Japan’s debt is twice the size of its economy, but economists warn the US’s $40 trillion is even worse.

Despite its $40 trillion national debt, the United States barely ranks among the top 10 countries in terms of debt relative to the size of its economy. While on the surface this may seem like a good thing, economists warn that in reality the United States has even more reason to worry than countries with exploding debt-to-GDP ratios.

The United States still has the largest national debt of any other country – with the total topping $40 trillion as of August – more than double China’s debt of $18.7 trillion, according to the latest data from the IMF’s World Economic Outlook released in April. However, relative to the size of the economy, the US debt ratio, at around 126%, remains considerably lower than Japan’s 207% and Singapore’s 172%.

There is no magic number for determining when a debt-to-GDP ratio becomes dangerous, but Japan’s 207% figure means the country’s national public debt is twice the size of its economy. In other words, if a country were to devote all of its economic gains to paying off its debt, it would still take two years to pay it off completely.

Even with a debt-to-GDP ratio below 122%, U.S. borrowing remains greater than the size of its entire economy. Apollo chief economist Torsten Slok warned that the staggering rate at which the United States is accumulating debt — about $7 billion a day — is atrophying the country’s ability to respond to a recession. This is because the United States cannot easily add stimulus measures to the economy, such as tax cuts or infrastructure spending, for fear of digging itself deeper into the abyss. But the Federal Reserve also can’t cut rates to encourage borrowing, because it risks increasing inflation and upsetting the balance of demand for new bonds.

“The United States has never entered a recession with this small fiscal buffer,” Slok wrote in a blog post published in May. “The standard recession scenario of growth slowing, the Fed cutting, rates falling, and multiples rising collapses when the sovereign borrower is already strained.”

Yet economists are not sounding the alarm about Japan’s debt levels the way they are with the United States – and others are denouncing the use of the debt-to-GDP ratio as a valid measure of economic stability overall.

Why Japanthe debt is different from that of the United States

Japan has defied the logic of increasing its debt without overturning its economy, largely because of the way its debt is structured. About 90% of the country’s public debt is held domestically, in local banks and insurance funds, meaning few foreign investors could dump their bonds in the event of a global economic panic. Japan also has a household savings rate that is about a third of the country’s GDP, double that of the United States, with households saving more aggressively for longer retirements, further reducing Japan’s dependence on foreign bondholders.

“Japanese debt dynamics are fundamentally different from those of the United States,” Jack Salmon, a researcher at George Mason University’s Mercatus Center, wrote in a February Substack article. “Japan is the world’s largest creditor country. The United States is the world’s largest debtor.”

But just because Japan isn’t as vulnerable to a recession doesn’t make it a perfect example of why debt can continue to balloon under the right circumstances. The Japanese yen is depreciating – exacerbated by the war in Iran driving up oil prices, inflation fears in the United States and growing demand for the dollar – and long-term bond yields are rising. To combat this inflation, Japan must raise interest rates, which also increases the cost of servicing the debt. Prime Minister Sanae Takaichi intends to increase deficit spending to boost economic growth, but risks further fueling inflation.

“Japan has never been a comforting counterexample to concerns about U.S. debt,” Salmon said. “The fact that even Japan is now testing the limits of debt tolerance should finally put an end to the fantasy that advanced economies can borrow forever without consequences. »

Some economists have challenged the validity of the debt-to-GDP ratio as a viable measure of economic health. Jonathan Berk, a Stanford Graduate School of Business professor and economist, said in an interview at the university that this measure is similar to dividing a mortgage balance by a year’s rental income; it ignores other variables like maintenance and insurance and doesn’t indicate whether one can afford the mortgage in the first place.

“I don’t think it’s necessarily the doomsday scenario that people are describing,” he said.

A version of this story was published on Fortune.com on July 23, 2026.

Learn more about the national debt:

• Treasury yields are already blowing away the CBO’s long-term forecasts, and experts who previously downplayed U.S. debt fears are now starting to worry.
• ‘Uncharted Territory’: US National Debt of $40 Trillion Has Worsened Further as Interest Payments Soar to $1.25 Trillion a Year.
• Washington’s affordability problem has a silver bullet, new study finds: Addressing the $40 trillion national debt would increase household income by $36,000