The Government Is $40 Trillion in Debt. Should Investors Be Concerned?

The government is $40 trillion in debt. Should I be concerned? If you consistently spend more than you earn, borrow money to cover the difference and then borrow even more to pay that interest, any financial advisor would probably tell you something needed to change. You needed to change some of your behaviors. Maybe create a budget, reduce your spending, increase your income, that's an easy one, or most likely do some combination of all three. And yet the federal government has accumulated more than $40 trillion in debt. It continues to run annual deficits measured in the trillions. And there appears to be little political appetite for either a substantial spending reduction or meaningful tax increases.

So the government's ignoring the same financial principles it expects everyone else to follow. What should investors feel about this? Should we be concerned? Welcome to the Thoughtful Investor, the podcast about investing financial planning, making financial decisions when the future is uncertain. You're listening to the Thoughtful Investor podcast brought to you by Yach Advisors. So in the late 90s, the federal government was enjoying its first ever government surplus. We had more money coming in than going out. Now we're sitting at about $40 trillion in debt, which represents 125% of our gross domestic product. Today, we're gonna make sense of the national debt. We're gonna look at where the $40 trillion came from, why comparing the government to a household is both useful and misleading, and what the government debt could ultimately mean for taxpayers, the economy and investors.

The national debt is a serious issue, but it's important to note when turning a serious issue into a prediction of imminent financial collapse, that's often where analysis becomes entertainment. That's not the goal today. The goal is to help inform so that you can make a better financial decision. So how did we accumulate $40 trillion in debt? The federal government collects revenue primarily through individual income taxes, payroll taxes, corporate taxes and other smaller sources. It then spends money on programs such as social security, Medicare, Medicaid, national defense, federal agencies, infrastructure and interest on previously issued debt. When the government spends more than it collects in a particular year, the difference is called the federal deficit.

To cover that deficit, the treasury issues bills, notes and bonds. The national debt is essentially the accumulation of those annual deficits, along with interest required to finance them. Some of the debt is held by the public, individuals, banks, pensions, mutual funds, foreign governments and the federal reserve. Another portion is held by the government itself, primarily through federal trust funds. Together, those obligations now exceed $40 trillion. It didn't happen because of one president, one political party or a spending program. It accumulated over decades as elected officials repeatedly approved combinations of spending and taxation that did not balance. And they kept pushing the debt ceiling forward. So let me tackle a pretty obvious misconception.

This is probably the first thing I thought when I thought about government debt. The government is not a household. The household comparison is attractive because it makes a large subject feel familiar. Families have income, expenses, assets and debts. If the family continues to spend more than it earns, eventually the lender stop lending. But the United States government has powers that no household possesses. It can levy taxes across one of the world's economies, issue debt and currency it controls and continue operating without a natural lifespan or retirement date. And even though it could have a drastic impact on inflation, it could just simply print money. That's something you and I can't do, at least not legally.

Treasury securities also serve a much larger purpose than simply covering government overspending. They provide financial institutions with liquid assets, establish benchmark interest rates, support lending markets, give governments and investors around the world a place to hold reserves. The federal government therefore does not eliminate its debt or repay every treasury bond permanently. As existing bonds mature, it can issue new bonds to replace them. That means a $40 trillion government debt is not the same thing as you and I holding a $40 trillion credit card bill where we have to pay it off next month. The difference does not mean that it doesn't come without consequence. Now, up until now, you might be thinking, well, Bryan, well, are you saying debt's a good thing?

Not necessarily saying it's a bad thing, but too much of it is a really, really alarming cycle. This is where the discussion often splits into two extremes. One side talks about the United States exactly like a household headed towards bankruptcy. The other argues that because the government issues its own currency, its debt never really matters. The truth lies between those positions. The federal government is unlikely to run out of dollars, but dollars are not the same thing as real economic resources. Creating more money does not create more workers, factories, energy, homes, medical care, or food. Borrowing also requires the government to pay interest. In 2026, the Congressional Budget Office projects a federal deficit of approximately $1.9 trillion and a net interest expense of roughly $1 trillion.

That interest doesn't build a bridge, fund medical research, or provide social security benefits. It's the cost of decisions that were already made. As more debts issued and older debt is refinanced at higher rates, interest consumes more of the federal budget and leaves lawmakers with fewer attractive choices. This is the snowball effect. So what does a debt problem actually look like? People often imagine a debt crisis as one dramatic event. The United States defaults, the dollar's worthless, the entire financial system collapses. Those outcomes cannot be dismissed as impossible, but they're not the only or necessarily most likely ways that excessive debt creates problems. The consequences may arrive gradually through higher taxes, reduced government benefits, persistent inflation, elevated interest rates, weaker economic growth, or less flexibility to respond to recessions, wars, and other emergencies.

