Money isn't real in the way we think it is. When people ask what's US national debt, they usually imagine a credit card statement or a scary pile of overdue bills sitting on a kitchen table. It’s not that. It's way weirder. As of early 2026, the gross federal debt has blasted past $36 trillion. That number is so large it basically loses all meaning to the human brain. If you spent a dollar every second, it would take you over a million years to pay it off.
But the government isn't you. It doesn't have a "retirement age" where it needs to be debt-free.
Most people think of debt as a failure. In the world of global macroeconomics, however, US debt is actually the bedrock of the entire financial system. It's the "risk-free" asset. When you buy a Treasury bond, you are literally lending money to the government. So, the national debt is basically just the total value of all outstanding Treasury securities that haven't been paid back yet.
It’s the world’s biggest IOU.
The Two Halves of the $36 Trillion Hole
To understand what's US national debt in a way that actually makes sense, you have to split it into two distinct buckets. This is where most news reports get it wrong. They just scream the big number.
First, you've got "Debt Held by the Public." This is the stuff that matters for the economy. It’s the money the government owes to outside lenders. We're talking about individual investors in Ohio, massive pension funds in Europe, and foreign central banks like those in Japan or China. When the Federal Reserve buys bonds to manage the economy, that counts here too. This is the "real" debt that affects interest rates and inflation.
Then there’s "Intragovernmental Holdings." This is basically the government writing an IOU to itself. Think of the Social Security Trust Fund. The government takes in payroll taxes, doesn't need all that cash right this second, so it "borrows" it to spend on other stuff and leaves a Treasury note in its place. It’s like taking twenty bucks out of your left pocket to put in your right pocket and writing a note saying you owe yourself lunch.
How Did We Get Here?
It wasn’t just one thing. It’s never just one thing.
The US has almost always had debt. We started with it after the Revolutionary War. But the vertical climb we’ve seen lately is a mix of specific, massive historical events. Think back to the 2008 financial crisis. The government spent a fortune to keep the banking system from imploding. Then came the 2010s, where we didn't exactly tighten the belt.
Then 2020 happened.
COVID-19 was a fiscal nuke. The government pumped trillions into the economy via stimulus checks, business loans (PPP), and healthcare. Honestly, most economists agree that if they hadn't done that, we would have entered a depression that makes the 1930s look like a picnic. But that relief came with a massive price tag. Combined with decades of tax cuts that weren't matched by spending cuts, the gap between what the US earns (revenue) and what it spends (outlays) became a canyon.
The Congressional Budget Office (CBO) is the non-partisan group that crunches these numbers. They’ve been sounding the alarm for years. Their reports show that the primary drivers aren't "foreign aid" or "wasteful bridges to nowhere"—though those exist—but rather the big three: Social Security, Medicare, and interest on the debt itself.
Why the Interest Rate is the Silent Killer
For a long time, the debt didn't really "hurt" because interest rates were near zero. Borrowing $30 trillion is easy if the interest rate is 0.5%. It’s like having a giant mortgage with a tiny monthly payment.
But the vibe changed.
To fight inflation, the Federal Reserve hiked rates. Suddenly, as the government issues new debt to pay off the old debt, they’re doing it at 4% or 5% instead of 0%. According to data from the Treasury Department, interest payments are now one of the fastest-growing parts of the federal budget. We are reaching a point where we spend more on paying interest than we do on the entire Department of Defense.
Think about that. We pay more to "rent" the money we already spent than we do on the world's most powerful military.
👉 See also: Current rate US dollar in India: What most people get wrong about the 90 rupee mark
Does China Own Us?
This is a classic dinner party myth. People love to say that China owns the US because they hold so much of our debt. While it's true they are a major holder, they aren't even the biggest. Japan actually holds more. And the biggest holder of US debt? Americans.
Between the Fed, private investors, and state and local governments, the vast majority of the national debt is owed to people and institutions right here in the States. If the US defaulted, it wouldn't just be a "China problem." It would destroy every 401(k) and pension fund in the country.
The "So What" Factor: Why You Should Care
You might think, "I've been hearing about the debt my whole life and nothing has happened." Fair point. The US dollar is the global reserve currency. Everyone needs dollars to buy oil and settle international trade. This gives us a "superpower" called the exorbitant privilege. We can borrow more than anyone else because the world has nowhere else to go.
But there are limits.
- Crowding Out: When the government borrows trillions, it’s competing with you. It sucks up capital that could have gone to private businesses or new startups. This can slow down long-term economic growth.
- Inflationary Pressure: If the government spends too much money that it doesn't have, and the Fed prints more to keep things moving, you get the "too much money chasing too few goods" scenario. Your groceries get more expensive.
- Fiscal Flexibility: If another pandemic or a major war happens, we have less "room" to borrow our way out of it. We’re already red-lining the engine.
What Actually Happens Next?
Economists like Stephanie Kelton, a proponent of Modern Monetary Theory (MMT), argue that as long as we don't have runaway inflation, the debt number doesn't actually matter because we print our own currency. On the flip side, fiscal hawks like the Committee for a Responsible Federal Budget warn that we are heading toward a sovereign debt crisis.
The truth is likely in the middle. The US isn't going "bankrupt" in the traditional sense. We can always print more dollars to pay the bills. The real risk is the value of those dollars. If the world loses faith in the US economy, they will demand higher interest rates to lend us money, which creates a "doom loop" of higher payments and more borrowing.
Real-World Steps to Protect Your Finances
The national debt isn't something you can fix, but you can position yourself for the side effects. Higher debt often leads to higher taxes down the road or a devalued currency through inflation.
Diversify your assets. Don't keep everything in cash. Historically, equities (stocks) and real estate have been better hedges against the inflationary pressure that often accompanies high national debt.
Watch the tax-advantaged accounts. If you believe the debt will eventually force the government to raise income taxes, Roth IRAs or Roth 401(k)s look much more attractive. You pay the tax now at today’s rates so you don't have to pay potentially much higher rates in twenty years.
Keep an eye on the CBO. Every year, the Congressional Budget Office releases its Long-Term Budget Outlook. It’s dry. It’s boring. But it’s the most honest map we have of where the country is headed financially. If you see the debt-to-GDP ratio start climbing toward 150% or 200%, that’s when the "exorbitant privilege" of the US dollar really starts to get tested.
🔗 Read more: Earnings Calendar August 2025: Why Most Investors Are Looking at the Wrong Stocks
Ultimately, the national debt is a reflection of our collective choices. We want high-quality services and low taxes. Mathematically, you can't have both forever. Something eventually gives—either through spending cuts, tax hikes, or the "stealth tax" of inflation. Being aware of how these gears turn is the only way to make sure you aren't the one caught in the teeth.