U.S. National Debt Interest Surges 18% in 10 Months, Exceeding Defense Spending; Interest is the Only Expense That Automatically Rises Without Congressional Vote
According to the U.S. Treasury Department, in the first 10 months of fiscal year 2026 ending July 31, the U.S. federal government paid $763 billion in interest on national debt, an 18% increase year-on-year, surpassing defense spending of $728 billion during the same period, making it one of the fastest-growing major expenditure items in the federal budget.
During the same period, the overall fiscal situation of the U.S. federal government was also under pressure: total revenue for the first 10 months was approximately $4.5 trillion, total expenditure was about $6.3 trillion, and the fiscal deficit reached $1.8 trillion, exceeding the entire borrowing scale for fiscal year 2025; in July alone, the federal deficit was as high as $432 billion, with expenditures of $766 billion and revenues of only $334 billion.
As of the end of July, the amount of national debt held by the public had reached $32 trillion, an increase of $2.5 trillion compared to the same period last year, with the total borrowing scale for the year expected to exceed $2 trillion; the overall debt of the U.S. government is nearing the $40 trillion mark.
This is not the first time interest on national debt has exceeded defense spending—previous data from the Congressional Budget Office (CBO) and several financial research institutions indicated that as early as 2024, U.S. national debt interest payments historically surpassed the defense budget, and since then, interest payments have consistently remained among the top expenditure items in the federal budget, second only to mandatory expenditures like Social Security and Medicare.
From a long-term trend perspective, U.S. national debt interest payments have reached their highest level since World War II: measured as a percentage of GDP, interest payments are expected to account for about 3.2% of GDP in 2026, exceeding the historical record set in 1991; measured as a percentage of federal fiscal revenue, by the end of 2025, interest payments will account for 18.5% of total federal revenue, also surpassing the historical high of 1991.
From a funding mechanism perspective, the rapid rise in interest payments is primarily driven by the "expansion of existing debt" and the "increase in refinancing rates": in recent years, the Federal Reserve's significant interest rate hikes have forced the U.S. Treasury to reissue maturing national debt at rates far higher than pre-pandemic levels, and even though recent policy rates have slightly decreased, the average financing cost of existing debt is gradually aligning with new issuance rates; the main "recipients" of these interest payments are domestic and foreign investors holding U.S. national debt (including central banks of various countries, pension funds, insurance companies, and individual investors), meaning that an increasingly large portion of the federal budget is being transferred from taxpayers and other fiscal priority projects to debt holders.
Supplementary data: The Congressional Budget Office projects that over the next decade, the total net interest expenditure of the U.S. federal government will reach $16.2 trillion, with annual interest payments rising from about $1 trillion in 2026 to about $2.1 trillion in 2036, at which point interest payments will account for 4.6% of GDP and 25.8% of federal revenue.
Source: Public Information
ABAB AI Insight
The scale of U.S. national debt has expanded from about $5 trillion held by the public before the 2008 financial crisis to the current $32 trillion, driven by four rounds of historic fiscal expansion: emergency stimulus during the 2008 financial crisis, the long-term revenue gap caused by the 2017 Tax Cuts and Jobs Act (TCJA), over $5 trillion in emergency spending during the COVID-19 pandemic from 2020 to 2021, and the subsequent rapid interest rate hikes by the Federal Reserve from near-zero to over 5%—as U.S. national debt has increasingly relied on the rolling issuance of short-term Treasury bills in recent years, the rapid rise in interest rates has almost "real-time" transmitted into the federal budget itself, much faster than previous interest rate hike cycles.
The truly concerning funding path is the "interest on interest" effect: the Treasury increasingly relies on short-duration Treasury bills for financing, which need to be frequently rolled over at current interest rates, making the Federal Reserve's high-interest policy convert into fiscal costs faster than any previous interest rate hike cycle; meanwhile, interest payments themselves must be financed by issuing more new debt, creating what economists call the "debt snowball" effect—a self-reinforcing deficit expansion mechanism. The holders of U.S. debt (including foreign central banks like Japan and China, as well as domestic money market funds, banks, and pension funds) are effectively taking an increasingly large portion of the federal budget that is completely unaffected by congressional appropriation disputes, as interest payments are contractual obligations and do not require annual negotiations like defense or other discretionary spending.
Placing this trend in a historical context, similar turning points include the post-World War I U.K. fiscal situation being dragged down for decades by massive war debt interest, and Japan and Italy struggling to maintain fiscal sustainability under high debt ratios; however, unlike Japan, which mainly relies on domestic low-interest holders of national debt, U.S. national debt has higher interest rates and a larger proportion of foreign holders, exposing it to greater refinancing and exchange rate risks. The U.S. is currently in the "interest crowding out other expenditures" phase that the CBO has repeatedly warned about for years—the starting point of this phase was the historic moment in 2024 when national debt interest first exceeded the defense budget.
Structurally, this is essentially a redistribution of fiscal structure: once interest payments grow to become one of the largest and fastest-growing items in the budget, and they are rigid expenditures unaffected by political negotiations, any fiscal consolidation efforts will disproportionately pressure discretionary spending like defense and infrastructure, or be forced to touch sensitive mandatory spending reforms like Social Security and Medicare—this is precisely why, in the absence of structural policy shifts (spending cuts, tax increases, or artificially lowering long-term interest rates), interest payments will continue to rise along the CBO's projected path of $16.2 trillion over ten years in a self-reinforcing manner.
ABAB News · Cognitive Law
Interest is the only expense that automatically rises without congressional vote.
Borrowing new to pay old at high interest makes the snowball roll forward by itself.
The first part of the budget to lose flexibility is always the money owed to others.