Debt beyond control? US borrowing exceeds GDP

As of May 2026, the US national debt has crossed the $38 trillion mark, with debt held by the public surpassing $31trillion, according to the US Congress Joint Economic Committee.

This surge — driven by structural deficits, entitlement spending, and high interest costs — has pushed total debt above 100% of the entire American economy. This is the first time since World War II that the US debt has exceeded its GDP.

This concerning development has sparked a debate among economists, investors, and policymakers. Fiscal conservatives warn that the US is drifting toward an unsustainable economic future characterised by rising interest costs, slower growth, and mounting risks of a financial crisis. Others, however, argue that while the debt trajectory is worrying, America still possesses unique economic strengths that make catastrophe unlikely — at least in the near future.

Both projections may be overstated. The reality likely falls somewhere in between.

The federal borrowing has swelled dramatically since the 2008 global financial crisis, when debt held by the public stood at roughly $5 trillion. Since then, frequent rounds of deficit spending, tax cuts, stimulus packages, rising healthcare costs, and demographic pressures have pushed borrowing to historic highs.

The trend was further accelerated by the COVID-19 pandemic, which triggered lockdowns and economic recession. The US administration sought to stabilise the economy with massive emergency spending, but it also added trillions to the balance sheet in just a few years.

Unlike World War II, the current debt buildup points to a systemic problem, one defined by deeper structural imbalances between federal revenues and spending. The biggest drivers, according to some analysts, are Medicare and Social Security. With an ageing population and rising life expectancy, more retirees are drawing benefits for longer periods of time. Healthcare costs continue to rise as well, creating mounting obligations for federal programs.

These entitlement programs account for the majority of long-term deficits, show budget projections from analysts at the Brookings Institution and the Congressional Budget Office. Some estimates indicate that Medicare and Social Security together would generate more than $150 trillion in cumulative shortfalls over the coming years when interest payments are included.

Despite the worrying situation, neither Republicans nor Democrats have shown a clear willingness to bridge the gap through cuts in benefits or increases in taxes.

The rapid rise in interest payments is one of the clearest indicators of fiscal strain. The US now spends more servicing its debt than it does on national defence or Medicare. Annual interest costs have crossed $1 trillion and are expected to climb further. This creates a self-reinforcing cycle. As debt grows, interest payments rise. And as interest payments increase, they add to future deficits, requiring even more borrowing.

Debt held by the public could rise to around 120% of GDP by 2036, according to the Congressional Budget Office projections. Independent forecasts put it at even higher levels. The size of the debt and the speed at which the government is borrowing are equally worrisome. Historically, huge deficits were attributed to wars, recessions, or national emergencies. Today, however, the government is running deficits near 6% of GDP despite relatively stable economic conditions.

This indicates the imbalance has become structural rather than cyclical.

The last time debt surpassed GDP was after World War II, when federal borrowing financed the war effort. The debt burden dropped over subsequent decades. Strong postwar economic growth expanded GDP rapidly, while inflation and financial repression reduced the real value of debt. America also benefited from favourable demographics during the baby boom era and faced limited global economic competition.

Today’s environment is different. The Federal Reserve operates independently and is less likely to tolerate sustained high inflation merely to reduce debt burdens. An ageing population is slowing workforce growth rather than speeding it up. Healthcare costs are structurally higher, and entitlement obligations are permanent rather than temporary. In other words, the debt may not shrink naturally the way it did after World War II.

Despite these alarming projections, financial markets are not currently behaving as though the US faces an imminent fiscal collapse. Treasury bonds, the mainstay of American financial strength, remain among the world’s most sought-after assets. Investors continue buying US debt because they still view the American economy as relatively stable and resilient.

Economists warn against assuming this environment will last forever.

The US debt is held by a wide range of investors, including the federal government itself, American mutual funds, hedge funds, other financial institutions, and major international creditors such as Japan, the United Kingdom, and China.

If inflation remains persistent or investors demand higher returns for holding US debt, borrowing costs could skyrocket. Even modest increases in rates add trillions to projected debt over time. Another concern is the gradual erosion of confidence in America’s fiscal management. Credit rating agencies have already downgraded US sovereign debt in recent years amid political dysfunction surrounding debt ceiling fights and budget negotiations.

The greatest danger comes when Treasury bond markets lose confidence in America’s fiscal stability, warned economist Nicolas Loris. “When the bond market says enough is enough — when the world stops trusting the US economy and its ability to manage rising debt — the consequences could escalate quickly,” he told Al Jazeera English.

If borrowing costs continue rising, interest rates surge, and inflation remains persistently high, global investors may grow increasingly sceptical of US financial leadership. Such a loss of confidence could trigger a full-scale fiscal crisis, forcing policymakers to confront economic damage after it has already spiralled out of control. “If we ever get there,” he warns, “the result could be catastrophic economic stagnation.”

“This could happen,” he said, citing some assessments, “within the next 20 to 25 years.”

Economist Jeff Ferry believes that typically, it takes a triggering event — whether financial, geopolitical, or military — to set such a crisis in motion. “At that point, hedge funds and major investors could begin concluding that US Treasury bonds are headed for decline and rush to sell their holdings. That kind of panic-driven behaviour is common in financial markets, and once it begins, it can spread very quickly,” he told Al Jazeera English.

The dollar, the world’s dominant reserve currency, also gives Washington unusual borrowing flexibility that most countries do not possess. However, some analysts warn about the possibility that the dollar’s dominance could weaken over time if investors begin viewing America’s debt path as unsustainable.