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    "original_url": "https:\/\/reason.com\/2026\/10\/01\/the-national-debt-has-exploded-the-reckoning-is-still-coming\/?mc_eid=d824ab4cc6&utm_source=Reason%2BMagazine&utm_campaign=07430ee01a-reason_brand%7Cnew_at_reason%7C2026_10_02&utm_medium=email&utm_term=0_31d7ef7f57-07430ee01a-589886052",
    "parsed_content": "National Debt\nThe National Debt Has Exploded. The Reckoning Is Still Coming.\nEven the best-case scenario means less investment, slower wage growth, and a budget increasingly spent on past obligations.\nVeronique de Rugy\n|\n10.1.2026 2:05 PM\nShare on FacebookShare on XShare on RedditShare by emailPrint friendly versionCopy page URL\n Add Reason to Google\nMedia Contact & Reprint Requests\n (Scol22\/Dreamstime\/Midjourney\/Fatima Ruiz)\n Listen to this article 5 min Is the federal government's history of enormous deficits proof that it can keep up the borrowing? Some people think so, and legislators sure act that way.\nFederal debt held by the public now equals the size of the annual economy\u2014and is growing. Yet investors continue buying Treasury securities. No government bond sale has really failed, no one has suddenly refused to finance Washington's spending, and no unmistakable moment has forced Congress to change course.\nThat leads some people I cross paths with in academic life to conclude that despite decades of dire warnings, we've managed to go from a 35 percent debt-to-GDP ratio in 2007 to 100 percent today with no devastating consequences. Their implication is that we can keep going right up to 175 percent in 2056, which is the trajectory if Congress fails to reform Social Security and Medicare and if interest rates rise only modestly.\nThe idea that all this debt won't bring a reckoning may sound tempting, but it's questionable at best.\nPowered By10 SecSen. Paul: 'Too Soon' for 'Crazy' AI Regulation NextStayFirst, markets have already reacted. The 2021-2022 inflation spike, the worst in four decades, was the price level adjusting to a $5 trillion flood of deficit spending that investors did not believe future fiscal surpluses would cover.\nThat fear led to inflation. It's hard to believe we won't get another market response when Congress commits to borrowing nearly 16 times what it did during COVID-19, plus interest payments, without any repayment plan.\nIncidentally, interest rates are well above what we saw from 2009 to 2021 (back when fiscal doves thought rates would always stay low). Some of the recent increases come from AI investment raising the demand for capital. Also at work, though, is a higher term premium. With inflation still an issue and no fiscal austerity on the horizon, investors\u2014still worried that future debt will be devalued rather than truly repaid\u2014want more compensation for holding long-term treasuries.\nBut let's just suppose Washington can stay the course without provoking a bond-market response. Assume that Uncle Sam can borrow an additional $138 trillion, including interest payments over the next 30 years\u2014the amount projected by the Congressional Budget Office (CBO)\u2014and that there won't be a market reaction that raises interest rates or inflation.\nHow? First, it could be that investors expect Congress to eventually reform entitlements by raising taxes, reducing benefits, or both, so it won't need to increase borrowing. But if future Congresses don't deliver, the reckoning will come.\nSecond, it could be that despite all the risks in this scenario, investors would still value treasuries as the safest and easiest assets to trade. The world still needs dollars. Given the messes Europe, the U.K., and other governments find themselves in, some of this could be true.\nThird, there's AI, which could supercharge economic growth. Faster productivity growth will mean higher incomes and a larger tax base, making debt easier to carry. But even here, there is no free lunch. AI investment may already be pushing up interest rates; a boom capable of substantially easing deficits would be even more likely to do so. So, as existing Treasury debt matures, it would be refinanced at higher prevailing rates.\nThus, faster growth improves the fiscal arithmetic, but whether it is enough depends on how fast the economy grows, how high borrowing costs rise, and, ultimately, whether Washington continues running larger primary deficits.\nEven if we assume the best-case scenario, this debt accumulation isn't costless. A bond-market crisis is not the only danger. Government borrowing competes with private borrowers for the economy's available savings, which is another way to end up with higher interest rates. It also means less private investment than we would otherwise have\u2014in factories, software, housing, and, yes, the very AI investments we are counting on to raise future growth.\nFinancing government spending through high and distortionary taxes carries its own economic costs. And, as my colleague Jack Salmon has documented, higher government debt is associated with slower growth. That matters even in a world where AI makes us richer.\nFinally, government debt displaces other spending. Annual net interest payments now cost us more than national defense, and older, cheaper debt is being refinanced at today's higher rates. Those are dollars that can't shore up entitlements or help during the next emergency, when the ability to borrow matters most. CBO projects interest payments becoming the largest federal expenditure by 2040, consuming roughly 40 percent of the government's revenue by 2056.\nI wouldn't count on markets to stay calm. But even the calm scenario means less investment, slower wage growth, and a budget increasingly spent on past obligations. Without action and perhaps a more obvious cue to complacent congresses, the damage will continue, sometimes quietly, and the danger will grow.\nCOPYRIGHT 2026 CREATORS.COM",
    "published_at": "2026-10-01T18:05:23+00:00",
    "author_name": "Veronique de Rugy",
    "site_name": "Reason",
    "section": "Science & Technology",
    "publisher": "Reason Foundation",
    "ai_headline": "The National Debt Has Exploded. The Reckoning Is Still Coming.",
    "ai_simplified_title": "Veronique de Rugy Warns US National Debt Reckoning Still Coming",
    "ai_excerpt": "The federal government's debt has reached 100% of the annual economy, with projections to hit 175% by 2056. Despite some believing this is sustainable, the author argues that a reckoning is inevitable, leading to less investment and slower wage growth.",
    "ai_subject_tags": [
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        "Government Spending",
        "Interest Rates",
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