Forty Trillion Is the Small Number

A collaboration between Lewis McLain & AI

On the eighteenth day of August, 2026, the debt of the United States government passed forty trillion dollars.

The exact figure was $40,047,425,768,420.22. Treasury publishes it every day, to the penny, the way a bank publishes a balance. It is not a guess. It is not a projection. It is a number somebody has to pay.

Now I want you to hold that number in your mind for a minute, because I am going to tell you something about it that most of the news coverage left out.

Forty trillion is the small number.

That is the part we have already borrowed. That is the part with a signature on it. There is another number, and it is more than twice as large, and the government’s own auditors will tell you it does not appear on the balance sheet liability at all.

We will get there. But let us start where we ought to start, which is at the beginning.

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ONE: HOW WE GOT HERE

I started in this business in 1972, as Budget Director for the City of Garland. That year the whole federal debt was under $450 billion. The government now borrows that much about every ten weeks.

Something changed around 1980. Before then, the debt grew about like inflation grew. After then, it did not.

Here is every president since, and what happened on his watch. These are Treasury’s own year-end figures.

President	Years	Started	Ended	Added
Reagan	1981–1988	$0.91T	$2.60T	$1.69T
G.H.W. Bush	1989–1992	$2.60T	$4.06T	$1.46T
Clinton	1993–2000	$4.06T	$5.67T	$1.61T
G.W. Bush	2001–2008	$5.67T	$10.02T	$4.35T
Obama	2009–2016	$10.02T	$19.57T	$9.55T
Trump I	2017–2020	$19.57T	$26.95T	$7.37T
Biden	2021–2024	$26.95T	$35.46T	$8.52T
Trump II	2025–today	$35.46T	$40.05T	$4.58T

Now those numbers cover different lengths of time, so they do not compare cleanly. Divide each one by the years served and you get the honest picture — how much debt got added in an average year:

President	Added Per Year
Reagan	$212B
G.H.W. Bush	$366B
Clinton	$201B
G.W. Bush	$544B
Obama	$1.19T
Trump I	$1.84T
Biden	$2.13T
Trump II	~$2.41T

Read that column from top to bottom. Go slow.

Every man in that list borrowed faster than the man before him — every single one — except Clinton. One president in forty-six years slowed the car down. One.

I want to be fair here, because fairness matters more than a good line. The federal budget year starts October first, so a new president spends his first nine months operating on his predecessor’s budget. Congress writes the checks, not the president. Wars and recessions and pandemics are not chosen. And Reagan’s $212 billion in 1985 money would be near $650 billion today.

So do not read that table as a scorecard on eight men. Read it as a scorecard on us. On all of us. Both parties. Every Congress. Every election in which somebody promised more and charged less, and we voted for him, and then we did it again.

The trend does not belong to a party. The trend belongs to the country.

And it is speeding up

Look at how long each trillion took:

• The first trillion took until October 1981.
• Getting to $10 trillion took until 2008.
• Getting to $20 trillion took until 2017.
• Getting to $30 trillion took until February 2022.
• Getting to $40 trillion took until this week.

Ten trillion dollars in four and a half years. The last two trillion took ten months.

Right now the government is borrowing about $200 billion a month. That is $6.6 billion a day. Every day. Saturdays. Sundays. Christmas.

I live in Collin County. Every house, every store, every warehouse, every acre on the tax roll of this entire county would not cover two months of it.

One more thing while we are on the subject

Last summer Congress raised the debt ceiling to $41.104 trillion. We are at $40.047 trillion.

That leaves about $1.06 trillion of room. At $200 billion a month, that is a little over five months.

I am not predicting a crisis. Treasury has tricks — extraordinary measures, they call them — that buy some time, and the timing shifts around. But if you are wondering when this becomes a front-page fight again, look at your calendar for early next year.

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TWO: THE COFFEE CAN IS EMPTY

Now. Let me tell you about the trust funds, because this is where the plain truth has been buried under sixty years of comfortable language.

That $40 trillion splits into two pieces:

• About $32.2 trillion we borrowed from the public — from investors, from banks, from foreign countries.
• About $7.7 trillion the government owes to itself. Social Security. Medicare. Federal retirement.

Everybody calls that second piece “the trust funds,” and the word trust does a lot of work it has not earned.

