The U.S. Government owes more than US$40 trillion, and the figure keeps climbing. Here’s how the debt got so big, what the debt ceiling is, and why investors around the world are watching.
The U.S. Government spends far more than it collects in taxes, and makes up the difference by borrowing, mainly by selling Treasury bonds to investors.
Those annual deficits add up. Total U.S. federal debt passed US$40 trillion in August 2026, having roughly doubled in a decade.
How it got so big
The debt has grown under presidents of both parties. Major contributors include tax cuts, wars in Afghanistan and Iraq, the response to the global financial crisis, and trillions of dollars in spending during the COVID-19 pandemic.
Rising costs for health care and Social Security, the U.S. pension system, as the population ages, are expected to push the debt higher still.
Who owns it
U.S. debt is owned by a wide range of investors: American households, banks, pension funds and mutual funds, the U.S. Federal Reserve, and foreign governments and investors. Japan and China are among the largest foreign holders.
Part of the debt is owed by one arm of the Government to another, such as money held in the Social Security trust funds.
Interest costs
As the debt has grown and interest rates have risen, the cost of servicing it has soared. The U.S. now spends more than US$1 trillion a year on interest, more than it spends on its military.
That leaves less room for other spending and adds to future deficits.
The debt ceiling
The debt ceiling is a legal limit, set by Congress, on how much the Government can borrow. It doesn’t control spending, which Congress approves separately, but it limits the Government’s ability to pay for spending already approved.
When the debt reaches the ceiling, Congress must raise or suspend it, or the Government risks being unable to pay its bills, including interest to bondholders. A default on U.S. debt would be unprecedented and could cause turmoil in global markets.
The ceiling has been raised or suspended dozens of times, but it often leads to tense political stand-offs. In 2011, a stand-off led ratings agency S&P to strip the U.S. of its top AAA credit rating. In May 2025, Moody’s also downgraded the U.S., citing its growing debt. The ceiling was raised by US$5 trillion in July 2025 as part of President Trump’s tax and spending bill.
Why it matters to Australia
U.S. government bonds are seen as the world’s safest asset, and their interest rates influence borrowing costs everywhere, including mortgage rates in Australia.
If investors lose confidence in America’s ability to manage its debt, they could demand higher interest rates, pushing up borrowing costs around the world and unsettling markets.
