A not-so-funny thing happened on the way to the accountant: by the end of August, gross federal debt had topped $40 trillion, reaching roughly $40.2 trillion—considerably sooner than many forecasts had anticipated.
The reasons are familiar: tax cuts and other provisions in the One Big Beautiful Bill, the escalating and largely unbudgeted costs of Mr. Trump's war in the Middle East, and the potential need to refund roughly $166 billion in tariffs collected under an authority the Supreme Court ruled the president did not possess. The Court's decision specifically concerned tariffs imposed under IEEPA; it did not eliminate the president's other statutory tariff authorities.
Because the debt is growing and the statutory borrowing limit is $41.1 trillion, forecasters expect Treasury to run into the ceiling sometime in 2027—potentially as early as late winter. Exactly when that happens is uncertain, and hitting the ceiling is not the same thing as immediately defaulting; Treasury has extraordinary measures available once the limit is reached.
The last major bipartisan effort of this sort was the Simpson-Bowles Commission in 2010. Its plan came within three votes of the 14 needed to send it forward to Congress for consideration. Sixteen years later, no comparable comprehensive effort has taken place.
There are plenty of theories, but I should think that because tackling this issue would require difficult choices about Social Security, Medicare, defense and taxes, nobody—from the President on down the line—has the cojones to take it on.
Consequently, net interest costs are now roughly $1 trillion a year—money going to service prior borrowing rather than being available for other priorities. We are financing the financing. And before too long, the chickens will come home to roost.
Treasury Secretary Bessent has had his hands full with the 10-year U.S. Treasury bond yield reaching levels not seen in years. Japan's 10-year bond has also risen sharply, while German, French and UK bond yields have climbed. Seems plenty of countries share the problem of higher borrowing costs amid elevated debt, inflation and other fiscal pressures.
In a fit of pique, Mr. Trump continues to pressure the Fed chairman to lower interest rates. In a social media post following the August jobs report, the president said he would stop trading with countries with which the United States has a trade deficit if the Fed doesn't lower interest rates. That's a head-scratcher, eh?
At the G-20 finance meeting last week, Bessent suggested that the world is “awash in debt” and that the only way out is to “grow our way out.”
But as I pointed out in the first paragraph, the existing debt and additional borrowing under Trump's One Big Beautiful Bill make economic growth alone an exceedingly difficult solution for the U.S. and other highly indebted economies.
The national debt is skyrocketing under Trump 2.0, as it did during his first term. The important point isn't assigning the entire debt to one president; it's that the fiscal trajectory remains upward, with large structural deficits adding to the accumulated debt.
Meanwhile, last week Treasury Secretary Scott Bessent announced that his department would increase its purchases of longer-term Treasury securities as part of its buyback program. Treasury describes the program primarily as a way to improve liquidity in the longer-dated bond market. Theoretically, buying bonds reduces the supply available to investors, pushing their prices higher and their yields lower.
The 10-year Treasury yield rose, while longer-term yields remained elevated. The 30-year yield subsequently moved above 5.3 percent as the global bond sell-off intensified.
Some days I think that, like Mr. Trump, Scott Bessent thinks he's smarter than the rest of us. While Trump may have bamboozled a sufficiently large enough chunk of the electorate, Bessent will have a tougher time of it putting one over on the bond market.
Here's what I think the markets see:
This administration lacks the basic competence to manage its own affairs, including finances. Long-standing alliances disrupted. Tariffs applied and withdrawn on a whim. Bullying prestigious colleges, universities, technical publications and the press. Threats made regarding Greenland and Canada, attacks on Venezuela and Cuba. And Mr. Trump's war in the Middle East, which has set in motion a cascade of destabilizing events with all manner of consequences for global stability, security, energy prices and the world economy.
Yet there are vanity projects like a ballroom, an airborne Qatari palace, a reflecting-pool fiasco and a triumphal arch.
That's what I think the market sees.
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