US National Debt Tops $40 Trillion

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iStockphoto/The Fiscal Times
By Yuval Rosenberg and Michael Rainey

The national debt hit another milestone mark today and the Treasury Department stepped in to calm some bond market unease. Here's what you need to know this Wednesday evening.

US National Debt Tops $40 Trillion

The U.S. gross national debt surpassed a record $40 trillion, the Treasury Department said Wednesday.

The number serves as a milestone on a path of ever-expanding government debt, driven higher by a relentless combination of repeated tax cuts and rising spending on war, economic stimulus and social welfare programs.

The debt has been accumulating for decades, but the pace of its growth is accelerating. Just this year alone, the federal government will run a budget deficit of more than $2 trillion. About half of that deficit spending will go toward interest payments on debt already incurred - an expense that is rising rapidly as interest rates move higher and the underlying debt continues to grow. Over the past 12 months, the debt increased by about $2.9 trillion, or 7.8%.

"The gross national debt has doubled in the last 10 years; in less than 20 years, it has quadrupled," said Maya MacGuineas of the Committee on a Responsible Federal Budget, which has long called for deficit reduction. "It is staggering how predictable the fiscal decline of a global power can become."

For analyses of the debt and how we got to $40 trillion, see these pieces at CNN, The New York Times and The Wall Street Journal.

Treasury Makes a Surprise Move to Bring Down Borrowing Costs, Ease Bond Market Jitters

The bond market has been sending a warning signal this summer. On Wednesday, the Treasury Department responded.

After a bond market selloff drove long-term U.S. bond yields to their highest level in years, the Treasury Department announced today that it is at least doubling its planned buybacks of longer-term government bonds, from a maximum of $2 billion to at least $4 billion. The change will start on September 9 and run through November 4, the day after the midterm elections.

"This administration needs a win and maybe that comes in the form of artificially trying to keep long Treasury rates contained," Jack McIntyre, a portfolio manager at Brandywine Global Investment Management, told Bloomberg. "They have to try something. Sentiment around the long-end globally is about as bearish as I have seen in a very long time."

The surprise announcement came just weeks after the Treasury Department had issued its quarterly "refunding" announcement, detailing its near-term debt-management plans. That suggests that the recent bond selloff really did set off some alarm bells at the Treasury, which said in its announcement that its move is meant "to provide greater liquidity support" at the long end of the bond market.

The announcement had the desired immediate effect of lowering longer-term yields, which had been rising because of concerns about persistent inflation and higher oil prices due to the war with Iran as well as worries about the U.S. budget deficit and rising debt. The yield on the benchmark 10-year Treasury, which had been just under 4% at the end of February, topped 4.7% earlier this week, a sizable move for the bond market. And the 30-year Treasury yield this week reached its highest level since June 2007, before the financial crisis of 2008 sent interest rates plunging toward zero. Both fell back on Wednesday following the Treasury Department's announcement.

Higher yields make it more expensive for the government to borrow at a time when the national debt just crossed $40 trillion and the annual budget deficit is expected to top $2 trillion. Interest on the federal debt cost the government more than $1.2 trillion for fiscal year 2025 and has already cost nearly as much with more than a month remaining in fiscal year 2026. The higher yields also act as a drag on the economy, raising the cost of borrowing to buy a house, for example, or grow a business like, say, a new AI data center. So-called "hyperscalers" - the tech giants that are building massive data centers for various uses - have been issuing new debt at a rapid clip, competing with government bond issuance and also making them highly sensitive to higher rates.

Despite the initial response in the bond market, some analysts warn that the Treasury Department's desired shift may not last and that the buybacks could even backfire or may complicate the Fed's fight against inflation.

"The operation changes almost nothing in terms of the fundamentals, in particular the unchanged need to finance the tidal wave of hyperscaler debt in addition to very large government deficits," analyst Krishna Guha and colleagues at Evercore ISI wrote in a note to clients cited by CNBC.

Wall Street analysts expect the Treasury Department to offset its increased buybacks by issuing more short-term debt. "This is NOT a debt paydown, it is just a rearrangement of the maturity schedule of Treasuries," market strategist Peter Boockvar wrote in a note to clients. Boockvar noted that the changing mix of debt could actually raise the government's interest expense.

Investors' outlook on U.S. debt may also not be much changed by the Treasury action.

