Remember Elon Musk’s ‘1,000%’ bankruptcy warning for America? Interest on US national debt now tops the military budget

Back in February, Elon Musk, speaking on the Dwarkesh Podcast, said that America was “1,000% going to go bankrupt as a country and fail as a country, without AI and robots,” adding that, “Nothing else will solve the national debt.”

While Musk is obviously biased, since he happens to have a massive interest in those technologies that he says will save America, he’s not alone in claiming the national debt could be pushing the country to a tipping point.

Cost of interest hits new high

According to the latest Treasury data, the federal budget deficit for 2026 hit $1.99 trillion, up 12% from 2025 when it sat at $1.78 trillion.

The data show that spending on net interest on the national debt for 2026 was $1.05 trillion, up from $970 billion in 2025.

That put spending on net interest behind only Social Security ($1.67 trillion) and Medicare ($1.07 trillion). The net interest surpassed spending on national defense ($956 billion).

According to Bloomberg, the debt interest spending is a record high, and could mean the risk of “a snowballing of borrowing that could leave the country more vulnerable to economic shocks.”

The Congressional Budget Office reported that the 11% increase in spending on the debt interest compared to 2025 was due to higher long-term interest rates.

The average interest rate for gross interest costs sits at 3.53%, which has climbed steadily since 2021, when it sat at 1.6%. A report from Fortune highlighted that the interest rate is “more than double the rate in 2021, just before the Federal Reserve embarked on an aggressive tightening cycle to rein in inflation.”

The Fortune report also noted that the increase in net interest payments, which hit 8%, outpaced “increases in total spending, revenue and GDP. In fact, it exceeds real GDP growth of about 2% as well as nominal GDP growth of about 6%.”

Debt apocalypse, now?

Hedge fund founder Ray Dalio has previously said that the U.S. is nearing a “death debt spiral.”

In a recent post on X, Dalio reiterated the scenario: “The typical debt squeeze dynamic that leads to overindebted countries ‘going broke’ occurs when more debt leads to higher yields, which leads to higher interest expense, which leads to larger deficits, which leads to more debt, etc.

“When debt levels and interest rates go up together, it is a double debt service whammy. The increased debt service costs lead to further decreases of demand for the debt; credit market players call that a ‘death spiral.’”

Dalio continued: “It certainly is a killer for the debtor encountering it. That is happening now.”