Here is what actually happened.

For about thirty-five years after 1983, Social Security collected more in payroll taxes than it paid out in benefits. Real money. Your money, out of your check, every two weeks, with your name on it.

That money did not go into a vault. It did not go into a savings account. It did not get invested in anything.

By law, it was handed over to the general fund of the Treasury and spent. On the Navy. On highways. On farm programs. On everything the government does. And in return, the trust fund got a piece of paper — a special Treasury bond that cannot be sold to anybody, ever, that says the government owes the government some money.

Now every city finance director in Texas knows exactly what that is, because we do it too, and we have a name for it. It is an interfund loan.

Suppose a city borrows ten million dollars out of its water fund to patch a hole in the general fund. The city writes an IOU. Now the water fund’s books show a ten-million-dollar asset. Looks fine. Auditor signs off.

But the city is not one dollar richer than it was that morning. And when the water plant needs a new clarifier, somebody has got to raise the water rate, cut a budget, or sell bonds. The IOU did not create one dime. All it did was write down whose problem it is.

Or put it the way my grandmother would have. She kept the grocery money in a coffee can on top of the icebox. If my grandfather took forty dollars out of the coffee can and left a note in there saying “IOU $40,” there is not forty dollars in that can. There is a note. When Momma reaches in on Friday to buy groceries, that note does not feed anybody. Somebody has to come up with forty real dollars.

There is no money in the Social Security trust fund. There never was. There is a stack of notes describing money that was already spent, and a promise that somebody in the future will find it.

And the future has a date on it now

For four decades, those trust funds were among the biggest buyers of government bonds in the world. That is finished. They have flipped from putting money in to taking money out.

The Trustees put dates on it this June:

Fund	Runs Dry	What Happens Then, Under Current Law
Social Security retirement (OASI)	Late 2032	Automatic 22% cut to every benefit check
Medicare Part A (hospital)	Mid-2033	Hospital payments cut about 11%, growing to 16% by 2040
Social Security combined	2034	83% of promised benefits payable

Read that middle column again. Not “Congress might consider reductions.”  Automatic. Under current law, on that date, every retiree in America — the ones already drawing, not just the young ones — gets a 22% cut. And it grows to 38% by the end of the century.

Social Security’s retirement fund moved a whole quarter closer just since last year’s report. These dates keep walking toward us, not away.

Here is the part that nobody explains

When those trust funds start cashing in their special bonds, the Treasury has to come up with real cash money. It gets it exactly three ways. Raise taxes. Cut something else. Or borrow from the public.

It will borrow from the public.

So the redemption does not reduce anything. It just moves the debt out of the pocket where nobody is watching and into the pocket where the whole bond market is watching. Dollar for dollar. That is a big part of why what we owe to actual outside investors — which is the part that has to be sold at auction to real buyers — goes from roughly the size of the entire American economy today to about a fifth larger than the economy by 2036.

The trust fund is not a cushion. It is a bill with the due date already printed on it.

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THREE: THE BILL NOBODY PUTS ON THE BOOKS

Now we come to it. This is the part I most want you to understand, and it is the part that requires a little patience, because it involves an idea most people have never had explained to them plainly.

The idea is called present value. Let me get it out of the way in one story.

Say your granddaughter is eight years old and you have decided you are going to pay for her wedding, and you figure that is going to run $50,000, and she is not getting married for fifteen years.

How much do you need in the bank this morning?

Not $50,000. Less than that — because whatever you put in there is going to sit and earn interest for fifteen years while she grows up. Depending on the rate, maybe $25,000 does it.

That smaller number is the present value. It is what a future promise costs you today. It is the honest price of the promise, right now, in this morning’s money.

Every insurance company on earth runs on this. Every pension fund. Every actuary. If a company promises you a check thirty years from now, the law requires it to put the present value of that promise on its balance sheet as a debt, today, in ink, where the auditors can see it.

The federal government does not do that.

The numbers

The government does calculate it. It is required to. It just does not have to count it.

