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Welcome back. Today’s edition explores the forces driving the national debt — and how that fast-rising figure affects businesses.
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The Rising Tide:
U.S. Debt and Borrowing Costs
Chart: Peter G. Peterson Foundation
This week America’s “total public debt outstanding” surpassed $40 trillion.
That’s what the federal government has borrowed from investors and itself (e.g. Social Security and federal civilian and military retirement trust funds) to bridge the annual gaps between what it spends and what it collects.
It’s a nice, round number that makes for great headlines.
It also means the U.S. is now about $1 trillion shy of the newest debt ceiling — a limit the Bipartisan Policy Center estimates the country will most likely hit sometime between “late winter and mid-summer of 2027.”
“Failing to address the debt limit in a timely manner can undermine investor confidence that the federal government will make good on all its obligations, and lenders may demand higher interest rates — which results in higher costs for households and businesses alike,” BPC says.
With that in mind, experts at The Conference Board suggest executive leaders take action:
• “As the risk of another debt ceiling crisis in early-mid 2027 approaches, stress-test your organization for the impact of another government shutdown and even the risk of a temporary default.
• Evaluate the impact of potentially higher interest rates on business operations, ability to borrow, cash holdings and investments, and expected consumer impact.
• Consider a public education campaign among employees to help them understand the impact of the debt on business operations and national finances, including potential impacts on retirement security.”
Why we’re here
The national debt is up $2 trillion from less than a year ago.
On one side, four forces are accelerating federal spending:
an aging population, which drives Social Security and Medicare costs;
healthcare more broadly (Medicaid, CHIP, ACA subsidies);
interest on the debt itself — debt begets debt: in 2026, it costs $2.8 billion per day for the privilege of borrowing and that will rise to $5.9 billion per day in 10 years;
national defense programs — military training and planning, equipment maintenance, personnel benefits.
Revenues — the majority of which come from individual income taxes — are growing as well on the other side. But not enough to match ballooning costs.
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What’s ahead
As borrowing grows, the cost to service it will spread through the economy and business investment will contract. Two separate Congressional Budget Office studies have found:
Each percentage point increase in the debt-to-GDP ratio raises inflation-adjusted 10-year interest rates by 0.02 percentage points.
For every dollar the federal deficit rises, private investment falls 33 cents.
In an attempt to rein in long-term borrowing costs, Treasury Secretary Scott Bessent this week announced doubling buybacks of long-duration bonds — just hours before the national debt crossed $40 trillion.
Bloomberg macro strategist Cameron Crise read the move as the Treasury being “concerned” over rising yields.
Higher yields raise what companies pay to borrow — which is “particularly dangerous” right now amid debt-financing of AI growth, Fortune notes.
Several factors will likely affect deficits in the months to come and are worth watching closely, Bipartisan Policy Center experts say:
Military spending related to the conflict with Iran
Tariff refunds
Falling corporate tax collections
Higher energy costs
Reality check
As the debt ceiling comes back into view, there are a few things to keep in mind.
If the government shuts down again, the last one offers a glimpse of what another one would look like:
“The 2025 shutdown reduced both total supply (production) and total demand (spending). It reduced total supply because furloughed government workers could not contribute to the production of government output, and it reduced total demand because certain government purchases of private sector goods and services could not be made. …
The reduction in demand was temporary and will be reversed once delayed purchases are made. The reduction in supply was mostly unrecoverable (as lost working hours cannot be made up), but it was a one-time effect that ended when work resumed.”
And if the U.S. defaulted on its debt — which it never has — the fallout would depend on whom the government chose not to pay, says St. Louis Fed’s senior economic policy advisor Paulina Restrepo-Echavarría.
Lloyd Blankfein, former CEO of Goldman Sachs, argues a different scenario:
“Since we borrow in dollars and we print dollars, it’s hard to have a technical default when we can print as many dollars as we need to pay back the dollars that we owe. …
We [would] default by inflating the currency and paying dollars back that don’t carry the purchasing power that they had when you lent us the money.
[W]hen our creditors [see] that, they either won’t lend or they will lend only by exacting a very, very high yield.”
One final chart for the road
Here’s a look at debt across the economy:
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