Why the US economy is ringing alarm bells
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- US national debt passed the $40 trillion mark this week, doubling from roughly $20 trillion at the start of Trump's first term in 2016 and rising by about $90,000 per second, or $7.8 billion per day
- Maya MacGuineas of the Committee for a Responsible Federal Budget noted it took nearly 200 years to reach the first $1 trillion in 1981 — when Reagan called it a national "warning" — and the US now spends more than that annually on interest payments alone
- Interest payments on US government debt are running 15% higher than the same period last year and now consume nearly 20% of tax revenue — larger than defense spending, according to economist Mohamed El-Erian
- Long-term interest rates sit at multi-decade highs as the bond market demands higher returns, with tech firms borrowing to fund AI competing with the government for investor cash, per former Federal Reserve senior economist Eric Swanson
- Congressional Budget Office forecasts US debt climbing to about $64 trillion by 2036; the current 126% debt-to-GDP ratio remains below Japan and Italy, but investor appetite for US bonds is "diminishing," Swanson warned
- Treasury debt buybacks briefly lowered borrowing costs on Wednesday before long-term rates bounced back the next day, as El-Erian said he sees nothing that will significantly lower the deficit over the next two to three years with political talk centered on tax cuts
- Households will likely face higher rates on mortgages, auto loans and credit cards, with lower-income Americans hit hardest, economists said
Why it matters: With mid-term elections approaching and voter affordability the top concern, the $40 trillion milestone puts direct pressure on the White House: El-Erian says he sees no meaningful deficit reduction in the next two to three years as political talk centers on tax cuts, and the Treasury's Wednesday buyback lasted only a day before long-term rates climbed back.
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