Two headlines stood out this morning. The yield on 20-year US Treasuries has pushed past 5.4%, total federal debt has crossed $40 trillion, annual interest costs have topped $1 trillion, and interest now absorbs about one-fifth of federal revenue. The second: Blackstone’s QTS Realty Trust completed a $3.9 billion investment-grade bond issue at 7.228% to finance a Microsoft data center in Georgia.
The pace of federal debt growth is hard to reconcile with any normal budgeting process. The debt ceiling keeps being revised upward, and there is no obvious ceiling in sight. Debt has already passed $40 trillion, and at current deficit levels it will likely grow by roughly $2 trillion a year. Even if principal were never repaid, the interest alone would be a heavy burden. I had an AI assistant run a rough projection: if all federal debt maturing within five years were refinanced at 5.4%, the federal interest bill five years out would reach $1.329 trillion, about a quarter of federal revenue. If the entire stock of debt were eventually refinanced at 5.4% with no further growth in principal, annual interest would hit $2.16 trillion, more than 40% of current federal revenue. But Washington has no plan to balance the budget, so continued debt growth looks inevitable. Can creditors realistically expect repayment? Or will they end up collecting the interest while someone else has designs on the principal?
This has been a wild year for AI. Nvidia is reportedly preparing to borrow $500 billion to build giant data centers and is providing guarantee financing to several downstream customers. If it borrows at Microsoft’s 7.228% rate, what return would a completed data center need to generate to meet expectations? Add a risk premium, and what margin is required? Is that even achievable?
I am skeptical of the circular investment logic in AI—companies financing each other, each transaction making the next round look stronger, the whole thing taking off like a rocket. If the music stops, Microsoft, Amazon, and others with real base businesses may be able to absorb losses. Pure compute providers could go bankrupt, and a company like Nvidia could be acquired out of bankruptcy. That estimate is based on Nvidia providing $700-1000 billion of 30% residual-value gap guarantees, with data centers and compute cards recovering only 25% in a liquidation after the AI circular-investment story breaks. If it reaches that point, creditors would take huge losses, with most of principal potentially unrecoverable. Lucent during the internet bubble is the real-world template.
Both federal debt and corporate debt are growing fast, and rates are rising at the same time. The federal government has a printing press, and dollar holders around the world collectively support its debt bubble. Nvidia and others have no printing press, so their default risk is far higher than that of US Treasuries.
Here is a snapshot of US debt by sector, based on the latest Federal Reserve Z.1 financial accounts (2026 Q1) and Treasury data.
Federal government debt
Total public debt outstanding has crossed $40 trillion, including intragovernmental holdings such as Social Security and Medicare trust funds. Debt held by the public is about $34.5 trillion on a Z.1 basis—the portion actually circulating in markets. The commonly cited '$40 trillion' figure usually refers to total public debt, including intergovernmental borrowing.
State and local government debt
About $3.73 trillion (2026 Q1), mainly for infrastructure, education, and public services. Most of it is municipal bonds, many of which enjoy federal tax exemption on interest.
Nonfinancial corporate debt
About $22.59 trillion (2026 Q1). Corporate bonds account for about $9.02 trillion; bank loans, commercial paper, and other instruments make up about $13.57 trillion. Investment-grade bonds dominate, with high-yield debt roughly 15-20%.
Household debt
About $21.07 trillion (2026 Q1). Mortgages are about $13.77 trillion (65%), consumer credit about $5.11 trillion (credit cards, auto loans), and student loans about $1.84 trillion.
Total US nonfinancial debt
Adding the four sectors: $40 trillion (total federal) + $3.73 trillion (state and local) + $22.59 trillion (corporate) + $21.07 trillion (household) ≈ $87.39 trillion. Using only publicly held Treasuries and excluding intragovernmental debt, total nonfinancial debt is about $81.89 trillion.
Refinancing scenario: what if five-year maturities reset to 5.4%?
Scenario: all existing debt maturing within five years is refinanced at 5.4%; debt maturing after five years keeps its original coupon; no new deficits; no TIPS inflation adjustment; only interest on existing principal. The figures are approximate market consensus, not a loan-by-loan ledger.
<table> <thead> <tr> <th>Sector</th> <th>Total principal ($T)</th> <th>Maturing within 5 years ($T)</th> <th>Maturing after 5 years ($T)</th> <th>Current weighted average original coupon</th> <th>Original weighted coupon on 5-year-plus maturities</th> </tr> </thead> <tbody> <tr> <td>Federal Treasuries (publicly held, $34.5T, excluding intragovernmental)</td> <td>34.50</td> <td>12.10</td> <td>22.40</td> <td>3.41%</td> <td>3.02%</td> </tr> <tr> <td>State + local municipal bonds</td> <td>3.73</td> <td>1.24</td> <td>2.49</td> <td>2.80%</td> <td>2.45%</td> </tr> <tr> <td>Nonfinancial corporate debt</td> <td>22.59</td> <td>8.36</td> <td>14.23</td> <td>4.10%</td> <td>3.75%</td> </tr> <tr> <td>Household debt</td> <td>21.07</td> <td>4.00</td> <td>17.07</td> <td>3.75%</td> <td>3.48%</td> </tr> </tbody> </table>Notes on maturities: for marketable federal Treasuries, roughly 35% of publicly held debt matures within five years, with heavy rolling of short-term bills; the remaining $22.4 trillion is 7-30 year bonds mostly issued during the low-rate 2020-2022 period, so the original coupon is low. State and local munis have an average duration of about 16 years, with only about 33% of principal maturing within five years; many are 20-30 year infrastructure bonds with low coupons and tax exemption. Nonfinancial corporate debt—bonds plus loans—has about 37% maturing within five years; many 2020-2021 low-coupon corporate bonds mature later. Household debt is dominated by 30-year fixed mortgages ($13.77 trillion), most of which do not mature within five years; auto loans, credit cards, and some consumer loans total about $4 trillion of principal to be refinanced; the mortgage stock carries original rates mostly in the 2.8-4.2% range, and the portion maturing after five years keeps its old rate.
