Interest payments on Americas $40 trillion debt eats up a huge piece of the budget as deficit hits $2 trillion

America’s credit card bills are coming due — and they’re getting steep.The federal deficit for the year hit $2 trillion — the highest since the depths of COVID-19, when the government way paying for infection controls and bailouts of workers and companies affected by the pandemic.But that’s not necessarily a reflection of government spending — the annual deficit includes $1.052 trillion in interest payments on America’s $40 trillion debt, according to US Treasury data for the 2026 fiscal year, which ended Sept.

30.A top economist warned that bond markets are growing wary of the cycle of borrowing — and raising America’s borrowing costs to follow suit, creating a “vicious cycle.”Debt payments are now larger than the defense budget and behind only Social Security ($1.67 trillion) and Medicare ($1.07 trillion) in total government spending.Interest payments are now eating up more than 3% of America’s entire economic output (GDP) — more than during the 1940s and nearly as much as the 1990s, when the deficit sparked a political crisis.Without net interest payments on the national debt, the federal deficit would be less than half, or roughly $940 billion.“A vicious cycle threatens to take hold, with higher rates adding to the interest payments and debt load, which in turn pushes rates up even more,” Mark Zandi, the chief economist for Moodys Analytics, said in a warning posted online Sunday.While many countries are also having to rein in their borrowing, the scale of the US economy makes the situation “far and away the most important one,” Zandi added.Zandi and other economists warn that the issue is less the total public debt, but the US debt-to-GDP ratio.“Arguably most significant is that global investors see all this and appear to be demanding a higher rate to compensate for the mounting risk,” Zandi said.

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