The United States recently passed another milestone that would be difficult to imagine if we hadn't become so accustomed to numbers measured in trillions:

Our gross federal debt has surpassed $40 trillion.

The Concord Coalition recently brought its Debt Clock Tour to Raleigh to call attention to precisely that number—and to the fiscal choices behind it.

Forty trillion dollars.

Does anyone really have an intuitive sense of what $1 trillion looks like, much less $40 trillion? At some point, numbers this large begin to sound like funny money.

Here's one way to think about it. A million seconds is about 11½ days. A billion seconds is almost 32 years.

A trillion seconds is more than 31,000 years.

Now multiply that by 40.

That doesn't tell us much about federal fiscal policy. But it illustrates the problem with simply announcing that America owes $40 trillion. The number is so enormous that it can obscure more than it explains.

So rather than just stare at the debt clock, let's ask a better question:

What does $40 trillion actually mean—and why should we care?

First, which debt are we talking about?

Here is our first complication. There isn't just one federal-debt number.

Think of the gross federal debt as consisting of two big buckets.

The first—and the one economists generally focus on when considering the debt's effects on the economy—is debt held by the public.

Suppose you buy a $10,000 Treasury note. You have lent $10,000 to the United States government. Treasury owes you that money.

Now multiply that concept across millions of investors.

Treasury securities are owned by individuals, banks, mutual funds, pension and investment funds, corporations, state and local governments, the Federal Reserve, foreign governments and investors around the world.

Despite the name, then, "debt held by the public" does not simply mean debt held by ordinary American citizens. It essentially means federal debt held outside federal government accounts.

The second bucket is debt held by government accounts, sometimes called intragovernmental debt.

That phrase sounds more mysterious than it is.

Consider Social Security.

For many years, Social Security collected more in dedicated tax revenues than it needed immediately to pay benefits. Under federal law, the surplus was invested in special Treasury securities held by the Social Security trust funds.

So one part of the federal government—the Social Security trust funds—holds Treasury securities as assets. Another part—the Treasury—has an obligation to honor those securities.

In effect, one arm of the federal government owes another arm of the federal government.

Other examples include Treasury securities held by Medicare trust funds and federal civilian and military retirement funds.

These obligations are different from Treasury securities owned by outside investors because they do not represent federal borrowing from private financial markets. But they are still real obligations. The government cannot simply erase the Treasury securities held by Social Security without affecting the resources available to pay benefits.

Put the two buckets together:

Debt held by the public + debt held by federal government accounts = gross federal debt.

That is the larger number that recently passed $40 trillion.

Economists and the Congressional Budget Office often concentrate on debt held by the public when analyzing the economic consequences of federal borrowing because that is the portion financed outside federal government accounts.

So is the debt $40 trillion or something less?

Both numbers can be correct. They answer different questions.

Gross debt tells us about the federal government's overall outstanding debt obligations. Debt held by the public is generally more useful when considering federal borrowing from financial markets and its potential effects on interest rates, investment and economic growth.

Already, we're learning something:

"The national debt is $40 trillion" is the beginning of the discussion, not the end of it.

What does "101 percent of GDP" mean?

Here is another phrase that appears constantly in discussions of the debt:

Debt held by the public is approximately 101 percent of GDP.

What does that actually mean?

GDP—gross domestic product—is essentially the value of the goods and services produced by the U.S. economy during a particular period.

And this is important:

GDP is not cumulative.

When we talk about annual GDP, we are talking about roughly one year of economic output.

Federal debt is measured differently. It is the total amount of outstanding federal borrowing at a particular point in time.

So when CBO says that debt held by the public will equal roughly 101 percent of GDP in 2026, it is comparing two different kinds of numbers: the amount of federal debt outstanding at the end of the fiscal year with the value of approximately one year of U.S. economic production.

In plain English:

The federal debt held by the public is now roughly as large as the value of everything the enormous U.S. economy produces in an entire year.

That does not mean that America must—or should—devote an entire year's economic output to paying off the debt. Countries don't operate that way. GDP is not government revenue, and governments routinely refinance maturing debt rather than paying the entire debt balance at once.