Interest calculation logic: total interest = maturing within five years × 5.4% + maturing after five years × original weighted rate.
Federal Treasuries (publicly held, $34.5T): - Refinanced within five years: 12.10 × 5.4% = 0.653 - Kept at old rate after five years: 22.40 × 3.02% = 0.676 - Total annual federal interest = $1.329 trillion
For comparison, current net federal interest is about $0.97 trillion; the scenario raises it to about $1.33 trillion. The increase comes from refinancing $12.1 trillion of debt from a weighted average of about 3.41% to 5.4%.
State and local government debt ($3.73T): - Refinanced within five years: 1.24 × 5.4% = 0.067 - Old rate after five years: 2.49 × 2.45% = 0.061 - Total annual interest = $0.128 trillion
Nonfinancial corporate debt ($22.59T): - Refinanced within five years: 8.36 × 5.4% = 0.451 - Old rate after five years: 14.23 × 3.75% = 0.534 - Total annual interest = $0.985 trillion
Household debt ($21.07T): - Refinanced within five years: 4.00 × 5.4% = 0.216 - Old rate after five years: 17.07 × 3.48% = 0.594 - Total annual interest = $0.810 trillion
Summary:
<table> <thead> <tr> <th>Debt sector</th> <th>Annual interest ($T)</th> </tr> </thead> <tbody> <tr> <td>Federal Treasuries (publicly held)</td> <td>1.329</td> </tr> <tr> <td>State and local government debt</td> <td>0.128</td> </tr> <tr> <td>Nonfinancial corporate debt</td> <td>0.985</td> </tr> <tr> <td>Household debt</td> <td>0.810</td> </tr> <tr> <td>Total interest, four nonfinancial sectors</td> <td>3.252</td> </tr> </tbody> </table>If using the $40 trillion total federal debt including intragovernmental accounts, federal interest rises to $1.54 trillion and total interest for the four sectors is about $3.46 trillion a year. These figures do not include future deficits, new corporate borrowing, or new household loans; adding those would push total interest higher.
US tax revenue, fiscal 2025
Fiscal year runs October 1, 2024 to September 30, 2025. Two measures matter: total fiscal revenue (taxes + fees + other) and pure tax revenue. State and local figures include all 50 states plus counties and cities, excluding federal transfers to avoid double counting.
Federal government: - Total federal revenue (taxes, customs duties, fees, Federal Reserve earnings): $5.235 trillion - Pure tax revenue: $4.98 trillion (individual income tax + payroll tax + corporate income tax + excise tax + customs duties + estate tax, etc.) - Total outlays: $7.010 trillion; deficit: $1.775 trillion - Net federal interest (actual for the fiscal year): $0.98 trillion
Federal revenue composition: individual income tax about $2.64 trillion; social insurance payroll tax $1.75 trillion; corporate income tax $0.43 trillion; customs duties $0.21 trillion; other minor taxes $0.20 trillion.
State and local government combined (sum of states, excluding federal grants): Federal transfers to state and local governments are about $0.97 trillion, which is federal spending and is not counted as state/local own-source tax revenue to avoid double counting. - State and local own-source total revenue (taxes + public utility fees): $4.88 trillion - State and local pure tax revenue: $2.14 trillion - Property tax: $0.81 trillion (mostly local) - Sales and excise tax: $0.60 trillion - State individual income tax: $0.54 trillion - State corporate income tax: $0.19 trillion
Summary:
<table> <thead> <tr> <th>Item</th> <th>Amount ($T, fiscal 2025)</th> </tr> </thead> <tbody> <tr> <td>Federal total revenue</td> <td>5.235</td> </tr> <tr> <td>Federal pure tax revenue</td> <td>4.98</td> </tr> <tr> <td>State + local own-source total revenue</td> <td>4.88</td> </tr> <tr> <td>State + local pure tax revenue</td> <td>2.14</td> </tr> <tr> <td>All-government pure tax revenue (federal + state/local)</td> <td>7.12</td> </tr> <tr> <td>All-government total revenue (excluding transfer duplication)</td> <td>10.11</td> </tr> </tbody> </table>Fiscal pressure check
Using the earlier scenario—after five years, only debt maturing within five years is refinanced at 5.4%, and the rest keeps its original coupon: - Federal Treasury annual interest: $1.329 trillion (publicly held basis) - State and local government annual interest: $0.128 trillion - Total government interest: $1.457 trillion a year
Pressure ratios: 1. Federal interest ÷ federal total revenue = 1.329 ÷ 5.235 ≈ 25.4%. In other words, every $100 of federal revenue would send $25.4 to Treasury interest. The actual 2025 ratio was 0.98 ÷ 5.235 ≈ 18.7%. 2. State and local interest ÷ state/local own-source total revenue = 0.128 ÷ 4.88 ≈ 2.62%. Municipal debt has long duration, most of it is not refinanced, and the interest pressure rises less. 3. Total government interest (federal + state/local) ÷ all-government total revenue = 1.457 ÷ 10.11 ≈ 14.4%.
Note that corporate and household interest is borne by the private sector and is not paid out of government tax revenue. Only federal Treasury interest and state/local municipal interest are government fiscal obligations.