The United States now holds over 36 trillion dollars in national debt, making it the most indebted country in the world. This figure represents more than 122 percent of the country’s gross domestic product (GDP), and it continues to grow at an alarming pace, roughly 1 trillion dollars every three months. The rising debt has triggered growing alarm among economists, credit agencies, and global investors.

What is US national debt

National debt is the total money the federal government owes to its lenders. It accumulates when the government spends more than it earns in tax revenues, creating an annual budget deficit. To fund these deficits, the US Treasury borrows money by issuing securities such as Treasury bonds, bills, and notes.

These securities are purchased by a wide range of buyers, including:

• Foreign governments

• US banks and financial institutions

• The Federal Reserve

• US citizens through retirement and investment funds

As of early 2025, the US national debt stands at 36.2 trillion dollars, divided into two main categories:

• Publicly held debt of around 26 trillion dollars

• Intragovernmental holdings of about 10 trillion dollars, owned by government accounts such as Social Security and Medicare trust funds

Who owns the US debt

Roughly 25 percent of the total US debt is owned by foreign entities. The largest holders include:

• Japan

• China

• United Kingdom

• Luxembourg

• Cayman Islands

The rest is held by domestic investors, government agencies, and the Federal Reserve. The Social Security Trust Fund and various federal retirement accounts hold a significant portion of the intragovernmental debt.

Despite fears about foreign influence, most economists agree that US debt remains relatively safe because it is issued in US dollars, and the dollar is the world’s reserve currency.

How did the debt grow so fast

The US government’s spending consistently exceeds its revenue due to multiple factors, including:

• Tax cuts

• High defense spending

• Entitlement programs like Social Security and Medicare

• Emergency stimulus packages, particularly during crises like the 2008 recession and the COVID-19 pandemic

During the Trump administration, the 2017 Tax Cuts and Jobs Act reduced corporate tax rates and individual taxes, leading to a significant drop in federal revenue. While the administration argued the cuts would spur economic growth, the Congressional Budget Office projected a 1.9 trillion dollar increase in deficits over ten years.

Now in 2025, Congress is debating an extension of those tax cuts, which could add another 5 trillion dollars to the national debt over time. A key House committee approved the bill on Sunday, and it may pass later this week.

The role of the debt ceiling

To control federal borrowing, the US Congress enforces a debt ceiling, which is the maximum amount the government is legally allowed to borrow. Once the ceiling is reached, the Treasury cannot issue new debt unless Congress votes to raise or suspend the cap.

Since 1960, Congress has raised or modified the debt ceiling 78 times, often triggering fierce political battles. When lawmakers cannot agree, the US risks defaulting on its obligations, leading to downgrades by credit agencies, disruptions in government services, and global market volatility.

The debt ceiling has become a recurring source of crisis, and each showdown fuels more uncertainty around America’s fiscal credibility.

Credit ratings and investor confidence

On Friday, Moody’s downgraded its outlook on US credit, citing concerns over growing debt and political gridlock. This followed similar moves by Fitch in 2023, which removed the US from its top-tier AAA rating.

Credit rating downgrades make borrowing more expensive for the government, as investors demand higher interest rates to compensate for perceived risk. This in turn raises annual interest costs, which have now surpassed 1 trillion dollars, putting more pressure on the federal budget.

Is high national debt dangerous

Having a large national debt is not automatically harmful. The US enjoys unique privileges as the issuer of the world’s primary reserve currency. Demand for US Treasuries remains strong because they are seen as safe assets, particularly during global economic uncertainty.

However, long-term risks include:

• Higher interest payments crowding out investments in infrastructure, healthcare, or education

• Reduced ability to respond to future crises

• Greater reliance on foreign capital

• Potential inflation if debt is monetized

Many experts say that while debt is manageable today, the trajectory is unsustainable without serious reforms.

Historical context

In the late 1990s, during President Bill Clinton’s administration, the US actually ran budget surpluses, thanks to a booming economy and higher tax revenues. National debt declined as a share of GDP, and there were discussions about eliminating it entirely.

That changed after the 2001 tax cuts, wars in Iraq and Afghanistan, and the 2008 financial crisis. The COVID-19 pandemic in 2020 pushed spending even higher, as trillions were deployed in stimulus checks, unemployment benefits, and vaccine programs.

The future outlook

The US now faces a pivotal decision:

• Extend tax cuts and increase deficits, or

• Raise taxes and cut spending to slow debt growth

Relying solely on economic growth may not be enough to fix the issue. Even with a strong GDP, rising interest costs and mandatory spending commitments mean the debt will continue to climb.

With the 2024 presidential election looming, national debt and fiscal policy are once again front and center. How Congress and the next administration address these issues will determine whether the US can maintain its global financial leadership or face a future crisis of confidence.

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