Back in 2023 the Congressional Budget Office had pencilled in 2028 for that milestone. It arrived two years early, and barely five months after the debt passed $39 trillion.

The number itself is symbolic. What is not symbolic is the price investors are now charging to hold American paper. The 30-year Treasury bond has been yielding around 5.25%, a level last seen before the 2008 financial crisis, and the 10-year has pushed close to 4.7%.

Treasury Secretary Scott Bessent surprised markets on August 19 by at least doubling the size of the department’s buyback operations in longer-dated debt. Yields dropped for a few hours, then climbed straight back. That reversal is the story in miniature. Washington still has technical tools. It is running short of ones that convince anybody.

Dollar hovered ​near multi-month lows on August 24, as the market got unsettled by the Treasury’s promise to buy back more long-dated ‌bonds. Apart from traders’ anxious wait on the Trump administration’s Iran sanctions package, trade tensions with Canada emerged as a big factor as well.

While Washington imposed 50% tariffs on Canadian goods after the failed negotiations between Washington and Ottawa, Uncle Sam’s biggest trade partner in the North America has promised to retaliate in kind.

A decade of doubling
The debt has doubled in less than ten years, and neither party can claim the high ground. Gross federal debt stood at $19.95 trillion in January 2017. It rose by about $7.8 trillion across Donald Trump’s first term, with more than half of that piling up in the final nine months as the pandemic response ran through the Treasury.

It rose by a further $8.4 trillion under Joe Biden. Since Trump returned in January 2025 it has added about $3.8 trillion more, taking the total accumulated across his two terms to roughly $11.6 trillion.

Roughly a third of the entire increase since 2017 is attributable to the two years of emergency borrowing after Covid-19 arrived, and that borrowing was bipartisan. The remainder is the product of choices made in calmer conditions, which is what worries the ratings agencies and the bond desks far more than the pandemic bill ever did.

Two parties, two spending styles
The pattern of the borrowing differs even where the totals do not. Trump’s first term opened with the Tax Cuts and Jobs Act of 2017, which lowered the corporate rate to 21% and reduced federal revenue by close to $2 trillion over a decade. Then came the CARES Act in March 2020, worth $2.2 trillion, and a further $900 billion package that December.

The Biden years front-loaded transfers and then pivoted to industrial policy. The American Rescue Plan of March 2021 was worth $1.9 trillion. The Infrastructure Investment and Jobs Act followed in November that year with $1.2 trillion headline value and roughly $550 billion in genuinely new money for roads, rail, ports, water systems and broadband.

The CHIPS and Science Act of August 2022 committed about $280 billion, including $52.7 billion in direct semiconductor subsidies. The Inflation Reduction Act, passed the same month, carried an official clean energy price tag near $390 billion, though its uncapped tax credits pushed later estimates considerably higher. The political argument for all of this was that the outlay would pay for itself through factories, chips and cheaper power. The fiscal reality was that it was borrowed.

Trump’s second term produced its own landmark in the “One Big Beautiful Bill Act.” The Congressional Budget Office originally scored it at $3.4 trillion of added deficits over 2025 to 2034. Its most recent outlook, which accounts for economic effects and the extra debt service, puts the impact at $4.7 trillion from 2026 to 2035. The Committee for a Responsible Federal Budget reckons the figure climbs past $5.5 trillion if the temporary provisions are made permanent, as sponsors have signalled they intend. In the near term the law is adding around $500 billion to the fiscal 2026 deficit alone.

Why the cuts never landed
Trump’s second term began with an explicit promise of retrenchment. The Department of Government Efficiency (DOGE) was set up to find savings, and Elon Musk initially spoke of $2 trillion. That target was halved, then cut to $150 billion, then quietly abandoned. DOGE closed on July 4 2026 without issuing a final report. The Government Accountability Office later found that it could not verify 96% of the grant savings the body had claimed, covering some $110 billion.
What actually reached the statute book was a $9 billion rescissions package aimed at public broadcasting and foreign aid, plus a pocket rescission of around $5 billion. Congress rejected the great bulk of the discretionary cuts the White House proposed for fiscal 2026. Of thirty programmes the administration wanted slashed or scrapped, one was eliminated. The 2026 appropriations bills spend more than the 2025 ones did.