"If you're a medium- or long-term investor, what you really want to see to buy long bonds is an improvement in the deficit outlook," Steve Englander, an economist and strategist at Standard Chartered, told the Financial Times. Other analysts said that a resolution to the Iran war or a slowing economy may be needed to really drive rates lower at the long end of the yield curve.

A challenge for the new Fed chair: Federal Reserve Chair Kevin Warsh has suggested that the central bank welcomes higher yields as a way for the market to rein in economic activity and help curb inflation instead of Fed policymakers having to take action. Warsh's comments, part of a new communication strategy and approach to setting monetary policy, caused bond yields to surge.

"The market was leading with this notion that we don't necessarily have to see a hike in the Fed funds rate because the longer end of the bond market is doing the work for the Fed," Wilmington Trust senior bond portfolio manager Wil Stith told Yahoo Finance. "Well, now we have the Secretary of the Treasury sort of rolling that back."

The bottom line: Treasury Secretary Scott Bessent continues to try to lower long-term borrowing costs, but while Wednesday's move may have jolted the bond market, many analysts are skeptical that the government's stepped-up buyback program - still small compared to the overall size of the Treasury market - will keep rates down over the longer term.

Trump Pauses 50% Canada Tariffs, Says Deal Is in the Works

A 50% tariff on a slate of Canadian goods was scheduled to take effect early Wednesday morning, but President Trump put the new import tax on hold late Tuesday, saying negotiators are close to finalizing a new trade agreement between the United States and its neighbor to the north.

"Canada and the U.S.A., subject to the finalization of documents, have a DEAL!" Trump wrote on his social media platform.

Trump said the tariff would be paused for three days while negotiators make final arrangements. He provided no details, other than a reference to an oil pipeline between Canada and the United States that was canceled in 2021. "The great Keystone XL Pipeline, long ago killed by Sleepy Joe Biden, may be awoken from the grave!" Trump wrote.

In another social media post, Trump published what appeared to be an AI-generated image of himself pulling the Keystone pipeline out of the earth, next to a headstone reading "BURIED BY BIDEN."

Canadian Prime Minister Mark Carney was a bit more reserved in his assessment of the nascent deal. "Substantial progress has been made, although there is important work still to be done," he said in a statement.

Retaliatory tariffs: The 50% tariff would apply to about $20 billion worth of Canadian goods, including hockey sticks, liquor, dairy products and clothing. The Trump administration was relying on Section 338 of the Tariff Act of 1930 to impose the tariffs, based on the claim that Canada was discriminating against U.S. commerce.

Last week, U.S. Trade Representative Jamieson Greer said the tariffs were payback for retaliatory tariffs Canada had imposed on U.S. goods in response to an earlier round of Trump tariffs. "The policy basis for [Wednesday's] duties are related to measures that Canada took against the United States," Greer said. "I've got two countries in the world that have retaliated against the United States for trade measures: the People's Republic of China and Canada. That's not the kind of company you really want to be running in."

Trump has also expressed anger toward Canada for the recent wildfires that blew smoke into the United States, and for the country's lack of interest in becoming the 51st state, though it's not clear what role those disputes played in the trade dispute.

What comes next: The tariffs have been delayed for three days, giving negotiators until midnight on Friday to finalize an agreement. If a deal can be hammered out, it would go a long way toward smoothing relations between the two countries and could pave the way for a new round of talks on a comprehensive trade agreement.

Quote of the Day

"This will be the greatest military complex slash ballroom anywhere in the world. There won't be anything like it."

  • President Trump on Wednesday morning, during a tour he led showcasing his White House construction projects for reporters. For more than 30 minutes, Trump showed off the walkway he renovated, crowed about the new helipad he is adding to the White House lawn and gushed about the materials and workmanship involved.

"One thing I know how to do is build," Trump told reporters as he showed off the white granite he used to replace the walkway and a part of the asphalt driveway around the South Lawn. "I'm very good at flagpoles," he said at another point, praising the tapered design of the poles he had installed.

Asked what would happen if the Supreme Court blocks his ballroom project, Trump said he hopes that doesn't happen. "I can't imagine it happening," he added, arguing that the legal challenge to the ballroom project was brought by a woman who doesn't have standing to sue. Two courts have said otherwise.

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