Three things to know about the $40 trillion federal debt

Meanwhile, the $40 trillion U.S. Debt: Three things to know The U.S.

Key points

• But the move does nothing to solve the underlying difficulty, and the effect was short-lived; The yields on 10- and 30-year Treasurys rebounded on Thursday.
• The debt has doubled since 2017, and just paying interest on the accumulated debt now costs the administration more than $1 trillion a year.
• "$40 trillion should be a wake-up call, " remarked Carolyn Bordeaux, executive director of the Concord Coalition, a deficit watchdog group.
• The federal debt topped $40 trillion for the first time this week.
• Since it limits the government's ability to tackle other priorities, the federal debt affects all Americans indirectly.

Meanwhile, the $40 trillion U.S. Debt: Three things to know The U.S. Federal debt hit a record $40 trillion this week. The debt has doubled since 2017, and just paying interest on the accumulated debt now costs the administration more than $1 trillion a year. Three things to know regarding the $40 trillion federal debt.

For context, the federal debt topped $40 trillion for the first time this week. Investors who purchase administration bonds are demanding higher interest rates to finance the growing debt load. Mandel Ngan/AFP hide caption.

For context, the Treasury Department documented this week that the U.S. Federal debt had reached $40 trillion, an eye-popping level of red ink. Just the annual interest on that accumulated debt now tops a trillion dollars, making it the government's second-biggest expense, behind only Social Security.

Here are three things to know regarding the deepening financial hole the administration is in. How did the debt obtain so sizeable?

For years, the administration has spent more capital than it collects in taxes. Some of that has been driven by political choices – to wage war, cut taxes or provide a more generous social safety net during the pandemic. As baby boomers age into retirement, resulting in higher costs for Social Security and Medicare, but much of the expansion in spending happens automatically.

Historically, debt as a share of the economy tended to rise during recessions, then stabilize during economic expansions. More lately, the administration has run sizeable deficits even when the economy has been growing. The debt has doubled in size since 2017. And now the individuals who lend capital to the administration are demanding higher interest rates.

Since it limits the government's ability to tackle other priorities, the federal debt affects all Americans indirectly. But it additionally affects some residents more directly, by making it more expensive to borrow funds. More Americans are going bankrupt. What does that mean?

"When the government borrows this much, and the rates for Treasurys go up, that brings up the rates for everything else, from mortgages to car loans to credit cards, " notes Michael Peterson, CEO of the Peter G. Peterson Foundation, which advocates for fiscal responsibility. Mortgage rates, for example, tend to rise and fall with the yield on 10-year Treasurys, and the rate on 30-year home loans has climbed near 6.7%, according to Freddie Mac. Is anyone in Washington working to address the debt?

In practice, the Treasury Department has taken steps to limit the growth in long-term bond yields. Yields fell on Wednesday after Treasury Secretary Scott Bessent confirmed the department would rise its buy-back program for administration bonds.

But the move does nothing to solve the underlying difficulty, and the effect was short-lived; The yields on 10- and 30-year Treasurys rebounded on Thursday. Earlier, the Treasury had taken steps to prop up the Japanese yen, so Japan would not be tempted to sell some of its own U.S. Treasurys. While selling pushes yields up.), (Buying bonds pushes yields down.

Ultimately, Congress will have to raise taxes, cut spending or – most probable – do both. While some lawmakers applied to proudly say they were deficit hawks, fiscal discipline has generally fallen out of favor in Washington. But anxious signals from the bond market could change that.

"$40 trillion should be a wake-up call, " remarked Carolyn Bordeaux, executive director of the Concord Coalition, a deficit watchdog group. "Both parties helped bring us here, and both parties now have a responsibility to change course."

In short, three things to know about the $40 trillion federal debt is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.