The U.S. Treasury Department's daily cash and debt balance report released Wednesday (August 19) showed that as of August 18, the total outstanding public debt of the U.S. federal government surpassed the $40 trillion mark for the first time, reaching $40.047 trillion. This milestone figure consists of two parts: $32.266 trillion in U.S. Treasury bonds held by the public, and $7.782 trillion in debt held internally by the government. Since Trump was first sworn in as president in January 2017, the federal government debt has more than doubled from $19.95 trillion, more than doubling from $20 trillion to $40 trillion in less than a decade. Particularly alarming is that it took less than five months to grow from $39 trillion to $40 trillion, indicating a significantly accelerated debt growth rate.

I. Two Presidents, Four Term: The "Twin Engines" of Soaring Debt

Looking back at the trajectory of US fiscal policy over the past decade, debt accumulation has shown an accelerating trend that transcends partisan boundaries. During Trump's two terms as president, the US public debt increased by a total of $11.6 trillion. Of this, $7.8 trillion was added during his first four-year term (January 2017 to January 2021), with more than half of that being accumulated in the last nine months of his term in response to the COVID-19 pandemic; since his second inauguration in January 2025, the debt has increased by another $3.8 trillion. During Biden's four-year term (January 2021 to January 2025), the public debt increased by $8.4 trillion. The combined increase in debt during the two presidents' terms is approximately $20 trillion, exactly half of the current total. About one-third of the increase is concentrated in the 2020-2021 pandemic crisis response phase, which has a special urgency and a basis of bipartisan consensus; the remaining two-thirds reflect the structural differences between the two parties in their fiscal philosophies—the Trump administration focused on tax cuts and expanded defense spending, while the Biden administration vigorously promoted infrastructure investment, clean energy subsidies, and social safety net projects. The nonpartisan Committee on Responsible Federal Budget estimates that both presidents' policy choices have significantly increased the trajectory of federal debt growth compared to the baseline of debt accumulation projected under existing spending regulations when they took office.

II. The fiscal black hole is expanding rapidly: the deficit in July hit the fourth highest in history.

The U.S. fiscal situation is deteriorating rapidly. Data released by the U.S. Treasury Department last week showed that the budget deficit in July reached a staggering $432 billion, the fourth highest monthly deficit in U.S. history. Tariff refunds led to negative customs revenues for the third consecutive month, while spending on Social Security and Medicare benefits, driven by an aging population, continued to grow rigidly. The total deficit for the first 10 months of fiscal year 2026 has already exceeded the total deficit for fiscal year 2025, with two months remaining in the current fiscal year. According to estimates by the Congressional Budget Office, the federal budget deficit for the first 10 months reached $1.8 trillion, $169 billion higher than the same period in the previous fiscal year, an increase of over 10%.

III. Interest costs surge dramatically: surpassing medical insurance and approaching social security.

Debt servicing costs have become the most destructive "invisible killer" in federal finances. In the first 10 months of fiscal year 2026, the U.S. federal government's interest payments had already reached $1.17 trillion, an increase of about 15% over the same period of the previous year. This figure not only exceeds the total expenditure of Medicare during the same period, but also ranks second in the federal budget expenditure rankings, second only to the Social Security pension system. If the interest costs are annualized, the total for the year is expected to reach approximately $1.21 trillion. For reference, the U.S. Department of Defense (Pentagon) had an annual budget of approximately $1.17 trillion in fiscal year 2025—meaning that U.S. taxpayers are now paying more for debt interest than they have invested in maintaining the global military hegemony system. As the principal of the debt continues to expand and interest rates remain high, interest payments are snowballing, consuming an increasing share of fiscal revenue and creating a vicious cycle of "borrowing new debt to pay off old debt interest."

IV. Long-term government bonds experience historic sell-off: 30-year yield surges to 19-year high.

The U.S. long-term Treasury market is experiencing a rare structural sell-off. On August 18, the yield on the 30-year U.S. Treasury note reached a high of 5.34% intraday, the highest level since June 2007 (just before the global financial crisis). The yield on the 10-year Treasury note also reached 4.75% on the same day, approaching its highest level since early 2025. The term premium—a measure of the additional compensation investors demand for bearing the risk of a ten-year holding—has risen to its highest level in over 12 years this week, indicating that market concerns about the long-term fiscal credibility of the United States are being fully priced in. One of the triggers for this sell-off was the lukewarm reception of the U.S. Treasury's recent auction of $25 billion in new 30-year bonds, with the winning bid rate reaching a high of 5.216%, the highest since 2001. The increased proportion of primary dealers being forced to take over indicates weak real demand from end investors. The surge in bond yields has directly pushed up financing costs across the entire economy—from corporate credit to mortgage loans, from auto financing to student loans—leaving no area untouched, and financial conditions have tightened sharply.

