$40 Trillion and Counting

The outstanding debt of the United States surpassed $40 trillion this week. 

As of August 19, 2026
Source: https://www.us-debt-clock.com/

 Interest on servicing that debt is now $1.4 trillion per year.

A couple charts that show the increase in interest expense.

That is an increase of almost $$900 billion per year over just the last five years.

How did that happen?

Debt outstanding almost doubled in the last five years.

There was $23 trillion of debt in March, 2021 right before the Covid shutdowns. 

Debt has increased $17 trillion in 5-1/2 years.

To make matters worse, the average interest rate on U.S, debt went from 1.6% in 2021 to close to 3.5% today.

Source: https://fiscaldata.treasury.gov/datasets/average-interest-rates-treasury-securities/average-interest-rates-on-u-s-treasury-securities

It becomes simple math.

Additional interest on $17 trillion in new debt and a higher average interest on $40 trillion of total debt.

That is how you can quickly add almost $1 trillion in annual interest costs to the federal budget.

To understand how big $1.4 trillion in annual interest costs is let's put that in context.

That is equal to half of the total annual amount of individual income tax receipts of $2.7 trillion.

It is over one-quarter of total federal government revenues.

Interest on the federal debt is now greater than all other spending categories except Medicare and Social Security,

ANNUAL INTEREST on the federal debt in 2026 exceeds the TOTAL DEBT that the United States was carrying during the Reagan Administration in 1982.

It will certainly get worse.

The federal government is now consistently spending $2 trillion more each year than it takes in.

The mountain of debt will grow.

So will the interest on the federal debt.

The interest costs will grow even higher if interest rates increase.

If interest on the federal debt is taking this big a bite of the budget with average rates at 3.5%, imagine what the numbers would look like with an average rate of 6.5% on the debt like the U.S. had in 2001.

Credit: https://wolfstreet.com/2025/05/29/us-government-interest-payments-to-tax-receipts-average-interest-rate-on-the-debt-and-debt-to-gdp-ratio-in-q1-2025/

When you consider that average interest rates on the federal debt were higher than they are right now for almost the entirety of the 2000-2010 period it is not far-fetched that things can get worse.

For example, the 30-year bond rate just hit 5.27%. 

That is the highest it has been since 2007.

If the average interest rate on federal debt stays where it is right now it will require another $300 billion in annual interest payments in 2008.

In order to just keep annual interest costs where they are right now, the average interest rate has to decline to 3.25% or below.

There are a lot of people who would like to see lower interest rates.

However, the U.S. government needs lower interest rates more than anyone.

There are $40 trillion reasons (and counting) why that is.