Does the National Debt Matter?

The national debt is $40.25 trillion. Some economists call it a crisis. Others say it is manageable. Both sides have serious arguments. This page presents them fairly, without taking a side.

Why many economists say it matters

1. Interest crowds out everything else

Net interest on the debt cost $970 billion in fiscal 2025 and is projected to pass $1 trillion in fiscal 2026. That is the third-largest federal expenditure, ahead of defense. Every dollar of interest is a dollar that cannot fund programs or reduce taxes. The Congressional Budget Office projects interest will reach $2.1 trillion by 2036.

2. Less room to respond to crises

When the debt is already high, the government has less fiscal space to borrow during emergencies. The pandemic response added trillions to the debt quickly. If another crisis arrives while the debt-to-GDP ratio is at 122.6%, borrowing room is tighter than it was in 2019.

3. Higher borrowing costs for everyone

Large government borrowing can push up interest rates across the economy, raising costs for mortgages, business loans, and credit cards. The 10-year Treasury yield is the benchmark for much private lending, and heavy Treasury issuance puts upward pressure on it.

4. The debt spiral risk

If investors ever doubt the government's ability to repay, they demand higher interest rates. Higher rates mean more borrowing to pay interest, which increases doubt further. No one can say when or whether this tipping point arrives, but the mechanics are real.

Why other economists worry less

1. America borrows in its own currency

The U.S. issues debt denominated in dollars, which it also prints. Unlike countries that borrow in foreign currencies, the U.S. cannot be forced into default by a currency crisis. This is a structural advantage few countries share.

2. The dollar is the world's reserve currency

Central banks and investors worldwide hold dollars and Treasury bonds as the safest assets available. This structural demand keeps U.S. borrowing costs lower than the debt level alone would suggest. Japan has sustained debt above 200% of GDP for years without a crisis.

3. What matters is growth vs. interest rates

If the economy grows faster than the interest rate on the debt, the debt-to-GDP ratio can shrink even while the government runs deficits. The ratio fell for decades after World War II despite a large wartime debt, because growth outpaced borrowing costs.

4. Debt finances investment, not just consumption

Not all borrowing is equal. Debt that funds infrastructure, research, and education can raise future productivity, making the debt easier to bear. The question is not just how much is borrowed, but what it buys.

Where the two sides agree

The trajectory matters more than the level. A stable ratio is manageable; a rapidly rising one is not.
Interest costs are the binding constraint. Whatever your view, $1 trillion a year in interest limits choices.
The U.S. has more fiscal room than almost any other country, but that room is not infinite.

The bottom line

The honest answer is that no one knows exactly how much debt is too much. Economists who study this full-time disagree. What is certain: the debt is growing faster than the economy, interest costs are at record levels, and the choices get harder the longer the trend continues. The Ledger's job is to give you the numbers. The judgment is yours.

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Sources: Congressional Budget Office, Budget and Economic Outlook February 2026. U.S. Treasury Monthly Treasury Statement, September 2025. Federal Reserve Bank of St. Louis, FRED. Figures vintage-labeled in text.