U.S. debt has now climbed above the size of the entire economy — a threshold that signals higher borrowing costs, tighter financial conditions and a long stretch of elevated interest rates for households and investors. And while the last time America crossed this kind of fiscal line was during World War II, the forces driving today’s debt surge — and the consequences for markets — look very different.

During World War II, when the U.S. entered the conflict in 1941, the day after the Pearl Harbor attack, the country had a lot of work to do. Not only sending soldiers and providing for them but mobilizing for battle: building weapons, ships, tanks, uniforms, ammo, equipment and vehicles. Buying food, fuel and whatever else the war effort required.

All that cost a lot of money the government did not have sitting in a savings account, so it borrowed liberally until it eventually paid off the debt.

Debt Has Crossed A Critical Line

Below is a graph from the Federal Reserve Bank of St. Louis that shows the federal debt held by the public as a percentage of the U.S. gross domestic product. It covers Jan. 1, 1970, through Oct. 1, 2025, with the final date representing the end of the government’s 2025 fiscal year.

By the end of calendar 2025, debt held by the public was about $31.265 trillion, as the Treasury Department’s monthly statement showed. GDP over the preceding year was $31.216 trillion. The ratio of publicly held debt to GDP is now 100.16%. Under current conditions,........

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