Debt Surges Past $37 Trillion as Interest Costs Eclipse Defense Spending

The U.S. debt clock didn’t just notch another record Tuesday (Aug. 12), it smashed it. The deficit blew past $37 trillion, effectively creating a shadow benchmark that could soon rival the Federal Reserve’s policy rate in steering borrowing costs across the economy.

According to the Treasury’s daily statement Monday (Aug. 11) the $37 trillion figure is five years ahead of pre-pandemic projections, thanks to emergency COVID outlays, successive tax cuts and fresh discretionary spending that have quickened the pace of federal borrowing. Analysts note the cadence is only accelerating: Washington is now adding $1 trillion roughly every five months, double the average speed of the past 25 years.

“We are now adding a trillion more to the national debt every 173 days—an alarming cadence that should wake up policymakers to act quickly,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “$37 trillion of debt is a mind-boggling figure that has little precedent. The more economically meaningful figure — debt held by the public as a share of output — is also approaching record levels. Our current debt is 100 percent of the economy — higher than any time other than just after World War II — and is rising rapidly.

To add insult to injury, we’re on course to spend $1 trillion this year just on interest costs. Interest is now the second largest item in the budget, surpassing the entire defense budget as well as Medicare.”

Beyond the jaw-dropping headline number, both reports underline knock-on effects. Heavier Treasury issuance pushes yields higher, filtering into mortgage and auto-loan rates. It crowds out private investment and it leaves less fiscal room as net-interest costs climb toward defense-level spending. Michael Peterson of the Peterson Foundation warns of a self-reinforcing loop that could sap wage growth and lift consumer prices.

“Our growing debt slowly damages our economy and the prospects of the next generation,” Peterson said in a statement. “As the government borrows trillion after trillion, it puts upward pressure on interest rates, adding costs for everyone and reducing private sector investment. Within the federal budget, the debt crowds out important priorities and creates a damaging cycle of more borrowing, more interest costs, and even more borrowing.”

Today’s $37 trillion marker underscores those themes. A swelling federal IOU is no longer just macro scenery. It’s fast becoming core context for pricing risk, credit and innovation across the payments and digital-finance landscape.

The deficit news comes as inflation in the U.S. economy stayed fairly flat in July, although prices crept higher, putting more pressure on paycheck-to-paycheck households.