America’s budget, the bond market and the national debt at 250: Gradually, then suddenly

Key Points:

• The U.S. gross national debt surpassed $40 trillion in August 2024, increasing by about $1 trillion every five months, with the deficit reaching $2 trillion before the fiscal year ended.
• In 2025, Moody’s downgraded the U.S. credit rating from AAA, joining S&P and Fitch, reflecting growing concerns over fiscal management and the sustainability of U.S. debt.
• Interest payments on the national debt have surged to $970 billion in fiscal 2025, exceeding military spending and projected to more than double by 2036, highlighting the accelerating cost of borrowing.
• Congressional budget processes have deteriorated, with no appropriations bills passed on time this year, and political will to address fiscal challenges is lacking, as evidenced by failed attempts to debate a budget resolution.
• Structural issues like statutory PAYGO loopholes, waived spending caps, and a focus on discretionary spending obscure the true fiscal risks, while the U.S. risks losing its reserve currency status if confidence erodes.