What is the national debt? Debt vs deficit explained

The national debt is the total amount a national government owes, built up from every year it spent more than it collected and borrowed to cover the gap. In the United States, it is the sum of all outstanding Treasury bills, notes and bonds. On 3 November 2026 it stood at about $40.5 trillion, according to the Treasury. The national debt is not the same as the deficit: the deficit is one year's shortfall, and the debt is the running total.

In short

• Deficit is a flow, one year's borrowing; debt is a stock, the total owed. A $2 trillion deficit adds about $2 trillion to the debt.
• About $32.8 trillion of US debt is held by the public, including foreign investors; the rest, about $7.8 trillion, is owed by the Treasury to other government accounts such as Social Security's trust funds.
• What matters most is the debt's size compared with the economy, and the interest it costs, both of which have risen in recent years.

What is the difference between the deficit and the debt?

A household analogy helps, if it isn't pushed too far. In fiscal year 2026, which ran from October 2025 to September 2026, the federal government spent about $7.4 trillion and collected about $5.4 trillion, a deficit of about $2.0 trillion, according to the Congressional Budget Office's figures as summarized by the American Action Forum. Scale that down by 100 million and it is a household earning $54,000, spending $74,000, and putting $20,000 on its credit line. The deficit is that $20,000. The debt is the whole balance on the credit line, built up over decades.

The Treasury covers each deficit by selling securities: short-term bills, medium-term notes and long-term bonds. When old securities come due, it usually pays them off by selling new ones, so the debt is rolled over rather than repaid. The United States has run a deficit in every fiscal year since 2002; its last surpluses were in the four years from 1998 to 2001.

Who holds the US national debt?

On 3 November 2026, the Treasury's Debt to the Penny data showed total debt of $40.55 trillion, made of two parts.

Debt held by the public, about $32.77 trillion, is owed to anyone outside the federal government: American individuals, banks, pension funds, mutual funds, state governments, the Federal Reserve and foreign investors. Foreign holders owned about $9.3 trillion of Treasury securities at the end of August 2026, according to the Treasury's TIC data. The largest were Japan, about $1.07 trillion, the United Kingdom, about $1.01 trillion, and mainland China, about $0.59 trillion.

Intragovernmental holdings, about $7.78 trillion, are owed by one part of government to another. When a program such as Social Security collected more in payroll taxes than it paid out, the surplus was lent to the Treasury in exchange for special securities. As the Treasury's guide to the national debt notes, the Social Security Administration is the largest of these holders. These securities are real claims, but because the government owes them to itself, economists usually focus on debt held by the public.

How big is the debt compared with the economy?

Dollar totals grow with prices and population, so economists compare debt with GDP, the economy's yearly output. US GDP was running at about $33.0 trillion a year in the third quarter of 2026, according to the Bureau of Economic Analysis's first estimate, as listed by FRED. That puts debt held by the public at roughly 99% of GDP and total debt at about 123%. The record for debt held by the public was about 106% of GDP in 1946, after the Second World War. The Treasury notes that total debt surpassed 100% of GDP in 2013.

Countries compare their debts using general government debt, which also counts states and cities. The table shows the IMF's figures for 2025, from its World Economic Outlook database as listed in November 2026; 2025 values may still be revised.

Country	General government gross debt, % of GDP, 2025
Japan	204.8
Italy	137.1
United States	124.4
France	115.5
Canada	113.6
United Kingdom	102.1
China	98.6
India	84.3
Germany	62.7

How does interest on the debt work? A worked example

The government pays interest on what it owes, like any borrower. According to the Treasury's interest expense data, interest on its public issues, the securities that make up debt held by the public, came to about $1.07 trillion in fiscal year 2026, up from about $0.97 trillion the year before. The average interest rate on the Treasury's marketable debt was 3.52% at the end of September 2026.

The arithmetic shows why rates matter so much.

1. Take debt held by the public of about $32.8 trillion.
2. Suppose the average rate on it rises by 1 percentage point, as old low-rate bonds are replaced with new higher-rate ones.
3. Once all the debt has rolled over, interest rises by 1% × $32.8 trillion = $328 billion a year.
4. If that extra interest is itself borrowed, it adds to the debt, which raises next year's interest further.

Interest is the part of the budget that grows on its own, without any new law. That is why the US debt became a bigger worry after 2022, when the Federal Reserve raised rates to fight inflation and bond yields followed. The Fed doesn't set the government's borrowing costs directly, but its policy, explained in how interest rates work and the note on the Federal Reserve, strongly influences them.

What is the debt ceiling?

The debt ceiling, or debt limit, is a cap Congress sets on how much the Treasury may borrow in total. It doesn't approve spending; Congress does that separately. It limits borrowing to pay for spending and tax laws Congress has already passed. When the debt reaches the limit, the Treasury uses temporary accounting steps, called extraordinary measures, until Congress raises or suspends it. If it ran out of room entirely, it could not pay all its bills, risking a default the country has never had.

In July 2025, Congress raised the limit by $5 trillion, to about $41.1 trillion, in the law known as the One Big Beautiful Bill Act. Standoffs over the ceiling in 2011 and 2023 were followed by credit rating downgrades from S&P and Fitch, and Moody's lowered its US rating in May 2025, citing the rising debt and interest costs. The debt ceiling is separate from a government shutdown, which happens when Congress fails to pass spending bills, not borrowing limits.

Still argued

Economists disagree about how much debt is too much. Those most worried argue that high debt pushes up interest rates, crowds out private investment, leaves less room to respond to the next crisis, and passes costs to future taxpayers; CBO has long projected that debt will keep rising faster than the economy under current law. Others argue that a country borrowing in its own currency, with deep demand for its bonds, can carry more debt than a household or a business, pointing to Japan, and that debt is sustainable as long as the economy grows faster than the interest rate. Both sides agree that rising interest costs narrow the choices. How to close the gap, by cutting spending, raising taxes or growing faster, is a political choice this note doesn't take a side on.

The national debt connects almost every part of economics: taxes, spending, interest rates, inflation and growth all move it, and it in turn shapes what governments can do next.

Check yourself

• Explain the difference between a deficit and the debt using a household example.
• Why do economists focus on debt held by the public rather than total debt?
• Walk through what a 1-point rise in interest rates does to the government's yearly interest bill.

Sources

• Debt to the Penny — U.S. Department of the Treasury, Fiscal Data, 2026
• Understanding the national debt — U.S. Department of the Treasury, Fiscal Data
• Interest expense on the debt outstanding — U.S. Department of the Treasury, Fiscal Data, 2026
• Major foreign holders of Treasury securities — U.S. Department of the Treasury, TIC, 2026
• General government gross debt, percent of GDP — International Monetary Fund, World Economic Outlook
• CBO: FY 2026 budget deficit totaled $2 trillion — American Action Forum, 2026