America Now Spends More on Interest Than on Its Military

In 1981, Ronald Reagan told the country the national debt might pass a trillion dollars, “a figure that’s literally beyond our comprehension.” On August 18, 2026, the debt passed forty trillion. The number that should get more attention is smaller: in the 2025 fiscal year, the federal government spent about $970 billion on interest, more than the $917 billion it spent on national defense.

When interest passed the military

We use one definition throughout, the Treasury’s Monthly Treasury Statement, budget function 050 (national defense) against function 900 (net interest), for full fiscal years.

Fiscal year	National defense	Net interest
2021	$754.8 billion	$352.3 billion
2023	$820.7 billion	$659.2 billion
2024	$874.0 billion	$881.7 billion
2025	$916.6 billion	$970.4 billion
2026, October to August	$876.2 billion	$1,017.0 billion

The White House budget office’s historical tables go back to 1940, and 2024 is the first year in them where interest was the larger of the two. If you measure with the quarterly national accounts instead, as our live tracker and the historian Niall Ferguson do, the lines touched briefly once before, in early 1998, and fell back.

How it got here

In 2011, Admiral Mike Mullen, then chairman of the Joint Chiefs, said “the single, biggest threat to our national security is our debt.” A year earlier he had predicted interest would cost as much as a year of defense spending by 2012. He was early by about twelve years. Interest rates stayed low for most of the next decade, and even in 2021 interest was well under half of what defense cost.

Then the Fed raised rates in 2022 to fight inflation, and as old debt came due the government borrowed again at the new rates. Interest more than doubled in three years. The Congressional Budget Office describes what happens next in one sentence: “Borrowing to pay for greater interest costs pushes up the net cost of interest further.” Over the first eleven months of this fiscal year, interest came to about half of what the government borrowed.

Former Fed Chair Jerome Powell was careful about it in January: “The U.S. federal budget deficit is uncontroversially on an unsustainable path. The level of debt is not unsustainable… but the path is unsustainable.” Under current law, CBO expects net interest to reach about $2.1 trillion a year by 2036, 4.6% of the economy, which it says would be the highest level since at least 1940. The President’s 2027 budget proposes raising defense enough to put it back above interest; CBO’s baseline, which assumes current law, keeps interest higher every year through 2036.

What Britain did

Ferguson calls the line America crossed “Ferguson’s law”: “any great power that spends more on debt servicing than on defense risks ceasing to be a great power.” He also points out that Britain crossed it and came back. How it came back matters.

After the Second World War, British government debt was around 270% of the economy. Over the next thirty years it fell to about 50%. According to the UK’s Office for Budget Responsibility, the interest rate on that debt was lower than inflation in 24 of those 30 years, so people holding British government bonds were repaid in money that bought less each year. The economists Carmen Reinhart and Belen Sbrancia estimate this “financial repression” wiped out debt worth 3% to 4% of GDP a year in both Britain and the United States. The pound was devalued by about 30% in 1949 and 14% in 1967, and in 1976 Britain borrowed from the IMF.

The ways out

A government in this position has a short list: grow faster than the debt, raise taxes, cut spending, stop paying lenders, or let inflation do some of the work while interest rates stay a little below it. Growth has to beat the interest rate for years, and CBO expects the average rate on the debt to rise from 3.4% now to about 3.9% by 2030. Taxes and cuts are hard arithmetic: before any interest, CBO expects a deficit of about 2.6% of GDP this year. Default is off the table in practice. That leaves the route Britain took, and nobody has to plan it for it to happen. They only have to prefer it to the alternatives.

What the institutions did

Central banks bought more gold in 2022 than in any year on record back to 1950, and more than a thousand tonnes a year in each of the next two years, according to the World Gold Council. Gold pays no interest, and it isn’t a loan to anybody, so nobody can repay it in cheaper money. Since 1997, section 408(m) of the tax code has let an IRA hold qualifying gold bullion, as long as a trustee keeps it in a depository.

Chapters

1. 00:00 Interest now costs more than the military
2. 01:23 A warning that came early
3. 03:08 Borrowing to pay the interest
4. 04:50 A historian's warning
5. 05:34 How Britain got out
6. 06:46 The ways out
7. 08:06 What central banks did
8. 08:49 What you can do

Where every number came from

Every link below was checked on 28 September 2026.

1. Defense and net interest by fiscal year: the Treasury’s Monthly Treasury Statement, Table 9, September statements for 2015 to 2025 and the August 2026 statement.
2. The series back to 1940: OMB Historical Tables, Table 3.1, FY2027 Budget.
3. Projections, the 1940 comparison and the borrowing sentence: CBO, The Budget and Economic Outlook: 2026 to 2036 and the director’s statement.
4. The $40 trillion crossing: Treasury, Debt to the Penny, record date August 18, 2026.
5. Mullen: US Department of Defense, American Forces Press Service, September 21, 2011.
6. Powell: Federal Reserve, press conference transcript, January 28, 2026.
7. Ferguson: Hoover Institution, Ferguson’s Law, February 21, 2025.
8. Britain after 1945: UK Office for Budget Responsibility, post-World War II debt reduction; Reinhart and Sbrancia, The Liquidation of Government Debt, NBER; House of Commons Library, devaluation, 50 years on.
9. Central bank gold: World Gold Council, Gold Demand Trends, full year 2025.
10. Gold in an IRA: 26 U.S. Code 408(m) and Public Law 105-34, section 304.

This page is general education, not investment, tax or legal advice.