I think those last three are really important to understand. The greatest danger may not be the current size of the debt by itself. It may be the direction of travel. Debt becomes harder to manage when it grows persistently faster than the economy supporting it. The Congressional Budget Office projects that debt held by the public will rise from approximately 101% of gross domestic product in 2026 to 120% by 2036. At some point, investors may demand higher interest rates to lend the government money. Those higher rates increase interest expense, which requires additional borrowing, which can lead to higher interest costs. So the major concern is this. The current trajectory that we're in becomes increasingly difficult to change and reel in.

It snowballs, it compounds. So when the government tells us, well, we need to live within our means, we don't need to buy as much steak. We need to budget. It's kind of gaslighting us into thinking we're the problem. There's things we could all change about our budget. There's ways we could all spend better. But there is a degree of hypocrisy in telling households to live within their means and to pay for their debt. The debt collects, but the hypocrisy doesn't belong exclusively to politicians. As voters, we often want the benefit government provides, object when those benefits are reduced, resist higher taxes, and express outrage about the debt created by the difference.

So what does this mean for investors? For investors, the national debt creates real risks. Greater government borrowing may place upward pressure on interest rates, compete with private borrowers for capital, contribute to inflation if fiscal and monetary policy becomes too accommodative to the higher spending and debt. Higher treasury yields can affect mortgage rates, corporate borrowing costs, bond prices, the valuations investors are willing to pay for stocks. Fiscal pressure could lead to higher future taxes or changes to programs that are central to many retirement plans. But recognizing those risks doesn't really produce an obvious investment decision. Investors have warned about the national debt for decades, American companies, the US dollar has continued to play central roles in the global financial system.

Someone can be correct that the trajectory is unsustainable and still make a terrible investment decision by assuming the reckoning must happen immediately. A concern's not a forecast, right? And the forecast is not an investment strategy. So what should the investor do? I would not respond to the national debt by selling every American investment, putting everything into gold, cryptocurrency, cash, building a portfolio around one predicted economic collapse. Those decisions replace a diversified financial plan with a highly concentrated bet on one particular version of the future. Even if the underlying concern is legitimate, the timing and consequences may be very different from what we imagine. The future is not guaranteed, and we shouldn't make wild bets in either direction.

A more thoughtful response is to build a portfolio capable of surviving multiple outcomes. That may include owning a productive business, maintaining appropriate exposure to high-quality bonds, holding sufficient liquidity, diversifying internationally, managing taxes, avoiding a financial plan that depends entirely on interest rates, inflation, or tax policy remaining where they are today. The purpose of diversification is not to identify which asset class wins, year to year, it's to avoid putting too much eggs in one basket and getting to the point where your asset class is underperforming the rest. So should you be concerned that the federal government is more than $40 trillion in debt? Yes, I guess we can cut to the music now.

Hold on. United States has the ability to carry more debt than a household, a company, or a smaller country. That doesn't make borrowing free. Rising interest expenses, persistent deficits, and debt growing faster than the economy are legitimate long-term concerns. But the concern is not the same thing as panic. The national debt is unlikely to end with America receiving a foreclosure notice. Its costs are more likely to emerge through the taxes we pay, the purchasing power of our money, the interest rates we face, the benefits government can provide, and the choices future generations are forced to make. The devaluing of the US dollar is a tax on the people. Inflation is a tax on the people.

The thoughtful investor acknowledges those risks without pretending to know exactly what to do or turning a complicated fiscal problem into a single irreversible investment bet. So what can investors do to hedge the bets a bit? Investors concerned about rising government debt and inflation often look towards assets such as tips, treasury, inflation, protected securities, short-term bonds, commodities, gold, real estate, infrastructure, stocks, shares of profitable companies with enough pricing power to pass higher cost on to the customers. International stocks and bonds may also reduce dependence on a single country, currency, or fiscal system. But none of those investments provide a perfect protection. Gold produces no cash flow. Commodities can be extremely volatile.

Real estate is sensitive to interest rates, and stocks can fall whenever inflation is elevated. The objective shouldn't be to find one asset that perfectly hedges, but to build a diversified portfolio with several potential sources of resilience across different economic environments. It's a long-winded way to say diversify. You always want to have your portfolio plan for the future, but plan for you being wrong, too. It's okay to be wrong. But diversification is key in situations like this. If you're approaching retirement, would like help building a financial plan that counts for inflation, taxes, market volatility, and an uncertain economic future, you can learn more at yachadvisors.com, that's y-a-c-h, advisors.com, or send us a message.

I'm Bryan Yach. This has been The Thoughtful Investor. Thank you for listening. The Thoughtful Investor is brought to you by Yach Advisors. Copyright 2026, All Rights Reserved. Yach Advisors' registered branch office is located at 2241 East Continental Boulevard next week, 130 South Lake, Texas, 76092. Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss. Security is offered through Cetera Wealth Services, LLC. Member FINRA, S-I-P-C. Advisory services offered through Cetera Investment Advisers, LLC. A registered investment advisor. Cetera is under separate ownership from any other named entity.