U.S. Debt Surpasses $40 Trillion
Last Tuesday, the national debt of the United States exceeded $40 trillion. While Washington, D.C., tends to overlook this growing figure, some officials have felt compelled to show concern.
However, the reactions of lawmakers seemed more like that of bystanders rather than the active participants they truly are. They expressed worries about the escalating debt, noting Congress’s struggle to address a problem that’s hard to ignore. They claimed that both parties have been attempting to manage this debt for years.
But, in reality, that’s not quite accurate. Both parties have not genuinely been working on reducing the debt—one could speculate about their actual priorities instead.
The most recent budget from Joe Biden’s administration predicted a deficit of $1.78 trillion for fiscal year 2025. On the other hand, the Trump administration projected a deficit of $1.9 trillion for fiscal year 2026, which is interestingly higher than the Democrats’ estimated shortfall.
The U.S. is currently accumulating roughly $1 trillion in debt every 92 days. By fiscal year 2025, the nation began paying more than $1 trillion annually just to cover interest on that debt.
To manage the overspending, the Treasury Department issues bonds that are auctioned off at market prices, with terms ranging from less than a year to up to thirty years.
If you purchase a $100 bond, you receive monthly interest payments, and then your initial amount is returned at the end of the bond’s term—at least, that’s how it’s supposed to work. These markets rely heavily on potential buyers believing that investing in U.S. bonds is worthwhile; that is, they need to trust that the U.S. will still exist when the bond matures.
However, there’s a growing lack of confidence in that idea globally, leading to reduced interest in purchasing new bonds. Consequently, the U.S. must offer higher interest rates to attract buyers.
And when confidence fades even further, investors might start offloading their existing bonds, making new bond auctions even less appealing. This confidence crisis can escalate quickly.
As skepticism about U.S. bonds rises, the higher interest the country has to pay also increases its debt, creating a vicious cycle of rising debt and increasing skepticism. This has been described as a death spiral that many have warned about.
Japan currently holds about $1.2 trillion of our debt and has been selling U.S. bonds to stabilize its own currency. To counteract this, Treasury Secretary Scott Bessent recently began buying back billions in U.S. debt from Japan.
“The desperation is a terrible look,” one might say.
Purchasing your own debt certainly does not inspire confidence—it suggests that Japan is offloading bonds and no one else is stepping in to fill the gap.
This brings up an interesting point: what if the Federal Reserve is creating numerous Cayman Island corporations to obscure their activities? It’s possible they could be using these corporations to buy large amounts of bonds, both new and existing ones that others are trying to sell.
It’s astonishing to consider that since 2022, 40% of all new U.S. debt purchases have occurred in the Cayman Islands, amounting to trillions of dollars. If this is indeed the case, it could be delaying yet intensifying an inevitable collapse.
Speaking of debts, the U.S. also owes itself roughly $7.2 trillion, making it the biggest holder of U.S. debt under a scheme called “intragovernmental holdings,” where funds from programs such as Social Security and Medicare are used to purchase U.S. debt. This arrangement seems particularly troubling since Social Security and Medicare are facing combined shortfalls of over $175 trillion.
With all this debt and continuous spending, it raises concerns about the future of the U.S. dollar.
Unfortunately, the outlook doesn’t seem promising. We’re already battling significant inflation, and the situation might get worse.
Currency debasement, where the value of a currency is intentionally reduced, often due to increasing the money supply, is a reality. The U.S. might attempt to “inflate away” the debt, effectively making the $40 trillion owed worth less. While that strategy could seem like a solution, it doesn’t change the fact that the U.S. still needs to sell its ever-growing debt.
Prospective bond buyers are likely to see the risk of currency debasement, leading them to demand higher interest rates or even lose interest altogether in purchasing bonds.
So we find ourselves facing a scenario where we owe more, have fewer interested buyers, and are dealing with a currency losing value. It’s a spiral that doesn’t look good.
