When the US Treasury confirmed federal debt had surpassed $40 trillion, the news barely registered in America. Yet this fiscal landmark offers a stark lesson for countries as far away as Kenya that enjoy none of Washington’s monetary privileges.
To grasp the scale, $40 trillion equates to roughly $117,000 per person and $297,000 per household, roughly the combined economies of China, Germany, Japan, the UK, and India. The debt grows by about $6.8 billion daily. Since 2017, it has more than doubled, swollen by pandemic spending and structural deficits that successive administrations have failed to address.
Washington now spends roughly $1 trillion annually just to service its debt, more than its entire defence budget. According to the Congressional Budget Office (CBO), net interest costs will exceed $1.7 trillion by 2030, crowding out spending on infrastructure, education, and research. The danger is the “doom loop” – as debt grows, investors demand higher yields on Treasury bonds; higher yields raise borrowing costs, requiring even more borrowing.
Moody’s stripped America of its AAA rating last year, and the IMF has warned that US fiscal policy poses a “growing systemic risk” to the global economy. As the Peter G. Peterson Foundation put it: “We are borrowing from our children to pay for today’s consumption.”
This debt is not one party’s fault. Tax cuts under Bush and Trump account for 37% of the current debt. Spending increases, often pushed by Democrats, account for another 33%, while recession responses from 2008 to COVID-19 explain 28%. Almost 80% stems from bipartisan laws.
In 2001, the federal government ran a surplus, and the CBO projected the debt would be eliminated by 2009. Instead, it climbed from $10 trillion in 2008 to $20 trillion in 2017, then to $30 trillion in 2022, and now $40 trillion just four years later.
This overhang is feeding directly into household budgets. Mortgage rates have hovered near 7% for 30-year fixed loans, making homeownership unattainable for millions of young Americans. The Federal Reserve’s latest survey shows that nearly 40% of adults would struggle to cover a $400 emergency.
The dollar’s reserve-currency status gives the US an “exorbitant privilege,” but that privilege is not limitless. Major foreign holders, including China, Japan, and oil-exporting nations, have been gradually diversifying their reserves. Meanwhile, Washington’s foreign engagements are staggeringly expensive. “We are fighting wars with credit cards,” one former Treasury official told Politico. That is a dangerous game even for the world’s largest economy.
Yet Washington remains paralysed. Politicians are unwilling to raise taxes and risk alienating voters, yet equally reluctant to rein in bloated defence spending. The debt ceiling is repeatedly raised without addressing the underlying decisions. The more likely course is to keep borrowing, piling debt upon debt. As one analyst noted, the monster “was not created overnight, but through decades of political choices that prioritised short-term gains over long-term responsibility.”
The parallels with Kenya are not in scale but in principle. The country’s public debt now stands at KShh12.84 trillion, about 69.5% of GDP, having grown rapidly over the past decade. More alarmingly, debt-service payments consume nearly 70% of government revenue, far above the IMF’s recommended ceiling of 30%. This leaves scant fiscal space for healthcare, education, and infrastructure, the very investments that underpin long-term growth.
Kenya’s situation is in some ways more precarious. The US can issue debt in its own currency, backed by the world’s deepest financial markets and a central bank that acts as lender of last resort. Kenya, by contrast, borrows largely in foreign currency, exposing it to exchange-rate shocks and volatile global interest rates. When the US raises rates, Kenya’s debt-service costs rise in tandem, a classic case of “when America sneezes, the rest of the world catches a cold.”
Both countries have consistently spent beyond their means, financing recurrent expenditure with borrowed money. As the IMF has repeatedly cautioned, Kenya’s revenue base remains too narrow, and its expenditure rigidities too high, to sustain current borrowing levels without severe austerity or further distress.
While the US can afford to debate its fiscal woes for years, “The Economist” recently observed that “the US is not immune to arithmetic; it merely has a longer runway.” That runway is shrinking, and every year of inaction makes the eventual adjustment more painful.
Kenya cannot rely on a reserve currency or unlimited domestic borrowing. Its leaders must therefore treat America’s $40 trillion milestone as a proximate warning. If Kenya fails to expand its tax base, curb waste, and prioritise growth-enhancing expenditure, it will find itself in a debt trap from which there is no easy escape.
The writer is an expert in international relations. The article reflects the author’s opinions and not necessarily the views of KBC.