The ratio is useful for a different reason: it gives us a way to compare the size of the debt with the size of the economy supporting it.

A $32 trillion debt means something very different for a $32 trillion economy than it would for a $5 trillion economy.

Hold the size of the economy fixed for a moment, just to isolate the idea:

If an economy produces $100 of goods and services in a year and its government has $101 of publicly held debt outstanding, its debt-to-GDP ratio is 101 percent.

If annual economic output remains $100 while the debt is $120, the ratio is 120 percent.

Of course, the U.S. economy itself is expected to grow. The important question is therefore not merely whether the dollar amount of debt gets larger.

Is the debt growing faster than the economy?

Under CBO's current baseline projections, it is.

CBO therefore projects debt held by the public to rise from about 101 percent of GDP in 2026 to 120 percent in 2036.

Put another way: today, there is roughly $101 of publicly held federal debt for every $100 of annual U.S. economic output. Under CBO's projection, that becomes about $120 of debt for every $100 of annual economic output by 2036.

That is much more informative than simply saying the debt will be bigger.

The economy is projected to grow.

The debt is projected to grow faster.

How do annual deficits turn into all that debt?

Another distinction is important.

The deficit and the debt are not the same thing.

A deficit occurs when the federal government spends more during a year than it collects in revenues.

The debt is the accumulated borrowing that results, principally, from running deficits year after year.

Think of the deficit as the annual shortfall and the debt as the accumulated amount borrowed and still outstanding.

CBO projects that in fiscal 2026 the federal government will spend approximately $7.4 trillion while collecting approximately $5.6 trillion in revenues, producing a deficit of about $1.9 trillion.

Where does the extra money come from?

The federal government borrows.

Treasury sells securities—bills, notes and bonds—to investors.

Imagine starting with roughly $30 trillion of publicly held federal debt.

The government then runs another deficit. Treasury generally has to borrow to finance the shortfall, adding to the debt already outstanding.

The following year brings another deficit and more borrowing.

And then another.

And another.

Unless future surpluses or other developments reduce the accumulated borrowing, the process continues.

That is how persistent annual deficits can build into an ever-larger national debt.

There are some accounting complications. Changes in Treasury's cash balance, federal credit programs and other financing activities mean that the annual deficit and the annual increase in publicly held debt are not always precisely identical. In 2026, for instance, CBO estimates those other factors will add about $70 billion beyond the deficit itself to that year's borrowing—a reminder that the deficit is the main driver of new debt, but not the only one.

But the basic relationship is straightforward:

Persistent deficits generally require persistent borrowing, and that borrowing accumulates into growing debt.

CBO summarizes the relationship directly: in its projections, large and growing deficits cause debt to increase.

Under CBO's baseline, debt held by the public is projected to reach roughly $56 trillion by 2036 and approximately 120 percent of GDP.

Now that phrase should mean something.

It doesn't mean that the United States suddenly receives a $56 trillion bill in 2036.

It means that, under CBO's assumptions, outstanding federal debt held outside government accounts would then equal about 1.2 times the value of one year's entire U.S. economic output.

CBO's baseline is a projection, not destiny. It assumes that current laws governing taxes and spending generally remain unchanged and uses economic assumptions that actual events may not follow. Future legislation and different economic conditions could produce different outcomes.

The part that should get our attention: interest

Borrowed money isn't free.

This is where the federal debt stops being an abstraction.

CBO projects that federal net interest outlays will exceed $1 trillion in 2026 and reach approximately $2.1 trillion annually by 2036 under its current baseline.

Think about what interest is.

It isn't a new bridge. It isn't scientific research. It isn't national defense. It isn't a Social Security check. And it isn't money left in taxpayers' pockets to save, invest or spend.

It is the cost of financing previous borrowing.

Of course, borrowing itself isn't inherently foolish.

Families borrow to buy houses. Businesses borrow to build factories, develop products and expand. Governments can have sound reasons to borrow as well—particularly during wars, recessions and national emergencies.

The important questions are how much we borrow, what we borrow for, and whether our borrowing is sustainable.

When interest consumes an increasingly large share of federal resources, yesterday's decisions begin limiting tomorrow's choices.