Here is what its own accountants and actuaries reported this year:

What Is Being Measured	The Hole, In Today’s Money
Social Security, next 75 years	$30.3 trillion
Medicare, next 75 years	$65.3 trillion
— Part A, the hospital half	$4.2 trillion
— Parts B and D, doctors and drugs	$60.9 trillion
Treasury’s own audited figure for both	$88.4 trillion
Treasury’s broadest measure of the gap	$79.6 trillion

Different offices count it different ways and land somewhere between seventy-nine and ninety-six trillion. I am not going to pretend to referee that argument. Here is the part that does not depend on who wins it.

For every single dollar this country has borrowed in its entire history — every war, every depression, every program, every bailout, the whole forty trillion — we have promised away about two more dollars that nobody ever wrote down.

That is the sentence. You do not need any arithmetic to check it. The borrowed part is forty. The promised part is around eighty-eight trillion. Two dollars promised for every dollar borrowed.

And I want to be precise about what those numbers mean, because it is easy to hear them wrong. That $88.4 trillion is not what we are going to spend on Social Security and Medicare. It is the amount by which the spending exceeds everything those programs will collect — after every payroll tax, every premium, every dollar of dedicated revenue. It is the hole. And it is not the future dollar amount of the hole either. It is what you would need in the bank this morning to fill it.

The Treasury’s own report says the shortfall grew by $6.9 trillion in a single year.

Six point nine trillion dollars. In one year. And it did not show up in the deficit, it did not show up in the debt, and it did not make the news.

Now here is the sentence I want you to sit with

From the Financial Report of the United States Government, published by the Treasury Department, audited by the Government Accountability Office. This is not a think tank. This is not a politician. This is the government’s own audited annual report:

“Under federal accounting rules, social insurance amounts as reported in both the SLTFP and in the SOSI are not considered liabilities of the government.”

Not considered liabilities.

An eighty-eight-trillion-dollar gap between what has been promised and what will be collected, and under the accounting rules the government wrote for itself, it is not a debt.

Let me tell you what would happen to a Texas city that tried that. If a city promised its police officers a pension and then declined to book the liability because it had decided the promise was not really a promise, the auditors would qualify the opinion, the rating agencies would downgrade the bonds, the Attorney General would have something to say, and somebody would very likely go to jail.

The federal government does it every year, on purpose, and calls it accounting.

And one more thing, which I did not know until I went looking

The Government Accountability Office — the government’s own auditor — gave the Medicare portion of these statements a disclaimer of opinion.

In plain English, a disclaimer of opinion means the auditor could not gather enough reliable evidence to say whether the numbers are right or wrong. Not “we found problems.” Not “we disagree.” We cannot tell you.

That is roughly $60 trillion of the total — sixty-eight percent of it — that the nation’s auditor will not sign his name to.

If your bookkeeper handed you a set of books and said “I can’t form an opinion on two-thirds of this,” you would not shrug and file it. You would sit down at that table and not get up until you understood it.

Why Medicare is the bigger problem, and why nobody says so

Everybody argues about Social Security. Almost nobody argues about Medicare. But look at the table again — Medicare’s hole is more than twice the size of Social Security’s.

And here is why: Social Security’s cost is basically demographics and a cost-of-living adjustment. It grows, but it grows in ways you can count.

Medicare grows with the price of health care, and health care has been outrunning the economy for fifty years. Part B — that is your doctor visits — is projected to grow better than eight cents on the dollar every year. Part D, your prescriptions, better than nine. The economy grows about four.

Anything growing at 9% inside something growing at 4% will eventually be the whole thing. That is not an opinion. That is a bank statement in slow motion.

Your Part B premium went from $174.70 to $202.90 this year. That is a 16% jump in one year, and it still does not cover the cost, because it never has. About three-quarters of Part B and Part D comes out of general income taxes.

Here is that number, and it is the one I would put on a billboard:

Last year, about eighteen cents out of every dollar of income tax collected in this country — personal and corporate, all of it — went to pay for Medicare Parts B and D. By 2040 the Trustees expect that to be nearly twenty-nine cents. By the end of the century, thirty-eight.

Not for Medicare altogether. Just for the doctor-and-drug half of it. Nearly forty cents out of every income tax dollar in America.

Putting it all together

So set the ledger out plain:

• We have borrowed $40 trillion. That is on the books.
• We have promised, beyond what we will collect, somewhere around $88 trillion more. That is not on the books.
• The not-on-the-books part grew $6.9 trillion last year alone.
• The auditor could not form an opinion on the biggest piece of it.

