US' record-breaking $40 trillion national debt raises global concern

The US Department of the Treasury must find immediate ways to reduce the record-breaking national debt of over $40 trillion, or "feel the pain" of dealing with it later on, warned economists, who said if it remains high it will affect generations of Americans, lead to more borrowing and could weaken international trust in the world's largest economy.

The debt amount reached on Aug 18 is not only of concern for the US government but also for the world economy, much of which relies on the stability of the dollar as the world's reserve currency. It is now of utmost importance to cut spending, said Christopher Ball, an economist at Quinnipiac University in Connecticut.

"Policymakers need to start cutting spending now so that we immediately reduce our government deficit," Ball, director of the university's Central European Institute, told China Daily.

"When overburdened with debt, the last thing you want is to force yourself into a situation of running deficits and thus needing to borrow even more," said Ball, also Istvan Szechenyi Chair in International Economics at Quinnipiac and an associate professor of economics.

The national debt reached the milestone, in part, due to defense costs, and programs like Social Security and Medicare, and the annual interest is $1.2 trillion for US taxpayers, the Federal Reserve said.

The US government will borrow more than $2 trillion this year alone as spending exceeds tax revenue, with President Donald Trump's key priorities being defense costs, including the conflict in Iran, his tax policy and other federal programs, The New York Times reported.

The Peter G. Peterson Foundation, a think tank focused on US fiscal challenges, found that out of the $40 trillion debt, approximately "80 percent was debt held by the public, representing cash borrowed from domestic and foreign investors. The remaining 20 percent was intragovernmental debt, which simply records transactions between one part of the federal government and another".

Japan, the United Kingdom and China hold the most US government debt, according to US Treasury figures from June.

Japan holds about $1.17 trillion, making it the largest foreign owner. The UK ranks second, holding about $939 billion. China is the third largest holder with approximately $633 billion.

A number of countries, including China, Japan, the United Arab Emirates, Canada and India, cut their US Treasury holdings in March.

"The fear is the US is losing its standing as the safe haven," George Cipolloni, a fund manager at Penn Mutual Asset Management, told The Associated Press.

A report by Congress entitled Foreign Holdings of Federal Debts found that as of December 2025, foreign investors held approximately $9.2 trillion, or 31 percent of total US publicly held debt of $30.1 trillion. The interest on the debt paid to foreigners in 2025 was $282 billion.

Economists view debt held by the public as the "most meaningful measure of debt" because it reflects the amount that the Treasury borrowed from outside lenders, the Peter G. Peterson Foundation said.

The US sells an increasing amount of debt to cover the cost of daily government operations, health programs, stimulus benefits and disaster relief.

The Brookings Institution, a nonprofit public policy organization based in Washington, DC, said that "to finance large and persistent budget deficits, the US Treasury borrows heavily on global bond markets".

Peter Chow, a professor in the department of economics and business at The City College of New York, specializes in international trade, development and Asia-Pacific economies.

Chow told China Daily that one of the ways to fix the national debt is that "the US government bond will continue to rely on foreign purchases, and the interest rate in the US will have to be higher than those in other countries".

Ball added that while Americans may not feel the burden from the debt today, the payments will come due at some point, and when that happens they will face very high interest rates and taxes.

He said the high debt could lead to large cuts in basic services like Social Security, Medicare and all other government-supported social services. "The longer we wait, the more the pain when we face it," he said.