V. Overseas creditors "vote with their feet": Foreign demand continues to decline.

While the supply of US Treasury bonds has expanded dramatically, the demand side is undergoing a subtle yet profound transformation. Over the past year, foreign investor demand for US Treasury bonds has continued to decline. Currently, foreign investors hold nearly one-third of US Treasury bonds, but this proportion has fallen sharply from approximately 50% in the early 2010s. The chief financial market analyst at Oxford Economics points out that as the purchasing power of foreign official institutions (especially global central banks) weakens, more newly issued bonds will be absorbed by domestic institutional investors who are more sensitive to price changes and have a more pro-cyclical trading behavior. This is likely to exacerbate daily market volatility and the risk of liquidity depletion. The long-term narrative of global "de-dollarization" is finding a real-world manifestation in the US Treasury bond market. Data shows that the proportion of US Treasury bonds in global official foreign exchange reserves has fallen from 25% at the end of 2024 to 22%, marking the second consecutive year of decline. Meanwhile, gold has surpassed US Treasury bonds to become the world's largest reserve asset. The continued net purchases of gold by central banks reflect a growing deep concern about the credibility of the US dollar system.

VI. Bessenter's "First Aid Toolbox": Can Doubling Long-Term Bond Repurchases Turn the Tide?

Faced with the severe situation of runaway yield increases, U.S. Treasury Secretary Bessenter announced emergency intervention measures on August 19, doubling the size of term repurchase operations for 10- to 30-year Treasury bonds, meaning each operation will be at least $4 billion, up from the previously planned $2 billion. This adjustment covers two key maturity ranges: 10- to 20-year and 20- to 30-year bonds. The new rules will take effect on September 9, 2026, and will remain in effect until November 4. According to the Treasury's previously announced arrangements, the original plan for this quarter was to repurchase up to $69 billion of U.S. Treasury bonds of various maturities between August 6 and November 5. After this doubling, the maximum total repurchase amount will increase to $83 billion, including at least $14 billion in new liquidity support. The U.S. Treasury stated that this move aims to provide stronger liquidity support for long-term bonds and respond to strong demand from market participants for these maturities. However, market analysts have expressed deep doubts about the lasting effectiveness of this emergency measure. Citigroup's global head of USD and CAD swaps bluntly stated that repurchasing long-term bonds cannot change the deficit situation. While repurchasing old bonds, the Treasury still needs to issue new bonds through regular auctions to make up the deficit gap. This is essentially a "left pocket to right pocket" debt management operation, not debt reduction. Evercore ISI analysts pointed out that Bessant once again demonstrated its strategic skill in actively intervening in the market, choosing to announce a surprise expansion of its balance sheet and repurchase operations in August when market liquidity was thin, precisely striking at speculative forces shorting long-term bonds. However, they emphasized that the additional $4 billion in repurchase quota is a drop in the ocean compared to the $32.2 trillion in marketable Treasury bonds and $5.5 trillion in outstanding 20-year and 30-year Treasury bonds as of Monday. Savvy Wealth's chief investment officer summarized that this move cannot solve the fundamental contradictions of deficit, inflation, or Treasury bond supply, but it does buy valuable policy time. More importantly, it sends a clear signal to the market: the Treasury has a sufficient policy toolbox and is willing to use it decisively when the market is disordered.

VII. Structural Problems: Mandatory spending remains constant, making reductions difficult.

Trump touted his second term as a period of executive reform focused on "cost-cutting," with the Department of Government Efficiency, a non-governmental body, ordering the elimination of federal positions early in his term. However, a deeper analysis of federal spending reveals that the so-called "waste" he cut was concentrated in discretionary spending programs, which constitute the largest portion of the federal budget. Of the approximately $7 trillion annual federal government spending, a staggering 60%—about $4.2 trillion—is locked into "mandatory" spending programs, primarily including Social Security, Medicare, Medicaid, and Veterans Affairs. These programs operate automatically under existing laws, their spending expanding automatically as the number of beneficiaries increases and the cost of living index adjusts, virtually unaffected by annual appropriations bills or executive orders. Another $1.1 trillion is used to pay interest on loans, an item similarly lacking any flexibility for reduction. While Trump's tax cuts stimulated short-term economic growth, they have consistently suppressed the growth elasticity of fiscal revenue, making the revenue-expenditure gap increasingly difficult to bridge against the backdrop of an aging population.