Forty trillion is the small number.

It is the small number, and we cannot pay it, and everybody is arguing about it, and it is not even the main thing.

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FOUR: WHEN THE INTEREST EATS THE PAYCHECK

Let me put this in terms of a household, because that is where it lives.

The federal government this year will take in about $5.6 trillion and spend about $7.4 trillion. The gap is about $1.9 trillion, and it borrows every dime of it.

Out of that $5.6 trillion coming in, interest on the debt already takes about $1.4 trillion. That is a quarter of the paycheck, gone before the first bill gets paid.

Interest is now bigger than the entire national defense budget. It is the biggest thing the government spends money on except Social Security and Medicare.

And it is going to get worse for a reason that has nothing to do with Congress.

The reason: old cheap debt is being replaced by new expensive debt

Let me put interest rates the way a banker would have explained them to my father: as dollars per hundred borrowed.

In early 2022, the government was paying about a dollar and forty-five cents a year on every hundred dollars it owed. Money was nearly free.

Today it pays about three dollars and forty-four cents on every hundred.

But that figure is stale, and here is why. Most of the debt was borrowed back when money was cheap, and a lot of it has not come due yet. When it does come due, it gets borrowed all over again at today’s price.

And today’s price is higher. On August 13, the government sold thirty-year bonds at five dollars and twenty-two cents on every hundred — the steepest price it has paid for thirty-year money since 2001.

Set those two side by side. Old money: three forty-four. New money: five twenty-two. Every dollar that rolls over gets replaced by a dollar that costs about half again as much.

So the average is going to keep climbing on its own. Nobody has to vote for it. Nobody can stop it. It happens quietly, as the old paper matures, the way a balloon note comes due whether you were ready or not.

That is the single most important thing to understand about the next ten years. The interest bill is going up no matter what anybody does.

So when does interest eat everything?

I built a model to answer this. It is straightforward arithmetic: the debt grows by the deficit plus the interest, revenue grows with the economy, and the average interest rate creeps toward today’s rate as old bonds come due. I ran it three ways.

If things go about as the budget office expects — the economy growing four cents on the dollar, new borrowing at four dollars and thirty cents per hundred:

Year	Interest Bill	Revenue	Share of Every Dollar
2026	$1.10T	$5.60T	20 cents
2030	$1.69T	$6.55T	26 cents
2036	$2.50T	$8.29T	30 cents
2040	$3.18T	$9.70T	33 cents

If rates simply stay about where they sit today — the economy growing a little slower, borrowing at five and a half dollars per hundred:

Year	Interest Bill	Revenue	Share of Every Dollar
2026	$1.10T	$5.60T	20 cents
2030	$2.16T	$6.43T	34 cents
2036	$3.52T	$7.90T	45 cents
2040	$4.66T	$9.06T	52 cents
2050	$9.07T	$12.79T	71 cents

By 2040, in that middle case, more than half of every tax dollar this country collects goes to interest. Everything else — Social Security, Medicare, the Army, the veterans, the courts, the border, all of it — comes out of the other half. Plus more borrowing.

And if we get a bad decade — a slow economy and money at seven dollars per hundred — interest swallows every last dollar of federal revenue by 2044. Eighteen years from now.

Now, I want to be honest about those tables. They are arithmetic, not prophecy. Change the assumptions and the dates all move. And nobody actually gets to 100% — something breaks long before, politically or financially. Read the far end of those columns not as a forecast but as pressure. As the reason something has to give.

The dates that will actually matter

Forget 100%. The crossings that will change American politics come much sooner:

• Interest already passed national defense. Done.
• Interest passes everything the government spends on domestic programs — parks, highways, the FAA, medical research, grants to cities — in about three years.
• Interest passes Medicare around 2030.
• Interest passes Social Security, the biggest line in the whole budget, sometime in the mid-2030s.

That last one is the day the conversation in this country changes. When the single largest thing the United States government spends money on is interest on money it already spent — not defense, not retirement, not medicine, just rent on the past — the politics of the budget will not survive it in its current form.

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FIVE: THE POINT WHERE YOU CANNOT TURN THE SHIP

People ask me: is there a number where this becomes unfixable? Is it $50 trillion? A hundred?