That should get our attention.

There is also a generational question

Much of today's debt will be serviced over many years, including by Americans who did not participate in the political decisions that produced it.

That doesn't mean every dollar borrowed today literally gets handed as a bill to a particular child tomorrow. The economics are more complicated than that.

But persistent borrowing can shift fiscal burdens forward. Future taxpayers may face the costs of servicing the debt, while future policymakers inherit budgets with less room to maneuver.

That raises a question that is economic but also moral:

How much of today's government should we ask tomorrow's Americans to pay for?

Reasonable people can disagree about the answer. They can disagree about taxes, Social Security, Medicare, defense, health care and practically every other item in the federal budget.

But the question itself is difficult to avoid.

Does government borrowing hurt economic growth?

Potentially—and this is where we should resist oversimplification. Federal borrowing doesn't mechanically subtract one dollar of private investment for every dollar the government borrows; interest rates, monetary policy, and what the government does with the money all matter. But CBO identifies an important long-run risk: greater federal borrowing can reduce private investment and, over time, reduce economic output—a dynamic economists call "crowding out." We touched on the growth side of this equation in our first post; we'll come back to it in more depth in Part 3.

This isn't only a Republican or Democratic problem

Federal fiscal policy has been shaped over many years by presidents and Congresses controlled by both parties. The particular policies they have supported—and their effects on deficits—have differed.

But assigning political blame by itself doesn't tell us what to do next.

The more useful question for this series is structural:

Why does the federal government continue spending substantially more than it collects even during relatively normal economic times?

CBO notes that the sustained large deficits in its current projections are historically unusual given that unemployment is projected to remain below 5 percent.

That's where the discussion gets harder.

Social Security. Medicare. Health-care costs. Defense. Other federal spending. Taxes. Economic growth. Demographics. Interest on the debt.

These aren't slogans. They involve real policy choices and real tradeoffs.

And that brings us to the question we want to explore next.

So should we panic?

No.

The United States remains an extraordinarily large and productive economy. Fiscal policy is not a force of nature. Laws can be changed.

But "don't panic" is not the same thing as "don't worry."

CBO projects that, under current law, federal debt held by the public will continue growing faster than the economy over the next decade.

The longer that continues, the greater the interest burden and the more constrained future fiscal choices may become.

So if the problem is structural, what is actually driving it?

Where does federal spending go? How much is discretionary? How much happens automatically under existing law? What roles do Social Security and Medicare play? What about defense? What about taxes? What about interest?

And how much difference could faster economic growth really make?

The Raleigh Economics Club is a club, not a textbook—and we don't pretend to have the last word on questions like these.

Our purpose is to explore important economic issues using the best information we can find, ask straightforward questions, and invite people with real expertise to help us understand them better.

That's what we'll do with the federal debt. We'll examine the evidence, follow the numbers where they lead, ask questions—and undoubtedly discover some things along the way.

We can take the issues seriously without assuming that we're the only serious people in the room.

So let's take this one piece at a time.

Next: What's Actually Driving the Federal Debt?

The Raleigh Economics Club will continue exploring America's fiscal outlook in the weeks ahead. On October 21, 2026, REC will host Dr. Carolyn Bourdeaux, Executive Director of the Concord Coalition, for a Chart Talk examining the federal debt and the choices facing the country.

Sources

Congressional Budget Office — "The Budget and Economic Outlook: 2026 to 2036," February 2026 (see especially Table 1-3). Primary source for spending, revenues, deficits, interest costs and debt figures used in this article, including both graphs.
cbo.gov →

U.S. Department of the Treasury, Fiscal Data — "Debt to the Penny." Official Treasury data for total federal debt and the distinction between debt held by the public and intragovernmental holdings.
fiscaldata.treasury.gov →

The Concord Coalition — "Concord Coalition Brings $40 Trillion Debt Warning to Raleigh," September 18, 2026. Background on Concord's North Carolina Debt Clock Tour and Raleigh stop.
concordcoalition.org →

The Concord Coalition — "Sorting Out the Debt Numbers." Background on gross federal debt, debt held by the public, intragovernmental holdings, and federal trust funds.
concordcoalition.org →