UK gilt yields top Truss-era highs as global debt hits $40 trillion

British government borrowing costs have climbed above levels that ended Liz Truss's premiership in 2022, as a $40 trillion U.S. debt load and fiscal gridlock across Europe expose a widening sovereign-debt crisis.

Michael A. Peterson, CEO of the Peter G. Peterson Foundation, said the $40 trillion U.S. debt figure represents "stealing from our next generation" and that Washington is "basically taking $2 trillion from our future."

The U.S. gross national debt crossed $40 trillion for the first time, reaching 100 percent of GDP — a level last seen in 1946 — and is trending toward 200 percent over the next 25 years, according to the Peterson Foundation. The main Social Security trust fund is projected to deplete in 2032, triggering automatic benefit cuts of 22 percent for all beneficiaries unless Congress acts. The federal budget deficit is projected to top $2 trillion for fiscal 2026, with Social Security, Medicare, and interest expenses the fastest-growing drivers.

The fiscal distress extends well beyond Washington. Britain's national debt stands at £3 trillion ($4 trillion), or 94 percent of GDP, and Prime Minister Andy Burnham — in office barely six weeks — faces government borrowing rates at their highest in decades and higher than during Truss's short, unhappy premiership. France carries €3.5 trillion ($4 trillion) of debt, or 117 percent of GDP, while Japan's national debt at roughly 230 percent of GDP remains the world economy's greatest imponderable.

The divergence reflects a structural divide in political capacity, according to Joseph C. Sternberg, political economics columnist at the Wall Street Journal. Britain in theory has the machinery to fix its public finances — Burnham commands a large Labour majority in Parliament, and voters trust Labour more than the Conservatives on welfare-state matters. Yet his administration shows little appetite for shrinking benefit rolls or pushing more adults back into work, instead floating tax increases this autumn and reneging on defense spending promises. Bond investors have responded in real time this week, and the rapid pass-through from gilt yields to mortgage rates makes the pressure acutely felt by households.

France suffers nearly the opposite problem. President Emmanuel Macron has pursued pension reform — raising the retirement age from 62 to 64 — and has chalked up successes including labor-law changes. But France's fractious legislature makes most reforms nearly impossible to implement, and no party other than Macron's is willing to make sacrifices first. France's size and deep integration into the euro allow Paris to keep delaying its moment of reckoning. Economists on the French left now speculate about whether the European Central Bank could simply forgive some portion of the government bonds it holds — a manifestly unlikely scenario that nonetheless captures the depth of fiscal anxiety.

Germany under Chancellor Friedrich Merz faces the same dynamic — plenty of good ideas, but a fractured legislature lacking urgency about fiscal and economic reform. Japan under Prime Minister Sanae Takaichi suffers the British disease of political capacity devoid of ideas.

The U.S. is the exception, though not by virtue of any great virtue. Left to its own devices, Washington would most closely resemble the French model — ample reform thinking with limited ability to implement anything. But the rapidly depleting Social Security trust fund creates a hard deadline. After the fund is exhausted in 2032, Congress will either address the entitlement burden or the program will fix itself by cutting benefits by more than 20 percent.

Peterson said the solutions are well-known — changes to tax policy and adjustments to spending programs — and that the choice comes down to ideology. "We don't need to reinvent the wheel, we just need to have some political courage to get started," he said. The Peterson Foundation's Solutions Initiative brought together seven think tanks across the political spectrum to develop plans to stabilize the national debt as a share of GDP; all seven succeeded.

Most countries stumble into fiscal crises. The U.S. has scheduled its own — a distinction that may prove to be the only advantage Washington holds.

This article is for informational purposes only and does not constitute investment advice.