Editor's Summary

The US public debt surpassing $40 trillion is not merely a symbolic milestone, but an objective measure of the systemic collapse of fiscal discipline over more than half a century. Since the decoupling of the dollar from gold in the 1970s, the US federal government has run deficits almost every year except for a few, with the debt ceiling raised more than a hundred times. "Borrowing new money to repay old debts" has become an internalized institutional inertia in fiscal operations. Presidents Trump and Biden, during their four terms, contributed a combined $20 trillion in new debt—a figure exceeding the GDP of any single country other than the US—fully exposing the structural failures of the US political system in addressing long-term fiscal challenges. The most alarming signal now is not the debt stock itself, but the "self-fulfilling" mechanism of debt costs—rising interest rates push up interest payments, which in turn force the Treasury to issue more new debt, further pressuring yields upward. Debt servicing costs have surpassed defense and healthcare to become the second-largest federal expenditure, signifying that the debt problem has evolved from a moral debate about "intergenerational equity" into a survival crisis of "current cash flow." Bessant's repurchase operations are like adding sandbags to a dam when it overflows; they can provide a temporary buffer for market sentiment, but they cannot reverse the fundamental imbalance between the flood of supply and the ebb of demand. Against the backdrop of accelerated diversification of global official reserve assets and continued net selling of US Treasury bonds by foreign central banks, the sustainability of US fiscal policy is facing an ultimate test of market discipline.

Frequently Asked Questions

Q1: How heavy is the US$40 trillion debt? How much does it equate to for each American? A: Divided among approximately 336 million US people, 40 trillion US dollars equates to an average debt of about $119,000 per person. For a more direct comparison, the US national debt first exceeded $1 trillion in 1981, and it took only 45 years to reach $40 trillion. The debt increase in the last five years (approximately $15 trillion) exceeds the total accumulated debt of the first two centuries after the founding of the United States. From a fiscal revenue perspective, total federal revenue in fiscal year 2025 is approximately $5 trillion, while the current debt is equivalent to eight times that annual revenue. Even if the federal government used all its revenue to repay the debt, it would still take a full eight years to pay off the principal, and this does not even include the annual interest cost of over $1 trillion. Q2: Why is interest expense increasing so rapidly? Will the high-interest-rate environment continue? A: Interest expense = debt principal × average financing rate. The principal of the debt has more than doubled from $19.95 trillion in 2017 to $40 trillion. Meanwhile, the Federal Reserve's interest rate hike cycle has pushed the federal funds rate to high levels, causing a sharp increase in the refinancing costs of the Treasury when rolling over maturing debt. A massive amount of low-interest bonds issued during the 2020 pandemic (with a 10-year yield of less than 1% at the time) will mature in the next two to three years. Replacing these bonds with current yields of 4.5%-5% will result in interest costs increasing several times over. Market pricing indicates that investors expect long-term interest rates to remain above 4%, meaning that interest payments exceeding defense spending will become a permanent structural feature, not an isolated incident. Question 3: Which contributed more to the debt, Trump's tax cuts or Biden's spending? Answer: Purely numerically, Trump's two terms ($11.6 trillion) are slightly higher than Biden's four years ($8.4 trillion), but both are far above historical averages. From a mechanistic perspective, Trump's 2017 Tax Cuts and Jobs Act reduced fiscal revenue by approximately $1.5 trillion to $2 trillion annually, equivalent to "bleeding" from the balance sheet; Biden's Infrastructure Act and Inflation Reduction Act, on the other hand, directly boosted spending. The Committee on Responsible Federal Budget estimates that Trump's Big and Beautiful Act during his second term will add $4.7 trillion to the debt over the next decade, while Biden's various spending bills will also have a long-term impact in the trillions of dollars. Both parties have made contributions to fiscal expansion; the US fiscal imbalance is the result of both insufficient taxation and excessive spending, and no single party can bear the full responsibility. Question 4: Why are foreign investors no longer keen to buy US Treasury bonds? What alternatives are available? Answer: The decline in demand from foreign investors is the result of multiple factors. First, deteriorating fiscal discipline in the United States has weakened the credibility of US Treasury bonds as "risk-free assets." Second, dramatic changes in the global geopolitical landscape have prompted central banks around the world to pursue strategies for diversifying their reserve assets, with systematic increases in holdings of assets such as gold, the renminbi, and the euro. Third, fluctuations in the dollar exchange rate and concerns about the use of US financial sanctions as a tool have led some countries to proactively reduce their dependence on the dollar system. Data from the World Gold Council shows that global central bank net gold purchases will reach record highs in both 2025 and 2026. Central banks in China, India, Turkey, and other countries have maintained a steady pace of gold purchases over the past year. Question 5: Does Treasury Secretary Bessenter's expansion of repurchase operations constitute "quantitative easing" or debt monetization? Answer: Strictly speaking, no. Quantitative easing (QE) involves central banks directly purchasing large amounts of government bonds in the secondary market to inject base money, which falls under the category of monetary policy. The Treasury's repurchase of government bonds, however, is merely a debt management operation; after repurchasing old bonds with cash, new bonds still need to be issued for financing, and the net debt balance remains unchanged. The Treasury's repurchase operations primarily target older, non-new bonds with poor liquidity, aiming to improve market microstructure rather than stimulate the economy. The key difference lies in the funding sources: QE increases the size of the central bank's balance sheet and expands market liquidity, while the repurchase operations themselves do not create new money supply, as the funds come from the Treasury's general account deposits. Therefore, Bessant's measures should be understood as "technical liquidity maintenance" rather than "fiscal deficit."