The United States' gross national debt surpassed $40 trillion this week for the first time, meaning the nation’s financial hole has doubled in size in less than a decade.
The ballooning federal debt complicates the government's finances but it also holds consequences for the pocketbooks of everyday people, some analysts told ABC News.
Upward pressure on interest rates for government debt, for example, could in turn hike borrowing costs for businesses and consumers, making it more expensive to take out a mortgage or pay off a credit card, they said.
Meanwhile, the economy could slow as borrowing costs grow and federal spending is diverted toward interest payments, squeezing consumers tasked with paying off the higher loan rates.
“This is something that impacts Americans right now,” Shai Akabas, vice president of economic policy at the Washington, D.C.-based nonprofit think tank Bipartisan Policy Center, told ABC News.
To be sure, experts differ over the risks posed by the nation's growing debt. Some economists dismiss concerns as overblown, while others acknowledge that while the debt threatens U.S. fiscal health, the issue shouldn't be a concern for policymakers during lean economic periods.
“There’s no need to panic at this point,” said Charley Ballard, a professor of economics at Michigan State University, though he acknowledged the ongoing effects for everyday people.
“The federal debt is one of the things putting upward pressure on interest rates. It’s not by any means the only thing, but it’s one of them," Ballard told ABC News.
It's been more than 20 years since the federal government's last budget surplus, which occurred in 2001. Every year since then, the U.S. has spent more money than it has brought in, deepening the nation's debt -- the result of a combination of tax cuts and spending increases overseen by Democrats and Republicans both.
The rising federal debt is expected to push up interest rates as the government issues ever-larger numbers of Treasury bonds in an effort to fund federal spending. As a result, creditors would likely demand higher yields as a safeguard against increased risk that the U.S. may not repay the debt.
Interest rates on long-term government debt help set borrowing costs for everything from mortgages to auto loans to credit cards. If they rise, consumers face higher loan expenses and greater risk of default, according to some analysts.
Still, experts noted, Treasury yields respond to a range of factors beyond the federal debt, including inflation expectations.
“There’s no question that higher debt leads to higher interest rates,” Kent Smetters, a professor at the University of Pennsylvania's Wharton School of Business who formerly worked at the Congressional Budget Office, the nonpartisan agency that provides budgetary information to Congress, told ABC News.
A change in fiscal policy, however, could ease the pressure on interest rates over time, Smetters said.
In the meantime, the upward pressure on interest rates is expected to drag on economic output and pull back inflation-adjusted wage growth, some analysts said.
Last year, the Penn Wharton Budget Model, a nonpartisan fiscal policy analysis affiliated with the University of Pennsylvania, predicted that the average U.S. wage would end up 3.4% lower over the next 30 years as a result of President Donald Trump's signature One Big Beautiful Bill spending measure, signed into law July 4, in part due to added debt.
Academics and advocates, however, have been raising alarm about the national debt for decades -- with no crisis so far to show for it.
As the government has piled on debt, demand for U.S. Treasury bonds has remained robust, owing in large part to the country's unique position as the world's top economy and the issuer of the global reserve currency. That strong demand has kept interest rates relatively low.
Analysts who spoke to ABC News acknowledged the difficulty in predicting when the most severe effects of the ballooning debt may materialize but warned that regardless of the answer, the current trajectory is unsustainable. In any case, they added, Americans’ finances are already feeling the pinch.
“The debt is already affecting people’s cost of living today and their ability to afford their necessities,” Akabas said. “That’s the impact that deserves the most attention now.”
