America's capital crunch: Soaring debt collides with AI spending spree

America is caught in a historic capital squeeze: On one side: Trillions Washington must borrow to pay for the past. On the other: Trillions the economy needs to build the future. Why it matters: The next president will inherit a fiscal reckoning decades in the making. The price it exacts — on taxes, benefits, borrowing and investment — could shape America's prosperity and power for generations. Zoom in: President Trump said in 2016 that he could eliminate what was then roughly $19 trillion in national debt within eight years. On Tuesday, the debt crossed $40 trillion, after growing by $3 trillion in the past year alone. About $32 trillion is owed to investors and other outside holders. The rest is debt the government owes to its own accounts, including Social Security and other federal trust funds. Treasury must refinance $9.7 trillion in debt coming due this fiscal year while covering a deficit the Congressional Budget Office now projects at roughly $2.1 trillion. That creates a punishing cycle: Old debt comes due, Washington replaces it with more expensive debt, and the resulting interest bill feeds future deficits. CBO projects annual deficits will average $2.4 trillion through 2036, pushing debt held by the public to 120% of GDP — above the record set after World War II. The U.S. has already spent $963 billion on interest in the first 10 months of this fiscal year, $200 billion more than it spent on the military over the same period. Data: CBO; Chart: Sara Wise/Axios Zoom out: For years, Silicon Valley's AI buildout was financed almost entirely with cash. Now Big Tech is becoming one of the biggest new forces in global debt markets. Bond sales by the "hyperscalers" building AI infrastructure are on pace to roughly double in 2026. Goldman Sachs projects debt will fund more than a third of their AI spending by 2027. Nvidia is working with BlackRock, Goldman Sachs, KKR and other Wall Street giants on plans to marshal more than $500 billion for AI infrastructure. Stunning stat: Nine major tech companies have already spent roughly $600 billion on capital projects over the past year. A Wall Street Journal analysis found they have another $3 trillion in future commitments, mostly tied to AI, that aren't yet reflected on their balance sheets. The big picture: America's debt burden is approaching the point where it starts reshaping household finances, presidential politics and the country's economic choices. Long-term Treasury yields have climbed to their highest levels since 2007, raising borrowing costs across the economy — from mortgages to business loans — and making Washington's own debt more expensive to refinance. Social Security's retirement trust fund is projected to run dry in late 2032, during the final months of the next president's first term. Medicare's hospital trust fund follows in the second quarter of 2033. Between the lines: Trump and Elon Musk promised to break Washington's addiction to debt without forcing Americans to swallow painful sacrifices. Musk launched DOGE with ambitions of cutting as much as $2 trillion from federal spending. Its final public tally claimed just $215 billion in savings — barely a tenth of that goal. A federal audit released this month found billions in unsupported or inaccurate savings claims, including $27.4 billion tied to contracts that were still active. What to watch: America's fiscal options are narrowing as its political ambitions expand. On the left, democratic socialism and economic populism are surging, pairing promises of cheaper housing, health care and child care with calls for higher taxes on the wealthy. On the right, the Trump-era GOP has protected Social Security and Medicare politically while pursuing tax cuts and higher defense spending, including Trump's push for a $1.5 trillion Pentagon budget. The bottom line: Few problems loom larger over America's future than its colossal debt burden. Yet few are treated with less urgency by the politicians who will have to confront it.

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