The U.S. Federal Debt Hits $40 Trillion

The U.S. GNP in 2025 had been $30.77 trillion (nominal). Even though that represents a real growth rate of 2.1 percent, according to the U.S. Bureau of Economic Analysis, the total dollar-amount of economic output of the bloc was almost $10 trillion lower than the total federal debt, and this does not count the respective debts of the member-states. In fiscal year 2025, the net-interest paid on the federal debt amounted to $970 billion, which translates into nearly 20 percent of the federal government’s revenue and exceeded the $917 billion in defense spending. The milestone of $40 trillion in federal debt, reached on August 19, 2026, can thus be put into perspective at the federal level of government. It is no wonder that Europeans had been raising concerns regarding the issuance of federal debt by which the E.U. could aid Ukraine militarily. Things can get out of hand, fiscally, at a federal level.

The Reagan, Bush, and Trump tax cuts, along with the increases in both social and military spending over those decades, can be cited as having exasperated the federal debt. The words of Kush Desai, a White House spokesman, regarding the approach of the second Trump administration in “slashing waste, fraud, and abuse in federal spending while accelerating economic growth to get America’s debt-to-GDP ratio trending in the right direction” can be regarded as insufficient, given the huge size of the federal debt.[1] By insufficient, I mean to suggest that an orientation to waste and abuse in the context of extended tax-cuts and an increasing defense budget does not take the amount of debt seriously enough. Even the orientation to the debt-to-GDP ratio leaves out the intragovernmental implications of the debt in terms of spending on interest, for example. Furthermore, GDP is only loosely related to whether any of the debt might get paid off. The electorates would have to elect representatives who in turn would be inclined to spend more tax revenue, even probably increasing taxation, to retire some of the debt. Democracy itself may be inherently oriented to the mentality of spend now by debt and pay (off the debt) later, given the instinct of instant gratification. Electing representatives who are oriented instead to tax cuts and cutting wasteful government spending can be viewed as a manifestation of that very instinct because the orientation can function as a subterfuge. In short, economic output does not translate directly into paying off a public debt; electorates do, and more than the changes in their wages and salaries, it is their political judgment (and values, especially in terms of responsibility itself) that is decisive on whether an extant debt gets paid off. To be sure, the relation of the total amount of public debt to a year’s total economic output is an indication of how long (and how much) it would take for taxpayers to be able to pay off the debt, given their taxable incomes, but the sheer enormity of amount of the accumulated debt and its relationship to the total amount of the government’s annual budget are crucial indicators of whether fiscal policy has become too unbalanced to be tolerated, politically.

This is not to say that being $40 trillion in federal debt does not matter in macroeconomic terms (i.e., to the American economy). Experts were already saying in 2026 that the U.S. debt was “already affecting Americans’ pocketbooks by raising borrowing costs for things like mortgages and cars, lowering wages from businesses that [had] less money available to invest, and creating more expensive goods and services.”[2] Accordingly, Michael Peterson, CEO of the Peter G. Peterson Foundation, a think tank oriented to fiscal policy, said, “If we want to improve our living standards, today and for the next generation, now is the time for lawmakers to put our nation on a more affordable and sustainable path.”[3] To be sure, besides being focused on the nation, and thus not looking at its federal system (i.e., how much public debt was being held by the member-states), Peterson was also discounting the financial drag that is involved in using (and even increasing) federal revenue to pay off debt rather than spend tax dollars in ways that would boost economic growth.

I submit that the extent of the imbalance between the revenues and expenses of the U.S. federal government is itself worthy of attention, for such a large debt means that even the Keynesian policy of having deficits during recessions that would be paid off during periods of economic growth—again, as if GDP were decisive—has been exploited such that deficits have become the norm whether in times of boom or bust. The human instinct for instant gratification can and should be effectively countered both in the psyche and in legislative bodies by the use of reason, unless of course Plato’s theory of a just republic is utterly unrealistic. Reasoning, whether at the ballot box or in a legislature, that is oriented to government (and the very republic!) as a going concern rather than as effectively bankrupt can and ethically should act as a restraint on the passions to spend without having to immediately pay. Even if the majority of voters in an electorate are just fine with government spending without sufficient revenue (taxation), elected representatives can legitimately push back without being accused of double-crossing or betraying their constituents. This is one reason why U.S. senators have a six-year term; even the Electoral College, as it was intended in the Convention, was to be a device by which a federal president could be elected for the good of the country rather than from the momentary passions of the citizens of a member-state. The U.S. House was intentionally designed to be more reflective of an electorate’s momentary passions, but the devise of representation itself mitigates this reflection to some extent, even in spite of the term of office being only two years. The size of the federal debt may indicate that such safeguards within the complex architecture of the U.S. Government have not been efficacious. In other words, the federal government itself may have gotten severely out of balance in terms of electoral politics and governance.

