The US national debt stood at roughly $38.4 trillion in early 2026, which is every dollar the federal government has borrowed over the decades and not yet repaid.1Joint Economic Committee. National Debt Hits $38.43 Trillion That total is about 122 percent of what the US economy produces in a year, meaning the debt is now larger than the economy itself.2Federal Reserve Economic Data. Total Public Debt as Percent of Gross Domestic Product Spread across the population, each American’s share works out to roughly $115,000. The debt grows in any year the federal government spends more than it collects, and that has happened in most years for decades.
The Two Buckets Inside the $38 Trillion
The Treasury splits the gross debt into two categories, and the difference changes how you read the number.
Debt held by the public is the larger piece. It covers every Treasury security owned by anyone outside the federal government: individual investors, banks, mutual funds, pension funds, state and local governments, the Federal Reserve, and foreign buyers. This is the portion that competes for capital in financial markets and that economists usually mean when they talk about the debt load.
Intragovernmental holdings are money the government owes itself. When Social Security and Medicare collect more in payroll taxes than they pay out in a given period, the surplus is invested in special Treasury securities held inside those trust funds. Those IOUs still count toward the gross total tracked under federal law.3Office of the Law Revision Counsel. 31 USC 3101 – Public Debt Limit
What Makes the Debt Grow
The mechanics are simple. When federal spending in a fiscal year exceeds federal revenue, the shortfall is a deficit. Each year’s deficit gets added to the debt. Revenue comes overwhelmingly from individual income taxes, payroll taxes, and corporate income taxes. When those don’t cover outlays, the Treasury sells securities to make up the gap.
Mandatory Spending Runs on Autopilot
Almost two-thirds of annual federal spending is mandatory, flowing automatically under existing law without a fresh vote in Congress.4U.S. Treasury Fiscal Data. Federal Spending Social Security and Medicare dominate that category. Their costs rise with the aging population and with healthcare inflation, so they tend to grow regardless of which party is in charge. Discretionary spending, which includes defense, education, and most agency budgets, is the remaining third and must be reauthorized each year.
Interest on the Debt Is Now a Top Line Item
Interest payments have become one of the fastest-growing parts of the budget. Net interest cost roughly $952 billion in fiscal year 2025 and is projected to cross $1 trillion in fiscal year 2026. That’s more than the government spends on national defense. Every dollar going to interest is a dollar unavailable for programs or tax relief, and when new borrowing is used to cover interest on old borrowing, the total accelerates.
Who Owns the National Debt
Ownership is spread across four main groups, and the mix affects both where interest payments end up and how sensitive US borrowing costs are to shifts in demand for Treasuries.
Domestic Private Investors
Individual investors, commercial banks, insurance companies, mutual funds, and pension funds together hold the largest share of the publicly held debt. Treasuries are treated as among the safest assets available because repayment is backed by the federal government’s taxing power. Money market funds and pension funds in particular use them to anchor portfolios that need predictable returns.
The Federal Reserve
The Federal Reserve held about $4.4 trillion in Treasury securities as of mid-2025.5Federal Reserve Economic Data. U.S. Treasury Securities Held by the Federal Reserve – All – Wednesday Level The Fed buys and sells these securities to influence short-term interest rates and manage the money supply. Its holdings grew sharply during the quantitative easing programs after the 2008 financial crisis and the COVID-19 pandemic, and have been drifting down since the Fed began letting securities mature without replacing them.
Federal Trust Funds
The intragovernmental portion described above sits mainly inside Social Security, Medicare, and federal employee retirement trust funds. Those funds are legally required to invest their surpluses in Treasury securities, which is why the government appears as both borrower and lender on the same balance sheet.
Foreign Governments and Investors
Foreign holders own roughly a quarter of the total. As of January 2026, Japan was the largest foreign holder at about $1.23 trillion, followed by the United Kingdom at $895 billion and China at $694 billion.6U.S. Department of the Treasury. Major Foreign Holders of Treasury Securities Foreign central banks hold Treasuries partly because the US dollar is the world’s primary reserve currency. China’s position has shrunk significantly over the past decade, while the United Kingdom, Belgium, and Luxembourg have grown theirs.
