US Government Debt at $40 Trillion: What It Means for New Zealand
Pita’s perspective…
On 19 August 2026, the United States government debt moved through US$40 trillion. A milestone of sorts.
Numbers that big tend to slide straight past us, so Pita Alexander has put the world's largest government debt into New Zealand terms: per person, per second, and against our own government debt. He also looks at what rising US bond yields could mean for interest rates, mortgages and farm lending here at home, and offers a few frank thoughts on what New Zealand should (and shouldn't) learn from the Americans.
What does US$40 trillion actually look like?
In American dollars: US$40,000,000,000,000
In New Zealand dollars (using US$1 = NZ$1.77): NZ$70,800,000,000,000
For some perspective on size:
Population of the United States in 2026: 349.3 million
Population of New Zealand in 2026: 5.3 million
Hence the United States has a population 66 times bigger than New Zealand.
But the USA debt of US$40.047 trillion (as at 30 August 2026), converted to New Zealand dollars, is some 318 times the gross New Zealand government debt (NZ$70.8 trillion divided by NZ$222.5 billion).
How fast has US debt been growing?
Twenty-six years ago, in 2000, total USA debt was US$5.67 trillion, or NZ$9.52 trillion.
This suggests that the USA total debt has increased by an average compound rate of 7.805% per year since 2000. If the debt kept increasing at this rate, it would double every 9.22 years, which is exactly what it has done between 2016 and 2026.
Based on the last four years, US debt is rising by:
US$90,000 per second
US$7.776 billion per day
Debt per person: the United States vs New Zealand
United States (June 2026): US$40.047 trillion divided by 349.3 million equals US$114,649, or NZ$192,384 per person.
New Zealand (June 2026): NZ$222.5 billion divided by 5,361,300 equals NZ$41,501 per person.
Debt to GDP: the other half of the story
The gross debt of a country is only half the story. The other half is that country's gross domestic product (GDP). This ratio immediately provides a picture of a country's ability to survive.
As of 2026:
United States debt to GDP ratio: 126%
New Zealand gross debt to GDP ratio: 49.2%
Other countries with high debt to GDP ratios (April 2026)
Japan: 204%
Italy: 138%
USA: 126%
France: 118%
Canada: 111%
UK: 104%
EU average: 88%
The countries with the largest government debts
It is interesting to look at the countries with the largest debts. The data is from the IMF in 2026:
USA: US$40.7 trillion
China: US$22.3 trillion
Japan: US$8.9 trillion
France: US$4.3 trillion
UK: US$4.1 trillion
Italy: US$3.8 trillion
Germany: US$3.5 trillion
India: US$3.5 trillion
Canada: US$2.8 trillion
Brazil: US$2.5 trillion
106 years of US debt history
Adjusted for inflation to the 2025 year, the USA debt history has been:
1920: US$0.38 trillion
1930: US$0.31 trillion
1940: US$0.99 trillion
1950: US$3.44 trillion
1960: US$3.11 trillion
1970: US$3.08 trillion
1980: US$3.55 trillion
1990: US$7.96 trillion
2000: US$10.61 trillion
2010: US$20.02 trillion
2020: US$33.52 trillion
2025: US$37.64 trillion
2026: US$40.70 trillion
This schedule represents 106 years, a compound annual increase of 4.51%.
Spending more than it earns, year after year
Estimates for the year ending 30 September 2026:
Gross US government revenue: $5.6 trillion
Less overall government expenditure: $7.4 trillion
Current year government deficit: ($1.8 trillion), or $4.9 billion per day
Since 2000, the US government has had 25 annual deficits, and only one surplus.
The debt ceiling, the interest bill and a broken promise
The USA's present statutory debt limit (so called) is $41.1 trillion. This is referred to as the debt ceiling, and it will be reached in the 2027 year. The American Congress then has to vote to increase the debt ceiling, which it has done 78 times since 1960.
In his first term campaign in 2016, Mr Trump advised that he would eliminate the USA government debt within eight years. This debt has actually doubled since he first took office.
The USA government has a formal balance date of 30 September each year. For the year ending 30 September 2026, it is anticipated that the USA government will pay $1.039 trillion of loan interest, which is $3.24 billion per day. The firming of interest rates around the world is something that worries the USA government, and it shows up in their bond market debt.
How does the USA get away with such a high debt?
It is the world's dominant reserve currency.
It is viewed as the safest asset in the world.
It has the power to print money.
The USA Treasury has an unbroken record of always paying its bills on time.
Perhaps also speaking English helps.
Who holds US government debt?
Foreign holders of USA debt, in US dollars, as at August 2026:
Japan: $1.12 trillion
UK: $0.94 trillion
China: $0.63 trillion
Belgium: $0.48 trillion
Canada: $0.46 trillion
Cayman Islands: $0.45 trillion
Luxembourg: $0.43 trillion
France: $0.39 trillion
Ireland: $0.35 trillion
Taiwan: $0.30 trillion
Switzerland: $0.28 trillion
Singapore: $0.28 trillion
Hong Kong: $0.26 trillion
Norway: $0.20 trillion
India: $0.19 trillion
Brazil: $0.17 trillion
Saudi Arabia: $0.14 trillion
South Korea: $0.14 trillion
United Arab Emirates: $0.12 trillion
Israel: $0.11 trillion
All other countries combined: $1.80 trillion
How that splits overall:
Total foreign holdings: $9.30 trillion (22.85%)
Debt held by domestic USA holders: $31.40 trillion (77.15%)
Estimated total as at August 2026: $40.7 trillion (100%)
Pita's summary: where is this all heading?