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1. Fatima Hussein, “The US National Debt Now Stands at $40 Trillion,” APnews.com, August 20, 2026.
2. Ibid.
3. Ibid.

State Fiscal Governance in the E.U.: Toward Balanced Union

At the end of January 2012, 25 of the 27 E.U. states (all but Britain and the Czech Republic) indicated at a meeting of the European Council that they would accept in principle (i.e., subject to ratification) a new limit of 0.5% of gross economic output over a complete economic cycle for the states’ “structural budget deficits” and strengthen the E.U.’s enforcement mechanism on states that breach that limit on deficits and 60% of gross output for accumulated state debt. The Wall Street Journal reported at the time that the “0.5% deficit limit would, if obeyed, mark a revolution in [the states’] fiscal policies, ending more than 30 years of steadily rising [state] debt.” This statement is immediately undercut, however, as the Journal describes the extent of the loopholes in the amendment.  The reader is left wondering whether the E.U. will use the proposed enforcement mechanisms, such as the ECJ imposing fines on states already hard up for cash, as well as whether fining a state government would make any difference.

Sarkozy, Merkel and Monti at the European Council Meeting          

Philippe Wojazer/Reuters

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Marcus Walker, “BudgetTreaty: Neither Panacea Nor Poison,” The Wall Street Journal, January 31, 2012. 

Risking Default of the U.S. Government: Other Priorities

In mid July 2011, as several of the American states were in the midst of a heat-wave, the showdown on the debt-ceiling was becoming hot in Washington, D.C. The “heat index” on default was steadily rising with no end in sight. The refusal of republican representatives in the U.S. House to automatically increase the debt-ceiling had prompted unprecedented attention on what had been treated hitherto as a “housekeeping matter” of the U.S. Government. The attention can be referred to as a “fiscal moment.” Whereas a “constitutional moment” is one in which a citizenry’s attention is momentarily galvanized on a particular constitutional question, a “fiscal moment” is a window wherein heightened popular attention of the citizenry enables a societal recognition of what had been vaguely understood and recognized as a long-standing fiscal tendency or pattern.

The prospect of default by the U.S. Government was dire indeed. Talking to U.S. Senate leaders, Secretary of the Treasury Geithner said, as later recounted by Sen. Reid, “default would result in a complete ‘loss of capacity to function as a government.’ If this country defaults on its obligations, it will be ‘much worse than the Great Depression, and it would make the massive financial crisis of 2008 look mild. It will make what we just went through look like a quaint little crisis.’”[1] Sen. Reid concluded from the Secretary’s remarks, "Those who say this crisis would be a blip on the radar are wrong. Default would be a plague that would haunt our nation for years to come. Our credit rating would take years to rebuild. The country would never be the same."[2] In the context of this awareness of an impending yet self-inflicted catastrophe, the failure of the “players” in the Congress and Obama administration to mitigate rather than exacerbate real differences of opinion within the citizenry was apparent.

Perhaps not coincidentally, the attention of a crisis announced and solved at the last minute would serve the interests of, and be practically irresistible to a politician. Add to the mix a perplexing tendency to acknowledge what the catastrophe would bring and yet assert other priorities—of value to be sure—over that of extending the debt ceiling. Allowing other priorities to get in the way of an agreement oriented principally to obviating default is so perplexing that it raises the question of societal dysfunction and compromised representative democracy. That is to say, are We the People mature enough to self-govern when so much is at stake?

An accumulated public debt of over $14 trillion (plus $68 billion among the states) points to a basic imbalance, ultimately of values and rooted in psychology and its related culture. External discipline, while a tacit admission of self-government, is necessary where such an imbalance is countenanced, and perhaps not even recognized at large until a jolting fiscal moment of self-serving attention. One means of external discipline is a balanced budget amendment. To better understand, the rationale for this crutch, I discuss the ailment that is compromising our self-governance. The sickness is most apparent where incredulous claims are represented as taken-for-granted facts of reason.