No. There is no such number. Japan owes more than we do, measured against the size of its economy, and Japan borrows just fine.

The point of no return is not a debt level. It is a race between two percentages, and it is easy to explain.

The race

Compare two things: the interest rate the government pays, and the rate at which the economy grows.

Think of it as your credit card against your paycheck.

If the card charges 4% and your pay goes up 6% a year, that card gets lighter every single year even if you never pay a dime on it. You grow out of it.

Flip it. Card charges 6%, pay goes up 4%. Now the card gets heavier every year even if you never charge another thing. You cannot grow out of it. You have to actually cut something.

That is the whole thing. That is the entire question, and nothing else about the debt matters half as much.

For forty years, America was in the first case. That is exactly how we handled World War II. In 1946 we owed a little more than the entire country produced in a year. By 1980 we owed about a third of it. And we never paid it off — we simply grew faster than the debt, and we inflated faster than the debt, and after thirty-four years of that it had shrunk to something manageable.

We are now crossing into the second case. The government pays about three dollars and forty-four cents per hundred, and that is climbing on its own as old cheap debt rolls off. The economy grows about four cents on the dollar a year. Those two numbers are neck and neck right this minute — and only one of them is rising.

What it costs to stop it

Once the interest rate passes the growth rate, you cannot grow out of it. You have to cut spending or raise taxes — permanently, every year — just to keep the debt from growing as a share of the economy. Not to pay any of it back. Just to stop the bleeding.

Here is what that costs at different interest rates:

If Money Costs	And the Economy Grows	The Fix, Every Year, Forever	Which Is About
$4.30 per hundred	4 cents	$920 billion a year	one dollar in six of all federal revenue
$5.00 per hundred	3.5 cents	$1.29 trillion a year	one dollar in five
$5.20 per hundred	3.5 cents	$1.45 trillion a year	one dollar in four
$7.00 per hundred	3 cents	$2.07 trillion a year	two dollars in five

That last column is the one to read. A trillion and a half dollars a year means taking one dollar out of every four the federal government collects — either by cutting a quarter of everything it does, or by raising every tax bill in America by a quarter, or some mix of the two. And then holding it there. Not for a term. Not for a decade. Permanently.

If you want it at kitchen-table scale: spread across every household in the country, a fix that size runs somewhere between eight and eleven thousand dollars a year, per household, indefinitely.

Now, nobody actually gets that bill in the mail, and I am not suggesting they do. Households do not pay in equal shares and never have. I use the figure only because “four and a half percent of gross domestic product” is a phrase that slides right off a person, and eleven thousand dollars a year does not.

Has anybody ever done it?

Yes. That is worth knowing, and it is the closest thing to good news in this whole piece.

The third column translates each one into what it would mean if we did the same thing here, at today’s size — in dollars, and in how much of the federal government’s money it amounts to.

Country	When	Same Fix, In American Terms	How They Did It
United States	1993–98	$1.6 trillion a year — a bit over a quarter of federal revenue	Spending caps, pay-as-you-go rules, a tech boom
Ireland	1987–89	$2.2 trillion — two dollars in five	National agreement between labor and government
Canada	1993–97	$2.5 trillion — nearly half	Line-by-line program review, strong growth
Denmark	1982–86	$3.2 trillion — over half	Currency peg forced the issue
Sweden	1993–98	$3.8 trillion — two dollars in three	After a banking crash, with broad agreement
Greece	2010–16	$5.1 trillion — nearly everything it collects	Forced from outside. Economy shrank a quarter.

Look at our own line first. In the nineties this country pulled off a fix worth about a quarter of what the government collects — and we did it with spending caps, a rule that said you had to pay for what you passed, and a technology boom that filled the Treasury. Divided government. Both parties at the table. It was ugly and it worked.

The countries below us on that list are small, homogeneous nations that could get most of their people to agree on something, and most of them had a cheaper currency softening the blow. And Greece did not choose its fix at all. It was handed one from outside, and the economy shrank by a quarter while they swallowed it.

So here is the honest answer:

If money settles back around four dollars per hundred, the fix is roughly one federal dollar in six. Hard. Painful. We have done it before, and the men who did it are still alive.