Then came the revenue shock. On February 20 2026, the Supreme Court ruled six to three that the International “Emergency Economic Powers Act” does not give a President the power to impose tariffs. Roughly $166 billion already collected became refundable, and more than $100 billion had gone back out of the door by July.

Net customs receipts turned negative for three consecutive months. The CBO now expects fiscal 2026 customs revenue to come in about $250 billion below its February projection, and estimates the ruling opens a hole of around $900 billion over the decade once lost duties and extra interest are counted. The administration has been rebuilding a tariff wall through Section 122 and Section 301 authorities, but at lower rates and with a lag.

Where the money goes now
Strip out the politics and the arithmetic is dull and immovable. In the first ten months of fiscal 2026 federal spending rose by $309 billion, or 5%. Medicare accounted for $131 billion of that increase, a 16% jump driven by enrolment and payment rates. Veterans’ benefits rose $51 billion, also 16%.

Social Security added $71 billion, Medicaid $45 billion and national defence $46 billion. Homeland Security has become a genuine growth item, with the fiscal 2026 request running to $178 billion and the bulk of the increase directed at immigration enforcement, border technology and detention capacity.

Above all sits the interest bill. Net interest reached $963 billion in ten months and the annual figure is now around $1.1 trillion, roughly 15% of all federal spending. In fiscal 2025 debt service overtook the Pentagon for the first time.

This year it has overtaken Medicare, leaving Social Security as the only line item larger. About 19% of federal tax revenue is now consumed simply by servicing what has already been borrowed. That is the compounding trap. Every dollar of new deficit raises the interest bill, which raises the deficit again.

What the Treasury can and cannot do
Bessent’s toolkit is real but narrow. The department can change the maturity mix of what it issues, and it has leaned heavily on short-term bills, taking advantage of a three-month yield near 3.8 % against a long bond above 5%. It can buy back illiquid long-dated securities, which is what it did in August, lifting operations from $2 billion to at least $4 billion. It can adjust the quarterly refunding schedule and coordinate with the Federal Reserve on liquidity facilities.

None of this reduces the debt. It changes who holds it and for how long, and it can smooth a disorderly market for a few sessions. It also carries a cost. Tilting the stock towards bills means a larger share of the debt reprices whenever rates move, so any future tightening feeds through to the budget almost immediately.

Jefferies described the surprise buyback expansion as shot from the hip, a pointed criticism of a department whose reputation rests on being regular and predictable. Bessent has confirmed that a broader fiscal consolidation plan is coming, drawn up with budget director Russ Vought, and argues the deficit has probably peaked. Markets are waiting for the detail.

There is not much. About two-thirds of federal spending is mandatory, and the three programmes driving the increase are the three that no administration facing midterms will touch.

Discretionary cuts have already been tried and largely rejected by a Republican Congress. Tariff revenue, the one new income stream the administration built, has been struck down and only partially rebuilt. Tax increases are off the table by design, and the pressure inside the party runs towards making the expiring cuts permanent, which costs more.

Bessent’s own benchmark, a deficit of 3% of GDP, sits against a fiscal 2026 gap of about $2.1 trillion, close to double that target. He has said there is nothing magic about the $40 trillion number, and technically he is right. The magic, if that is the word, is in the interest line.

Inflation and the Fed
Monetary policy is now working against the fiscal position rather than cushioning it. Consumer price inflation ran at 3.4% in July, easing for a second month but still well above the 2% target, with core at 2.5%. The energy shock from the conflict with Iran is fading but gasoline remains around a quarter higher than a year ago.

The Federal Open Market Committee, now chaired by Kevin Warsh, held rates at 3.5% to 3.75% in July on a nine to three vote, with the three dissenters wanting an increase. Markets put meaningful odds on a hike before the year is out.

For the Treasury that is an uncomfortable combination. Mild inflation erodes the real value of existing fixed-rate debt, which flatters the ratio, but it also lifts the coupon demanded on every new issue and on the enormous stock of bills being rolled over.

Long yields have risen since June on a mixture of deficit worry, sticky inflation and a wave of corporate borrowing tied to artificial intelligence investment, all of it competing for the same pool of savings.

The rise is largely term premium, the extra compensation investors want for holding American duration risk. That is a judgement on fiscal credibility, and no buyback programme can argue with it.

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