The United States has officially passed a fiscal milestone that would have seemed unthinkable a generation ago: gross national debt of $40 trillion. The Treasury confirmed the figure this week, as the government continues to run large deficits, funding everything from defence to Social Security and, increasingly, the interest on what it already owes.
That interest bill alone now exceeds $1 trillion a year, a sum larger than the entire defence budget of most European nations. The milestone arrived as long-term Treasury yields hit multi-year highs, reflecting investor unease about inflation, geopolitical tensions and the sheer scale of US borrowing.
For Europeans watching from across the Atlantic, the numbers are not merely an American problem. The US remains the world's largest economy and the issuer of the global reserve currency. Its fiscal trajectory influences borrowing costs in Frankfurt, Paris and Warsaw, and shapes the stability of the international financial system.
How did we get here?
The path to $40 trillion has been long and steep. Wars, recessions and the COVID-19 pandemic each added hundreds of billions to the ledger. But the pace has accelerated sharply: the debt crossed $39 trillion in March 2026, less than five months before hitting the latest milestone.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, noted that it took nearly 200 years for the US to reach its first trillion dollars of debt, in 1981. "At that time, President Reagan told the nation in a televised address, 'If we as a nation needed a warning, let that be it.' Jumping to America's 250th year, we are spending more than that just on interest payments on our debt," she said.
Dan Coatsworth, head of markets at AJ Bell, put the figure in human terms: "Based on average salaries, it would take a US worker more than 615 million years to earn the equivalent of America's $40 trillion national debt, which itself has doubled in a decade."
What does the $40 trillion actually include?
The headline figure, known as gross federal debt, comprises two main parts: debt held by the public and intragovernmental debt, which is money the government owes to itself, such as Social Security trust funds. It does not include state and local government debt or personal borrowing.
Debt held by the public is the larger component, standing at more than $32 trillion, according to the Committee for a Responsible Federal Budget. This is the portion owed to outside investors: individuals, banks, pension and mutual funds, foreign governments, and the Federal Reserve.
MacGuineas warned that "the debt held by the public recently exceeding the size of our economy, the deficit-to-GDP ratio running twice as high as where it should be, and interest costs exceeding our national defence budget" are all red flags.
Who holds the debt?
Reassuringly for Washington, most of the debt is held domestically. At the end of June 2026, American investors—including the Federal Reserve, banks, pension funds, insurance companies, state and local governments, and households—held about 76% of the total, according to the Treasury.
Foreign and international investors held the remaining 24.1%, or $9.27 trillion. Japan is the largest foreign holder, with $1.12 trillion in Treasury securities, about 12% of foreign holdings. Countries outside the top 20 foreign holders account for roughly 20% of the foreign total.
For European policymakers, the composition matters. A shift in foreign demand for US debt could have ripple effects on exchange rates and capital flows, particularly for economies like Germany and France that rely on stable global financial conditions.
Why does the government keep borrowing?
The simple answer is that Washington spends more than it collects. The federal budget deficit is projected to reach $1.9 trillion in 2026, or 5.8% of GDP. An August update showed the deficit had already hit $1.8 trillion in the first ten months of the fiscal year, which runs from October 2025 to September 2026.
The Congressional Budget Office expects total federal spending of about $7.4 trillion in fiscal 2026, against revenues of $5.6 trillion. The biggest items are Social Security ($1.67 trillion), major healthcare programmes ($1.9 trillion), defence ($918 billion), and net interest ($1.04 trillion). The remaining $1.9 trillion covers everything else, from income support and veterans' programmes to education, transport and law enforcement.
The interest burden is particularly troubling because it creates a self-reinforcing cycle: higher interest costs require more borrowing, which in turn pushes interest costs higher. As MacGuineas put it, "the more we borrow, the more we exacerbate inflation, squeeze out other priorities in the budget, and leave ourselves vulnerable to emergencies at home and turmoil abroad."
For Europe, the lesson is clear. The US debt trajectory is not just an American story; it is a global one. As the world's largest economy and the issuer of the reserve currency, the US fiscal position influences interest rates, trade balances and financial stability across the continent. European leaders would do well to watch these charts closely—and perhaps reflect on their own fiscal habits.