If money stays where it is today, the fix is one dollar in four — bigger than everything the federal government spends on every domestic program combined. You cannot get there without touching Social Security or Medicare or raising broad taxes. Possible on paper. It requires an agreement this country has not produced in thirty years.

If money goes to seven dollars per hundred, the fix is two dollars out of every five the government collects. No large democracy has ever done that voluntarily. Not one, not ever. The arithmetic still works fine. It is the country that stops working.

That is what unfixable means. Not that the math is impossible. That the math stays possible while the country loses the ability to do it.

Now the part about speed

Magnitude is only half of it. The other half is how fast the trouble arrives, and this is where America has quietly put itself in a bad spot.

Think about the difference between a thirty-year fixed mortgage and a note you have to renew every single year.

Same house. Same debt. But if interest rates jump three points, the man with the fixed mortgage does not feel a thing. The man with the annual note feels all of it, right now, this year.

The United States has been drifting toward the annual note. Right now, about a third of the debt comes due within twelve months. Roughly $10 trillion, coming due inside a year, that has to be borrowed all over again at whatever the rate happens to be that morning.

So watch what a three-point rate increase does to the government’s actual interest bill:

Say rates jump three points and stay there. Here is how much of that damage has actually landed on the federal budget as time passes — us, versus a country that borrowed long and slow:

After	Landed On Us	Landed On the Careful Country
One year	three-tenths of it	one-tenth
Two years	over half	one-fifth
Three years	seven-tenths	one-quarter
Five years	nine-tenths	four-tenths

Inside of three years, seven-tenths of the damage has already arrived.

A country that borrowed for the long term gets a decade to argue about it, hold elections, pass a law. We get three years.

Put the two halves together and you have your answer. The magnitude threshold is interest running about two points above growth, and staying there. The speed is three years to full damage. Multiply them and you get a required fix bigger than any peacetime democracy has ever voluntarily made, arriving faster than this Congress has ever passed anything.

That is the scenario. Not a dramatic failed auction. Just a vise, closing slowly, on a government that cannot agree on what day it is.

And what “a crash” would actually look like

Not bankruptcy. Let me be clear about this, because there is a lot of foolishness talked about it. The United States borrows in dollars and prints dollars. It cannot be forced to default. That is not the risk.

The risk is the thing that happened last time.

Between 1946 and 1980, what this country owed fell from more than a full year’s national output down to about a third of one. Almost none of that was repayment. It was inflation, and it was rules that held what bondholders earned below the rate at which prices were rising, year after year after year.

Every bondholder got paid every dollar he was promised, right on time. Those dollars just did not buy what they used to.

That is the American way of handling too much debt. It requires no vote. No debate. Nobody’s name on it. It is what happens if nobody does anything, and doing nothing is the one thing this system reliably produces.

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SIX: WHO IS BUYING ALL THIS

Short version: about $32 trillion is out there in the market. Three groups hold it.

Foreign countries and foreign investors: about $9.5 trillion, roughly 30 cents of every dollar.

You hear that foreigners are dumping our debt. In total, they are not. Foreign holdings hit a record this year — up $587 billion over twelve months.

The biggest holders as of December:

Country	Holdings
Japan	$1,185B
United Kingdom	$863B
China	$684B
Belgium	$477B
Canada	$468B

Two cautions on that list. First, it tracks where the bonds are kept, not who owns them. A Saudi fund holding through a London bank shows up as Britain. Belgium’s number is mostly one big clearinghouse in Brussels. Second, most foreign holding is now private investors, not central banks — about 59% private. That matters, because a central bank holds bonds for policy reasons and does not much care about the yield. A private fund manager cares about nothing else. Price-sensitive money is fickle money.

And China is genuinely leaving. Down from $759 billion a year ago to $684 billion. Down roughly by half from where it was in 2013. Japan and Britain bought enough to cover the gap. So far.

The Federal Reserve: about $4.3 trillion, roughly 14 cents of every dollar.

The Fed bought enormous amounts of Treasury debt after 2008 and again during COVID, then spent three years letting it run off. That runoff ended December 1, 2025.

And I owe you a correction here. The standard line — the one I have used myself — is that the Fed’s holdings do not really count, because the Fed sends its interest earnings back to the Treasury. Money out of one pocket into the other.

