The first four months of fiscal year 2026 got off to an expensive start for the U.S., according to the Congressional Budget Office’s (CBO) latest estimates. The CBO released a report yesterday detailing that, for the first third of FY26 (which began in October), the U.S. government operated at a deficit, and so borrowed $696 billion. That included $94 billion in January alone, and works out at an average of $43.5 billion for each of the 16 weeks of the four months since. While America’s government spending outweighs its revenue generation, its finances are also negatively compounded by the interest payments needed to maintain its debt. Total national debt now sits at more than $38.5 trillion. U.S. GDP us about $31 trillion, according to the Federal Reserve Bank of St. Louis.
Per Treasury data, up to January 31, the interest expenses paid out have totalled $427 billion. Extending that trajectory over the course of a year, and with additional debt being added, requiring additional interest service payments, the U.S. government will need to pay out $1 trillion annually to service its borrowing. This benchmark was first hit in FY2024 when interest payments totalled $1.13 trillion. In FY2025 that rose to $1.22 trillion.
“We are only a third into FY 2026, and yet we remain in the routine of endless borrowing … If we continue to borrow at this rate, it leaves us on the path to another year of a $1.8 trillion or higher deficit,” according to Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
“If these estimates aren’t alarming enough, the national debt continues to climb toward record levels, equaling about the size of the entire U.S. economy today … Unless lawmakers want record-high debts and deficits to be our norm, both sides of the aisle must come together to address our unsustainable borrowing. The longer lawmakers wait, the higher the price for Americans.”
Despite the eye-watering figures and the warnings from committee chiefs, the market and many economists are still relatively comfortable with America’s fiscal situation. If markets were to panic about Uncle Sam’s spending, bond yields would be among the earliest red flags to go up. Yields rising, for example, might be a signal that investors are demanding higher premiums because the perceived risk of the lending has increased. Contrarily, yields moving lower may be a signal that bond issuance is outpacing demand from investors.
Neither of these has happened. At the time of writing, 30-year Treasuries sit at 4.8%—relatively elevated compared to late last year but still in line with much of 2025. 10-year Treasuries are similar, floating around the 4.2% mark since last spring.
Within sphere of influence
Despite theories that foreign investors could leverage their holdings of U.S. debt to punish America for its inxreasing aggression toward its allies, or warnings that investors may back out of the market over policy (à la Liz Truss), many economists think the outcome will be somewhat less dramatic. “Financial repression” is one option: Mandating that institutions must hold more debt, thus ensuring buyers prop up its value. Or inflation could be allowed to trickle higher: Bad for consumers, but it would erode the real value of the debt. Quantitative easing could be another option, as increasing the money supply may prove inflationary but would have the desired effect of lowering the real value of borrowing.
This is likely what gives investors confidence, because the U.S. may be relatively well-equipped to handle a debt crisis, should one occur.
But if the country cannot grow itself out of an unhealthy debt-to-GDP balance, the outcome isn’t a palatable one. More funds would continue to be diverted to maintaining borrowing—something Bridgewater Associates founder Ray Dalio often complains about. Dalio has warned of an impending economic “heart attack,” in a series of social media posts and interviews, including with Fortune’s Diane Brady.
“We’re spending 40% more than we’re taking in, and this is a chronic problem,” he said in an appearance on Fox Business last year. “What you’re seeing is the debt service payments … well into squeezing away, so it’s like plaque in the arteries, squeezing away buying power.”
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