levels and higher interest rates.
- The world's demand for U.S. Treasury securities as the premier global safe asset — what economists call the dollar's 'exorbitant privilege' — has allowed the U.S. to borrow at lower rates than other heavily indebted nations, but that privilege depends on continued confidence in U.S. fiscal and institutional stability.
What it is
The national debt is the cumulative total of all federal budget deficits — money the federal government has spent beyond what it collected in revenue — plus all accrued interest on prior borrowing, minus any surpluses. When the government spends more in a year than it takes in through taxes and other revenues, it borrows the difference by issuing Treasury securities: bills (short-term), notes (medium-term), and bonds (long-term). These are purchased by investors — domestic and foreign individuals, pension funds, mutual funds, central banks, and other governments — who lend money to the U.S. government in exchange for a promise of repayment with interest. The national debt is not a single obligation to a single creditor; it is a vast and constantly rolling portfolio of obligations, with some maturing and being refinanced every day.
The distinction between 'debt held by the public' and 'intragovernmental debt' is essential for understanding what the total debt figure means. Of the roughly $36 trillion in total federal debt, approximately $7–8 trillion represents money the federal government owes to itself — primarily the Social Security Trust Fund, which by law invests its accumulated surplus in special-issue Treasury securities. When Social Security collects more in payroll taxes than it pays in benefits, the surplus is lent to the general fund and held as Treasury securities. The government thus appears on both sides of this transaction: it owes the money, and (through Social Security) it is owed the money. The remaining ~$27–28 trillion is 'debt held by the public' — actual obligations to external investors. Of that, foreign investors hold approximately 24% of total debt, with Japan and China the largest single foreign holders.
The causes of debt accumulation over time are traceable to specific policy decisions, not to abstract fiscal profligacy. The debt-to-GDP ratio fell from above 100% after World War II to approximately 25% in the mid-1970s through sustained economic growth and relatively balanced budgets. It rose under Reagan's supply-side tax cuts and defense buildup, stabilized and briefly declined under Clinton (the U.S. ran budget surpluses from 1998 to 2001), then rose sharply under Bush due to the 2001 and 2003 tax cuts, the wars in Iraq and Afghanistan, and the 2008 financial crisis response. It rose further under Obama as the economy recovered, remained elevated, then jumped again under Trump's 2017 tax cuts and the COVID-19 pandemic response — which alone added approximately $4 trillion in emergency spending. The pattern shows that the largest contributors to the debt have been tax cuts and defense spending increases combined with wars and economic crises, not domestic social programs.
The interest rate environment matters as much as the debt level for assessing fiscal sustainability. For most of the period between the 2008 financial crisis and 2022, interest rates were near zero — meaning the cost of carrying the existing debt was extremely low despite its size. The Federal Reserve's rate increases between 2022 and 2023, which raised the federal funds rate from near 0% to above 5%, significantly increased the cost of rolling over maturing debt and issuing new debt. The CBO projected in 2024 that net interest payments would reach approximately $870 billion annually by 2025 — nearly 3.1% of GDP and roughly equal to the defense budget — and would continue rising. This dynamic is why many fiscal economists consider the current situation more precarious than the raw debt-to-GDP ratio suggests: the interest burden constrains future fiscal flexibility in a way that the debt level alone does not capture.
Why it matters
The political conversation about the national debt is dominated by analogies that economists broadly consider misleading. 'The government should balance its budget like a household' is the most pervasive: households that spend more than they earn go bankrupt; therefore so will the government. The analogy breaks down on several dimensions. The federal government issues its own currency, which households cannot do — it cannot be forced into default on obligations denominated in dollars, because it can create dollars (at the cost of inflation). It does not have a fixed lifespan; it can refinance debt indefinitely. Its borrowing affects the economy in ways that household borrowing does not — borrowing to invest in productive capacity (education, infrastructure, research) can generate returns that exceed the borrowing cost. And its debt is someone else's asset: Treasury securities are held by households, pension funds, and foreign governments as safe savings instruments — eliminating the debt means eliminating those assets. None of this means deficits are without cost, but the household analogy systematically misdirects the analysis.
The debt's actual fiscal risk operates through interest cost dynamics and the erosion of fiscal space. The U.S. can service any level of debt in nominal dollar terms as long as it can issue currency, but doing so through money creation causes inflation, which imposes its own costs. The more binding constraint is the ratio of interest payments to revenue: when interest consumes a large share of federal revenue, the government has less flexibility to respond to recessions, wars, or other emergencies with fiscal spending. The CBO's long-term budget outlook projects that under current law, debt will reach 166% of GDP by 2054, with interest consuming an increasing share of federal revenue — a trajectory that most economists describe as unsustainable not in the sense of imminent crisis but in the sense that it implies either tax increases, spending cuts, or both at some point. The uncertainty is about timing and triggers, not about the eventual constraint.
The U.S. dollar's status as the world's reserve currency — the currency in which most international trade is invoiced, most commodity prices are set, and most central bank reserves are held — provides the United States with a structural advantage in debt financing that no other nation has. Foreign governments and investors hold U.S. Treasury securities not primarily because they think the U.S. fiscal position is strong, but because there is no alternative safe asset large and liquid enough to replace Treasuries as the anchor of the global financial system. This 'exorbitant privilege,' as French Finance Minister Valéry Giscard d'Estaing described it in the 1960s, has allowed the U.S. to borrow at lower interest rates than its debt levels would otherwise command. It is not permanent: it depends on continued confidence in U.S. institutional stability, rule of law, and commitment to honoring its obligations. Deliberate threats to default on the debt — like repeated debt ceiling confrontations — or institutional instability that makes U.S. policy unpredictable erode the conditions on which the privilege rests.
The debt ceiling — a statutory limit on how much debt the Treasury can issue — is a peculiar feature of U.S. fiscal governance that no other major democracy uses in the same way, and that has repeatedly created manufactured crises with real economic consequences. Congress authorizes spending and taxes separately from the debt limit; when spending exceeds revenues, borrowing is arithmetically necessary to cover the gap Congress itself authorized. The debt ceiling does not prevent deficit spending — it prevents the Treasury from paying the bills Congress has already run up. Standard & Poor's downgraded U.S. sovereign debt in 2011 for the first time in history, explicitly citing political dysfunction around the debt ceiling rather than underlying fiscal capacity. Subsequent confrontations in 2013, 2021, and 2023 each produced real increases in borrowing costs as markets priced the risk of default — costs borne by taxpayers indefinitely on the debt issued during those periods.