That stopped being true in September 2022.

The Fed now pays more interest to banks on their reserves than it earns on the bonds it holds. It has been losing money. Payments back to the Treasury have been zero since September 2022 — the first time that has happened since 1934. The shortfall got booked as something called a “deferred asset,” an accounting device no regulated bank on earth is permitted to use, and it peaked above $240 billion.

The Fed turned a small profit again this spring. But payments to the Treasury do not resume until that whole $240 billion hole is filled — projected 2030 or later.

So a revenue line that brought in $76 billion in 2022 has been zero for four years and stays zero for four more. And the budget office’s projections assume it comes back.

Everybody else: about $18 trillion, roughly 56 cents of every dollar.

This is the biggest group and it gets the least attention. Mutual funds and money market funds — the money funds now hold about 40% of all short-term Treasury bills. Banks. Pension plans. Insurance companies. State and local governments, which means every Texas city and school district with a portfolio. And ordinary households, buying directly, more than they have in a generation, because for the first time since 2007 the yield is worth having.

The thing to understand about all of this: the buyers used to be people who did not care much about the price. Foreign central banks buying for reserves. The Fed buying for policy. Trust funds buying automatically.

The buyers now are people who care about nothing but the price.

That is a different market entirely. And it is why the government is now paying better than five dollars and twenty cents per hundred for thirty-year money.

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SEVEN: WHAT IF THEY QUIT BUYING

Let me knock down the scary version first, because it is wrong.

“Nobody shows up at the auction and the government cannot borrow.” That does not happen. There are two dozen firms legally obligated to bid. The auction clears. It always clears.

The question is never whether it clears. The question is at what price.

And we have a live example from six days ago.

On August 13, Treasury sold $25 billion of thirty-year bonds. Plenty of buyers showed up — demand was actually a hair above the recent average. But they demanded five dollars and twenty-two cents on every hundred — the steepest price the government has paid for thirty-year money since 2001. And they demanded more than the market had expected that morning.

Read that carefully, because it is the whole story in one auction.

Demand did not disappear. Demand got expensive.

The bonds already on the books cost about three dollars and forty-four cents per hundred. New thirty-year money costs five dollars and twenty-two cents. That difference is not a forecast and it is not a worry. It is an appointment. Every dollar of old cheap debt that comes due walks up to the window and gets replaced by a dollar that costs half again as much.

The day after, Treasury announced it would start buying back more long bonds to prop up the market. When the debt manager starts doing that, pay attention.

What actually happens as it gets worse

First, the price goes up. That is where we are. Yields climb until somebody bites.

Second, Treasury borrows shorter to dodge the expensive long rates — which is exactly what it has been doing, and exactly what makes the three-year damage clock run faster.

Third, the dealers fill up. There are limits on how much inventory the big banks can carry, and they are near them. Behind the dealers sit hedge funds running borrowed money into Treasury bonds — a trade worth trillions that provides real liquidity in calm weather and evaporates in a storm. It evaporated in March 2020, the deepest bond market in the world simply stopped working, and the Fed had to buy hundreds of billions in a matter of days just to get it started again.

Fourth, the Fed. Which brings us to the honest question nobody in Washington wants asked out loud: at what point does the central bank buying government bonds stop being monetary policy and start being printing money to cover the government’s checks?

There is no line in the accounting that tells you. It is a matter of why, and how much, and whether anybody believes you.

And if you want to know how fast it can go wrong, look at Britain in September 2022. The government announced a budget the market did not believe. Pension funds got margin calls, had to sell, which pushed prices down, which caused more margin calls. Thirty-year bond yields moved more in days than they normally move in years. The Bank of England had to step in with emergency purchases and the budget was withdrawn.

Start to finish: about three weeks.

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EIGHT: WHAT THIS MEANS AT HOME

I have spent fifty-four years working on Texas city and school budgets. Let me bring this down off the mountain.

Your city’s projects cost more now. Municipal bonds are priced off Treasury bonds. When the thirty-year Treasury goes from four dollars per hundred to five, city bonds follow it up. On a hundred-million-dollar bond issue over twenty years, that one extra dollar per hundred costs $13.3 million in additional interest. That is a fire station. That is two elementary school gyms. That is a stretch of arterial road. Every five-year capital plan in North Texas built on 2021 numbers is now a work of fiction.