Even in the context of a U.S. debt of over $14 trillion, and especially when an upcoming solvency deadline was looming, the question of whether the rich should contribute more in taxes was being allowed—incredibly—to prevent an agreement that would obviate default. Rationally speaking, it does not make sense to believe that default would be catastrophic while objecting to a solution because those who can pay more would face higher taxes. If something is crucial, it does not make sense to hold up because someone who can do something refuses because it is not convenient. At the very least, this evinces a problem of priorities, if not garden-variety selfishness at the expense of the public weal.

Put differently, if averting catastrophe is not enough of an incentive for people who can afford higher taxes to let an agreement go through with revenue increases as well as spending cuts, then closing the budget gap can be expected to be nearly impossible politically. “We have a terrible track record, Republicans and Democrats alike, of promising to get our spending under control and never doing it,” Senator Coburn (R-Okla) said on July 17, 2011.[3]  He could have added that the politicians do no better at getting their revenue in line with what they have decided to spend.

During the Bush administration (2001-2009), for example, the federal debt went from $5 trillion to $10.5 trillion because neither the Iraq and Afghanistan wars nor the prescription-drug benefit program were “paid for,” while tax cuts reduced federal tax revenue. This disconnect between spending and revenue, as well as the convenient decisions to spend borrowed funds, suggests that some form of external fiscal discipline. President Obama’s disclaimer that no such discipline, such as in the form of a balanced budget amendment to the U.S. constitution, is needed rings hollow. Even beyond the fiscal policies of the Bush administration, the pattern of debt-ceiling increases belies Obama’s claim.

We as a people, and our elected representatives, do not have sufficient discipline (and priorities) on our own. A balanced budget amendment, with a two-thirds majority in both bodies of Congress and a presidential signature necessary to go into debt (e.g. for an emergency such as to fight an invasion), ought not be so dismissed out of hand by such a people just because it would require us to confront our long-standing habit of living beyond our means governmentally.

The denial concerning the need for imposed or external fiscal discipline is itself indicative of the psychology sustaining the budgetary problem. It is to be expected that those used to spending beyond revenue levels would object to external discipline, but for officials to claim that such discipline is not necessary borders on recklessness. To be sure, a few years of preparation and adjustment would be needed for the Congress and president to get the U.S. Government’s spending and tax levels closer into line, and it is unlikely that such a task would be accomplished. The likely refusal to close the gap even to forestall a jarring adjustment is itself a testament to the need for the amendment. Even then, I predict that we would allow other priorities, such as the interests of the wealthy as well as debates on the size of government, to get in the way.

In other words, we, the American people, are not even close to a mentality capable of suitably managing our Union’s fiscal matters. We are like a bike tire out of balance and yet we seem to refuse even to recognize it. If there is to be recovery from our comfortable brain-sickness, a jolt, such as that which a balanced budget amendment could proffer, may be necessary.

Barak Obama’s claim that external fiscal discipline is not necessary and the republican decision to put the Bush tax cuts for the rich, a desire for a smaller government, and the (putatively tax-cut-related) priority on economic growth above an August 2, 2011 deadline on the debt-ceiling BOTH point to a serious underlying psychological (or, at the very least, political) problem inhibiting our collective ability to get the fiscal house of our Union in order. Given the magnitude of the problem, our distractedness and denial says a lot finally about us as a people and whether we are adequate to self-governing. If our representatives were inventing a crisis in order to be viewed in the end as the saviors after having stirred up attention on themselves, We the People could perhaps do much better; we might reconsider how we approach our exercise of popular sovereignty on election day. We blame one party or the other at our own peril, as we are the sovereign and are ultimately responsible as one people. Are we something more than distracted, blaming, angry, and selfish? 

1. Michael McAuliff, “Tim Geithner: U.S. Debt Default Means ‘Lights Out’ and a New Depression, Treasury Secretary Warns,” [sic] The Huffington Post, July 18, 2011.
2. Ibid.
3. Eric Lipton, “Both Sides Confident on Deficit Talks Despite Impasse,” New York Times (July 17, 2011).