As of October 16, 2026, US government debt stood at $40.338 trillion — having more than doubled over the past 10 years. According to forecasts by Bank of America analysts, it will keep growing and by 2033 will reach $50 trillion. The reason is a persistently deficit budget: since 2002 the country has been spending more than it earns, because its governments have grown accustomed to living large, denying themselves practically nothing.
There are two reasons why the whole world keeps taking a constant interest in the size of American government debt. If the US defaults and is unable to service its debts, this will deal a heavy blow to the dollar's exchange rate and, as a consequence, to the value of the assets of those states and companies that hold their money in it (and more than 57 percent of the world's countries' reserve assets are denominated in dollars). In addition, American government debt securities (Treasuries) are currently one of the most liquid assets used as collateral in transactions. And in case of a default, these collaterals will be sharply devalued.
Assessing the emerging situation, well-known American investor and Bridgewater Associates founder Ray Dalio noted in an interview with Bloomberg that the US has come right up to the edge of a debt crisis. In his view, over the next three years the growth in debt-servicing costs and the weakening of demand on the part of foreign buyers could provoke a crisis. According to estimates by American analysts, annual interest payments will already rise to $1.5 trillion by 2028. In Ray Dalio's opinion, this is a completely unaffordable sum — one that will be twice the military budget for 2028 — and the States simply will not be able to afford such expenditures. Moreover, he noted, in order to cover the deficit, the country's authorities are currently relying on significant volumes of foreign capital — about a third of the funds. In particular, a considerable part of it previously came from China and Japan, as well as from the states of the Middle East. But now things are changing.
China, formerly the largest holder of Treasuries, does not intend to keep accumulating American debt going forward — on the contrary, it is selling it off. According to the US Ministry of Finance, the volume of treasury bonds owned by China has shrunk to $618 billion — the lowest figure since 2008. In parallel, China is stepping up its purchases of gold. According to data from the State Administration of Foreign Exchange of the People's Republic of China and the World Gold Council (WGC), in August the reserves of the People's Bank of China reached 2,387 tons, rising for the twenty-second month in a row.
Japan's behavior has changed as well — it is now the largest foreign holder of American Treasuries (almost $1.11 trillion, or 2.77 percent of their volume). Previously it invested considerable funds in American government debt. But now the economic situation in Japan is changing. Last month the yield on 10-year Japanese government bonds reached 3 percent for the first time since 1996, and the Japanese need funds to refinance their own debt. Under the new conditions, Japan wants to recover part of the money invested in American government debt — and a very considerable part at that.
Other large investors in American government debt — the Gulf states — are now also having a hard time of it, and to a significant extent because of the war with Iran initiated by Trump. As a result, foreign capital is now less and less drawn to the United States.
However, US financial authorities believe that as long as GDP growth outpaces the yield on treasury bonds, the situation is under control. In their view, the US economy has not only managed to withstand the shocks caused by Donald Trump's tariffs and the war with Iran, but also continues to demonstrate high growth rates. But, as experts from Fortune magazine believe, not everything is so cloudless. The overheated American economy, the bubble around AI and intensifying inflationary pressure have already led to a sharp rise in the yields of treasury bonds, increasing the costs of servicing the government debt. In their view, the economy has found itself in a vicious circle: it must maintain high growth rates in order to outpace the growth in the cost of borrowing and to prevent a situation in which government debt grows faster than GDP. And the question is how long the American economy will be able to grow faster than its debt burden increases.
Already now the yield on 10-year and 30-year Treasuries (above 5 percent and 6 percent) has approached the rates of nominal GDP growth, which makes the government debt less sustainable. At the same time, the boom in investment in data centers for AI requires enormous capital expenditures, the source of which is borrowed money. A number of Wall Street analysts warn that the bubble around AI may soon burst, depriving the economy of one of its main sources of growth. And investors have already grown nervous because of the huge debt obligations in the AI sphere. An additional trigger for concern was the collapse in the bonds of the American company engaged in cloud computing — CoreWeave — an example of declining confidence in debts tied to the AI boom.
This shows that the propensity for risk has started declining and capital has run for safe assets. As a result, GDP growth rates may turn out to be lower than the growth rate in the cost of borrowing, which could lead to a financial crisis. According to Rockefeller International chairman Ruchir Sharma, this will mean "the beginning of an era of tighter monetary policy, in which it will become harder to finance AI megaprojects."
Nor is the inflation statistics pleasing — it remains high, prices are rising faster than expected, which means the Fed will continue to tighten its interest rate. The market is counting on three more hikes of 0.25 percentage points each by the summer of next year. Each rate hike makes the refinancing of US debt more costly.
So, the problem is not only that the size of the government debt is very large. The size of the US budget deficit and the overall need for financing are also large. After all, when assessing the prospects of the government debt market, account is taken not only of the deficit of state finances, but also of expenditures on the development of AI and other large-scale expenditure items, because the funds come from the very same sources. And their availability is declining. All this raises the probability of mass sell-offs in the American government debt market.
The probability of such events is evidenced by the mass sell-off of shares of semiconductor companies on world markets — those directly connected with the AI boom. For example, the Korean Kospi index crashed by 8 percent on October 14, and the decline from its September peak stands at 20 percent. Japan's Nikkei 225 lost more than 4 percent today. In both cases the leaders of the fall are precisely the semiconductor makers: SK Hynix and Samsung in Korea, Ibiden and Kioxia in Japan.
For now, the US government keeps borrowing trillions to sustain the financial bubble and simulate economic growth. But the new economic situation in the world shows that the US economy, if the current approach is maintained, will last no more than 5-10 years. It can be saved only by cardinal changes in the economic model, which will either be introduced as measures planned by the state (which is unlikely) or will emerge as a result of a large-scale financial crisis. And given such catastrophic changes, the US will lose its current economic supremacy and military might. This is the opinion held by a growing number of experts, who are sounding the alarm over the pace at which the US government is piling up debts.