Your tax bill has a second half you have not been watching. Your city and school tax rate has two pieces: one for operations, one for debt service. As debt gets more expensive, the debt piece grows. It does not fall under the same voter-approval limits as the operations piece — but it is the same total rate on the same bill, and it squeezes out room for everything else.

Bond elections that voters approved when money cost two and a half dollars per hundred are being sold at five. Voters approved a project. They did not approve doubling the interest. Somebody has to have that conversation honestly.

Federal grant money is the first thing to go. This is the one I would watch hardest. When interest is eating 19% of the federal budget and Social Security, Medicare, and defense cannot be touched politically, there is only one place left to cut. It is the discretionary budget, and inside the discretionary budget the easiest thing to cut is money sent to somebody else’s government. Community development grants. Water infrastructure funds. Transportation formula money. Police and fire grants. Every one of those lines is in the shrinking bucket, and every city in Texas has some of them built into a plan right now.

And watch the tax exemption on municipal bonds. The federal government gives away about $1.9 trillion a year in tax breaks — more than it spends on all domestic programs combined. When the day comes that Congress has to find real money, everything on that list gets looked at, and the exemption for city and school bond interest has been on the chopping block in every serious deficit conversation for forty years. Cap it and every issuer in Texas pays more the next morning.

One piece of good news. For the first time since 2007, city investment portfolios are earning real money. A city sitting on $200 million is generating meaningful interest income. Take it and be grateful — and do not you dare build a permanent payroll on top of it, because it is the most cyclical dollar on your books.

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CLOSING

Let me gather it up.

Forty trillion dollars is what we have already borrowed. It grew under every president since 1980, faster under each one than the one before, with one exception in forty-six years.

The seven point seven trillion sitting in the Social Security and Medicare trust funds is not money. It is a stack of notes describing money that was spent a long time ago, and the dates those notes come due are 2032 and 2033.

And behind all of that sits the number that does not appear on any balance sheet: somewhere around eighty-eight trillion dollars in promises beyond what will ever be collected. It grew by nearly seven trillion last year. The government’s own auditor could not form an opinion on two-thirds of it. And under the rules the government wrote for itself, it is officially not a debt.

Forty trillion is the small number.

Nobody is refusing to lend us money. The auctions clear every week. The world still wants dollars.

It just costs 5.216% now. That is not a warning shot. That is a receipt.

And the thing I want you to take with you is this. The arithmetic in this piece is not hard. There is nothing in it that a careful person cannot follow. It has been published, every year, by the Treasury Department, audited, printed, and posted on a website where anyone can read it.

We have not been deceived. We have been informed, thoroughly and repeatedly, and we have decided not to look.

The interest on this debt is already bigger than the United States Army, Navy, Air Force, and Marine Corps combined. Nobody voted for that. It was not in any platform. No congressman ran on it.

It is just the bill for forty-six years of promising more than we were willing to pay for, and it is coming due on our children, and every year that we do not deal with it, the payment gets larger and the choices get fewer.

Forty trillion is the small number.

Let us at least be honest about the big one.

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SOURCES

Debt figures: U.S. Treasury, Debt to the Penny and Historical Debt Outstanding. Budget projections: Congressional Budget Office, The Budget and Economic Outlook 2026–2036, February 2026, with the August 2026 update. Trust fund dates, benefit cuts, and unfunded obligations: 2026 Social Security and Medicare Trustees Reports, June 9, 2026. Present value figures and the “not considered liabilities” language: Financial Report of the United States Government, FY2025, Statements of Social Insurance and Statements of Long-Term Fiscal Projections, Bureau of the Fiscal Service. Disclaimer of opinion on HHS social insurance statements: GAO-26-108073. Foreign holdings: Treasury International Capital System, December 2025. Federal Reserve remittances and deferred asset: Federal Reserve H.4.1 and Combined Quarterly Financial Report, Q1 2026; CRS IF12147. Auction results: TreasuryDirect, August 13, 2026. Debt limit: P.L. 119-21.

The interest-versus-revenue projections and the required-adjustment tables are my own calculations under the assumptions stated in the text. They are arithmetic, not forecasts. Historical fiscal consolidation figures are approximate.