How the Government Actually Borrows
The Treasury raises money by auctioning securities backed by the full faith and credit of the United States, under authority granted to the Treasury Secretary with presidential approval.7Office of the Law Revision Counsel. 31 US Code 3102 – Bonds Marketable securities, which include Treasury bills, notes, bonds, TIPS, and floating rate notes, can be traded on secondary markets after auction and account for most of the publicly held debt. Nonmarketable securities include savings bonds sold to individual investors and the special Government Account Series held by federal trust funds.8U.S. Treasury Fiscal Data. Fiscal Data Explains U.S. Treasury Savings Bonds
The Debt Ceiling
The debt ceiling is a legal cap on how much total debt the Treasury can have outstanding at any given time.3Office of the Law Revision Counsel. 31 USC 3101 – Public Debt Limit Raising it does not authorize new spending. It only allows the Treasury to pay for obligations Congress has already approved.
Congress has raised, extended, or revised the limit 78 times since 1960, under both parties. The most recent action, the Fiscal Responsibility Act of 2023, suspended the ceiling through January 1, 2025.9U.S. Congress. HR 3746 – 118th Congress – Fiscal Responsibility Act of 2023 When the suspension expired on January 2, 2025, the ceiling reset to match the outstanding debt at that moment: $36.1 trillion.
When the debt approaches the ceiling and Congress hasn’t acted, the Treasury Secretary can deploy “extraordinary measures” to keep paying the bills without issuing new net debt. These are accounting maneuvers, not new revenue. They include suspending new investments in federal employee retirement funds, halting reinvestment of the Government Securities Investment Fund, and pausing sales of State and Local Government Series securities.10Department of the Treasury. Description of the Extraordinary Measures Once those tools run out, the Treasury cannot borrow another dollar until Congress raises or suspends the ceiling again.11U.S. Department of the Treasury. Debt Limit
Why the Debt Level Matters
A government can carry debt indefinitely as long as investors trust it to pay them back. The real question is what happens when debt grows faster than the economy that supports it. At 122 percent of GDP and rising, the US is in territory where economists start watching for consequences.2Federal Reserve Economic Data. Total Public Debt as Percent of Gross Domestic Product
Rising Interest Costs
The most visible effect is the growing share of the budget consumed by interest. With interest now exceeding defense spending, every percentage point rise in rates adds tens of billions in annual costs. Research from the Federal Reserve Bank of Dallas estimates that each percentage point increase in the debt-to-GDP ratio pushes long-term interest rates up by about 3 basis points. If debt continues on its projected path toward 156 percent of GDP by 2055, long-term rates could sit more than 1.5 percentage points higher than they otherwise would, purely from the debt load.12Federal Reserve Bank of Dallas. How Sensitive Are Interest Rates to Higher Federal Debt?
Crowding Out Private Borrowers
Heavy government borrowing absorbs lending capacity that would otherwise be available to businesses and consumers. When the Treasury dominates demand for capital, interest rates tend to rise for everyone. Businesses that might have expanded or hired at lower rates find the math no longer works. Over time, reduced private investment means slower productivity growth and lower real wages. The drag is gradual and invisible in any single year, which is why it tends to be ignored until it becomes hard to reverse.
Long-Term Projections
The Congressional Budget Office projects that under current law, debt held by the public will keep growing faster than the economy, reaching roughly 156 percent of GDP by 2055. Those projections assume no major new spending programs and no major tax cuts beyond what is already on the books, so they represent something closer to a best case than a worst case. The drivers are straightforward: an aging population expanding Social Security and Medicare costs, healthcare spending that outpaces inflation, and interest costs that compound as the debt grows.
What a Default Would Actually Look Like
The United States has never missed a scheduled payment on its debt, and Congress has always acted before the deadline, even when negotiations went down to the wire. The risk during each debt ceiling standoff is real enough that it’s worth knowing what would happen if it didn’t.
If the Treasury exhausted extraordinary measures without Congress raising the ceiling, the government would lose the legal authority to borrow more. It could only spend incoming tax revenue, which covers roughly 70 to 80 percent of obligations in any given month. Someone wouldn’t get paid on time. That could mean delayed Social Security checks, late payments to Medicare providers, or missed paychecks for military personnel and federal workers.
Markets would likely react before an actual missed payment. The Treasury has described a default as having “catastrophic economic consequences.”11U.S. Department of the Treasury. Debt Limit The US has already been downgraded from AAA to AA+ by two of the three major credit rating agencies, in part because of repeated debt ceiling standoffs. A further downgrade or an actual default would raise borrowing costs not just for the government but for American consumers and businesses, because Treasury rates set the baseline for mortgage rates, car loans, and corporate borrowing across the economy.