Treasury data confirmed last night that U.S. national debt now stands at $40 trillion, with the government now expected to spend more than $1 trillion in interest on the debt in the fiscal year of 2026.
Debt hawks have been warning policymakers for some time that the nation’s fiscal path is unsustainable, and the issue is increasingly rising up voters’ agendas in the run-up to midterms later this year.
A new report from The Conference Board throws the issue into a new light for consumers: The potential impact on their personal finances if policymakers continue borrowing at the current pace.
The Conference Board modeled a series of scenarios: Baseline (using Congressional Budget Office data based on current trends), a good-case (in which federal deficits are cut roughly in half, in line with current targeting proposals), and a bad-case (in which deficit levels grow to 9% of GDP rather than the current 6% to 7%).
The Conference Board also modeled two financial crisis scenarios—a default and an interest rate shock—which economists like Bridgewater Associates founder Ray Dalio have long been concerned about.
Even dismissing the most extreme negative outcomes, consumers still stand to lose thousands if policymakers don’t act to reduce spending.
For example, the report models a family saving to buy a $600,000 house in either 5 or 10 years, with a 20% down payment and a 30-year fixed mortgage. The report does not provide a methodology for calculating rates offered in 2031 and 2036, but concludes that total payments over three decades for a home bought in 2031 come to $2.89m, and $2.8m in 2036.
These are the payments in the baseline scenario. However, under the good-case scenario, in which the government cuts its borrowing and interest is lower, this figure is reduced by $53,000 for buyers in 2031, or by more than $100,000 for buyers in 2036.
Consumers’ spending is closely linked to the debt picture, Michael Peterson of the think tank the Peterson Institute said in a conversation with Fortune this week: “When the U.S. borrows this much … that drives up interest rates, which then increases household expenses because your mortgage goes up, your car loan, your credit card bills, and inflation more generally. So [we] may not get a bill at the end of the month for national debt, but [we] are paying that bill both in the form of taxes as well as an inflated level of expenses.”
Peterson also said programs like Social Security and Medicare are running out of cash, placing further onus on government budgets in the near future. The trust fund for Social Security is due to run dry in a little under eight years, and Medicare in a little under seven years, according to estimates by the Committee for a Responsible Federal Budget.
The Conference Board added that when those coffers run dry, the Treasury will need to decide whether to backfill the expenditure from its general fund by $2.7 trillion, per the CBO—a further burden on its budget.
In the event payouts from these trusts are cut, workers approaching retirement face a hole in their expected earnings. The Conference Board reports the reduction in monthly benefits in 2032 would be $173. However, by 2033, when the trust runs dry, this increases to $705 a month.
In 2034, it represents a $721 hole, and by 2036, a $754 shortfall compared to current expectations.
The worst-case scenarios
The above scenarios are not based on a more pessimistic scenario in which the U.S. government defaults or a financial crisis ensues. Skeptics of this outcome have some grounds: The U.S. economy has the means to lower the value of its debt thanks to the Federal Reserve. Quantitative easing, although inflationary, would avoid the extreme fallout of a default.
Likewise, while Treasury yields are elevated at present, this is only in part due to concerns over fiscal trajectories. They also reflect long-term inflation expectations and traders’ guesses on whether the Federal Reserve will increase rates.
However, should either of these realities come to pass, the threat to households is severe. Total payments for the aforementioned home bought in 2031 rocket to more than $3 million in the case of a default, and over $3.6 million in the case of an extreme interest rate shock, per the report.
The report concludes: “Neglecting the problem will not make it better and worsening our deficits will only increase the negative impacts of the debt on the rest of the economy … Addressing the national debt deserves to be a high priority for both voters and lawmakers, to benefit all Americans.”