Will US debt keep rising? It is hard, for various reasons, to see debt in the United States not increasing steadily. Wars, inflation, interest payments, deficits and weak financial management will all lead down this pathway.
What will bring things to a head? Probably the bond market — the so-called Bond Vigilantes. They have expressed unhappiness very recently with an increase in bond market interest rates.
Is the USA living beyond its means? Yes. There is no doubt about this.
Who else is living beyond their income? Other countries presently in the same boat include France, Egypt, Italy, the UK, Japan and Canada.
Does US debt affect other countries badly? Yes. In time, and in several very clear ways, the effect could be worldwide.
In accounting terms, is the USA government insolvent? Yes, without doubt, but it is impossible to put a value on the issues raised above.
What is most likely to happen?
The Bond Vigilantes stand up and want a higher interest rate on their loans.
Politicians stand up much more to deal with reality.
A recession around the world.
A period of severe austerity.
France over the next 12 months will be a guide, as France is presently in an economic shambles.
Like a number of other countries (New Zealand included), the government in the United States needs an increase in its annual income, coupled with a decrease in its annual expenditure.
US bond yields are climbing
USA bond market interest rate (yield) changes over the last 12 months:
30-year bond
Interest rate as at 24 October 2025: 4.7603%
Interest rate as at 24 September 2026: 5.5010%
Increase over the 12 months: 0.7401
Percentage increase over the 12 months: 15.5600%
10-year bond
Interest rate as at 24 October 2025: 4.1900%
Interest rate as at 24 September 2026: 5.2230%
Increase over the 12 months: 1.0330
Percentage increase over the 12 months: 24.65%
What this tells us:
USA bond investors are tending to move towards the shorter-term ten-year stock, which indicates they want to keep their bonds shorter term because they are a little concerned.
The US Federal Reserve has recently been purchasing some of the 30-year bonds to hold their value and firm up the market a little, but in the main this has not worked.
The American 30-year fixed rate mortgage
The USA has had 30-year fixed rate interest loans for 92 years, since approximately 1934. The interest rate is unchanged for the full 30 years. Only France and Denmark presently also have these 30-year loans.
Every individual in America had (and in the main still has) a credit score, which is very important for borrowing.
On 7 January 2021, the 30-year fixed rate loan with a sound credit score plus a few other features was 2.65%.
As at 24 September 2026, this rate is 7.45%.
What would that look like on a New Zealand first home?
Take a New Zealand first home 30-year mortgage of, say, $555,000. Interest and principal payments per year would be:
At 2.65%: $26,832
At 7.45%: $46,364
Fixed rate lending from a New Zealand perspective
The lowest bank fixed rate loans, several years ago, were a 5-year fixed rate at 2.99%. It was a no-brainer to take these loans up, but there were several lower interest rates available at shorter terms.
As late as September 2026, a five-year housing rate may be at 5.5%, but may be a little higher for, say, farm loans.
It is a good question as to what a New Zealand investor would consider worthwhile for a 30-year fixed rate in a New Zealand situation. Perhaps 6%, on the basis that if rates went up the investor would be happy, and if they went down the investor could look at refinancing.
Home ownership and student loans: the US vs New Zealand
Home ownership: 65% of American households currently own their house, with 35% renting. This is very similar to New Zealand.
Student loans: The average American student loan debt in September 2026 is US$43,521. At the current exchange rate of US$1 = NZ$1.77, that becomes NZ$77,032. On top of that, an American student loan (with a few other minor differences) is interest bearing at between 6.52% and 8.07%. My point being that these loans have quite an effect on first home purchases.
The New Zealand median student loan balance in September 2026 is $18,301. It is repayable but, in the main, interest free.
New Zealand's own government debt
The current New Zealand bond market debt (NZ government stock) is $212 billion. There is also other debt of $10.5 billion, bringing the total in September 2026 to $222.5 billion.
New Zealand 1-year bonds are currently paying around 3.12%, with 10-year bonds paying around 4.89%.
Why NZ Super matters more than we think
It is a matter of opinion, but I feel that without New Zealand national superannuation ($51,000 per year gross per couple, and around $43,000 per year net of tax), in the not-too-distant future:
Around 85% of New Zealand households (out of total households of, say, 2,072,000) — that is around 1,760,000 households — would eventually not survive, in cold-blooded financial terms, without it.
The remaining 15%, around 312,000 households, would survive in financial terms.
Pita's final word on the USA
Listen to them in technology and innovation terms.
Borrow from them if you must, but don't lend to them.
Good to visit, but best to remain living in New Zealand.
They have almost nothing to teach us in financial terms.
Many American leaders have a poor understanding of economics.
New Zealand is some 11,000 kilometres away — don't reduce this distance.
Limit their permanent migration to New Zealand to no more than 2,000 a year.
Their people need to think more about what they are voting for.
Truth and untruths need much more separation.
But overall, we do need the United States and its people to survive, and survive well.
Rising rates? Let's talk about your numbers
When bond markets get twitchy on the other side of the world, it eventually shows up in the interest rates offered on New Zealand home loans and farm lending. If you're weighing up when and how long to fix, restructuring debt, or just want a clear-eyed look at your farm business finances, get in touch with the team at Alexanders Rural. We'll give you a straight answer, with fewer trillions involved.
DISCLAIMER
Any views or opinions expressed in this article are those of Pita Alexander only and do not reflect the views of any other person or organisation.
The information provided in this article is for informational purposes only and is not intended to be financial advice.
Any errors or omissions are the author’s own.