'Trust Doesn't Collapse Overnight': Experts Warn US Debt Is Now Accelerating America's Rivalry With China

The United States is on course to borrow more than £1.57 trillion ($2 trillion) in a single fiscal year, and those responsible for managing it are running out of polite language. New figures released by the US Treasury on 7 May 2026, in its quarterly refunding presentation to the Treasury Borrowing Advisory Committee (TBAC), show the Office of Management and Budget (OMB) now projects the current fiscal year deficit at £1.62 trillion ($2.06 trillion).

That is more than £130 billion ($166 billion) in new debt every month. The projection is higher than the Congressional Budget Office's February estimate of £1.49 trillion ($1.9 trillion), drawing an urgent response from economists and geopolitical strategists who see in the figures something far larger than a fiscal problem.

A Deficit Twice the Size of Washington's Own Target

The scale of this year's borrowing is not merely large in absolute terms. By Washington's own emerging standard, it is roughly twice what it should be.

A bipartisan coalition of policymakers has coalesced around a 3% deficit-to-GDP target as a benchmark for fiscal responsibility. The current OMB deficit projection of £1.62 trillion ($2.06 trillion) represents more than 6% of GDP, a figure Maya MacGuineas, president of the Committee for a Responsible Federal Budget, called 'beyond scary.'

'$2 trillion deficits used to be unheard of, and then they only occurred during major recessions,' MacGuineas said. 'Markets will only tolerate our unsustainable borrowing for so long; the risk of a fiscal crisis gets higher as the days pass. We need deficit reduction urgently.' She added that the OMB figure demonstrated 'just how far we have to go,' noting that reaching the 3% target by 2036 would require roughly £7.87 trillion ($10 trillion) in deficit reduction over the next decade.

The fiscal year ends on 30 September 2026. From October, the situation is projected to worsen: the OMB puts the FY2027 deficit at £1.70 trillion ($2.17 trillion), or about £142 billion ($181 billion) per month. The national debt, at £30.6 trillion ($38.91 trillion) according to live Treasury data, is approaching £30.7 trillion ($39 trillion). It has not been below 100% of GDP since 2025.

Interest Payments Rival Defence and Education Spending

The cost of carrying that debt is, on its own, reshaping how the federal government spends money. The CBO's Budget and Economic Outlook projects net interest payments at £786 billion ($1.0 trillion) for fiscal year 2026, a 7% increase on the year before and a new all-time high in dollar terms. CBO Director Phillip Swagel confirmed in his director's statement that 'net outlays for interest go from $1.0 trillion in 2026 to $2.1 trillion in 2036' and that 'the fiscal trajectory is not sustainable.'

In the first six months of the current fiscal year alone, October 2025 to March 2026, the Treasury paid out nearly £416 billion ($530 billion) in interest charges. That translates to more than £69 billion ($88 billion) a month, or more than £17 billion ($22 billion) every week.

According to preliminary CBO estimates, those service payments are running roughly equal to the combined spend on both the Department of Defence and the Department of Education for the same period.

The longer-term picture is more troubling still. The CBO projects interest costs will exceed Medicare spending by 2028 and surpass all defence and non-defence discretionary spending by 2038. By 2056, the American Action Forum calculates, those payments will hit £5.18 trillion ($6.6 trillion) annually, more than six times their current level.

Debt Levels Erode US Competitiveness Versus China

Frederick Kempe, president and chief executive of the non-partisan Atlantic Council think tank, framed the debt question as inseparable from geopolitical competition. In an Inflection Points column published 6 May 2026, Kempe wrote, 'Trust doesn't collapse overnight. It slips incrementally until the terms on which the United States borrows, invests, and leads begin to change.'

He continued, 'This debate still strikes most Americans as abstract; it is anything but. Higher debt, if mismanaged, means higher interest rates on mortgages and business loans. It can shift resources away from investments in our national future toward paying for the past at a time when the global competition with China is accelerating.' Kempe also invoked what scholars call Ferguson's Law, drawn from the writings of philosopher Adam Ferguson, which holds that any great power spending more on debt service than on defence risks losing its status as a great power.

The CBO's own baseline projects debt held by the public climbing from 101% of GDP now to 120% of GDP by 2036, well beyond the previous post-war record of 106% set in 1946. For that year, at least, the United States had a world war victory to justify the figure. Kempe notes that 1946's recovery came not through austerity but through economic growth that outpaced the debt. Replicating that outcome in a more contested world, with US predictability already under strain, represents a qualitatively different challenge.

Structural Gap Between Revenue and Spending

The root of the problem is not a single policy or presidency but a structural imbalance that has deepened over decades. Under the CBO's current ten-year baseline, the federal government will spend £69.3 trillion ($88 trillion) between 2026 and 2035 while collecting just £51.2 trillion ($65 trillion) in revenue, a gap of £18.1 trillion ($23 trillion). That disparity drives the accumulation of interest costs that are themselves now growing faster than any other budget category, at a projected 106% over the decade.

MacGuineas has noted that the window to avoid a fiscal crisis is not indefinite. 'As policymakers and thought leaders are increasingly gravitating toward the idea that we need to put deficits on track towards 3% of GDP,' she said, 'today's news shows just how far we have to go. A $2 trillion deficit is more than 6% of GDP, about twice the 3% target, and things are getting worse, not better.' The CRFB's own August 2025 baseline projects that even under current tariff revenues, debt will reach 120% of GDP by 2035, with an alternative scenario pushing that figure to 134% if tariff rulings go against the administration.

A number on a Treasury spreadsheet has never toppled a superpower, but the conditions it creates, higher borrowing costs, reduced investment capacity and a slow erosion of the institutional trust that underpins dollar dominance, have a habit of arriving all at once.