By Peter Reagan
Everyone likes it when new records are set, don’t they? The excitement of being the first to ever do something… The notoriety… The fame (even if tangential because you were there even if you didn’t get a say in what happened)…
That was part of the excitement of the perfect, no-loss NFL season that the 1972 Miami Dolphins had and the almost-perfect 1985 Chicago Bears season, when they went 15-1 before winning Super Bowl XX.
But before you answer the question about liking new records with a knee-jerk “yes,” pause for a moment and consider that not all records are happy records. Just ask fans of the 1976 Tampa Bay Buccaneers, 2008 Detroit Lions and 2017 Cleveland Browns. I’m betting none of them are particularly proud of the winless seasons those teams recorded.
And with the record the U.S. federal government set this week, I’m feeling more like a 1976 Tampa Bay fan than a 1972 Miami fan…
The federal government’s new record
You might want to be sitting down, if you aren’t already, before reading this next part.
That new record? According to the Treasury Department, the U.S. gross national debt crossed $40 trillion for the first time this week.
Well, $40 trillion is quite a milestone.
It’s not as if more than doubling the national debt in less than ten years – which, according to Reuters, is exactly what has happened – or increasing it by a factor of roughly 40 since the debt first crossed $1 trillion in 1981 is the sort of record anyone wants in the history books.
To be fair, that isn’t the work of one president or one political party. The debt has accumulated over decades through wars, recessions, tax and spending decisions, emergency pandemic programs and the simple arithmetic of repeatedly spending more than the government collects.
And some of you, knowing this, may have the thought that fiscal hawks have been sounding alarms about the national debt for decades. America crossed $1 trillion in 1981, after all, and the economy clearly didn’t collapse.
So maybe deficits aren’t really a big deal, right?
But here’s the thing: The fiscal hawks weren’t completely wrong… or completely right.
Some were certainly wrong about predicting imminent economic collapse, mass chaos or the end of the dollar. There have been plenty of predictions over the decades that the U.S. economy should have collapsed by now. Clearly, reports of its demise, to borrow from Mark Twain, have been exaggerated.
Crossing $40 trillion doesn’t suddenly start some countdown clock to disaster, either.
Having said that, fiscal hawks were right to warn that deficit spending comes at a price.
Because carrying debt is only partially about how much you owe.
It’s also about the cost of carrying that debt.
The real cost of debt
Think about it this way.
If a family has a $300,000, 30-year mortgage at a 2.5% interest rate, the monthly principal and interest payment is about $1,185, not including property taxes and insurance.
Raise the rate to 7%, though, and the monthly payment on that exact same $300,000 mortgage rises to nearly $2,000.
Same debt.
Very different cost.
Government finances obviously aren’t the same as household finances. Washington has taxing authority, can borrow at enormous scale and generally refinances maturing debt instead of “paying it off” the way a family pays off a mortgage.
But the basic point still applies: The interest rate attached to debt can matter nearly as much as the amount borrowed.
And that’s where America’s current fiscal situation becomes more concerning.
According to the Congressional Budget Office, net federal interest costs are projected to top $1 trillion in fiscal 2026. That works out to about 3.3% of the entire U.S. economy.
And CBO expects those costs to keep rising.
Debt held by the public is projected to climb from about 101% of GDP this year to 120% by 2036. Over the same period, annual net interest costs are projected to roughly double, from about $1 trillion to $2.1 trillion.
By then, according to CBO, interest costs would consume nearly all federal discretionary spending.
Why?
Two reasons.
First, Washington continues to run large annual deficits, meaning it has to borrow more (every year).
Second, older government debt matures and gets refinanced. If the new debt carries higher interest rates than the old debt it replaces, the government’s interest bill rises even if spending on everything else stays the same.
And then things can get circular.
The government borrows more. Interest costs rise. Those higher interest costs make the deficit larger. Financing that larger deficit requires still more borrowing.
If lenders then demand still higher rates to absorb all that additional government debt, the cycle can reinforce itself.
That’s the possibility Bloomberg is referring to as a debt “doom loop.”
I want to be careful here: That doesn’t mean America is already trapped in an unstoppable downward spiral.
Interest rates depend on many things besides the size of the federal debt – inflation, economic growth, Federal Reserve policy and investor for U.S. government debt among them.
But the mechanism is real. CBO explicitly warns that borrowing to cover higher interest expenses pushes debt higher, which then increases future interest costs.
And the bigger the interest bill gets, the fewer options Washington has to deal with it.
Their limited options for dealing with the debt
The most straightforward option is that the government could simply spend less.
Simple doesn’t mean easy.
CBO projects about $4.5 trillion in mandatory outlays this fiscal year, including programs like Social Security and Medicare. Add nearly $2 trillion of discretionary spending and more than $1 trillion in net interest, and suddenly the idea of cutting enough spending to materially alter America’s fiscal path becomes a much bigger political challenge than eliminating a few unpopular programs.
People tend to like spending cuts in theory. They tend to like them a lot less when the particular program being cut is one they rely on. This is exactly why so many attempts to slim down the federal budget simply don’t work.
Another option is to collect more revenue.
Again, that’s simple arithmetic and difficult politics. Large tax increases affect households and businesses directly, and lawmakers have historically shown little enthusiasm for tax hikes large enough to close deficits approaching $2 trillion annually. And, let’s face it, politicians don’t win elections by promising higher taxes…
A third possibility is stronger economic growth.
If the economy grows faster than the debt for long enough, the debt becomes smaller relative to national income. Productivity improvements, business formation, new technologies and other forms of real economic growth could all improve the fiscal picture.
I certainly hope they do.
But “hope the economy grows faster than the debt” isn’t much of a fiscal plan.
And that brings us to a fourth option that has suddenly begun appearing in mainstream economic coverage: Financial repression.
What is financial repression?
First, financial repression is not simply another name for inflation.
That distinction matters.
Financial repression refers broadly to policies and regulations that steer banks and other regulated institutions toward government debt or otherwise help keep government borrowing costs below where a less-restricted market might set them.
A July 2026 IMF working paper describes the mechanism as regulatory policies that create captive buyers for government debt, compress borrowing costs and effectively impose an implicit cost on domestic savers.
That’s not a conspiracy theory. It’s a well-documented economic policy with a long history.
The researchers looked at 17 advanced economies going all the way back to 1920. They found financial repression peaked around World War II, declined as financial systems were liberalized and then began rising again after the Global Financial Crisis.
Most interestingly for us, they found financial repression played a significant role in reducing America’s debt burden after World War II.
And the paper’s conclusion is remarkably timely: With many of the historical conditions associated with financial repression present today – particularly high government debt and rising interest expenses – the researchers suggest its use could increase in the future.
Notice that I said could.
This is an IMF working paper, not an announced U.S. policy and not an official IMF forecast. But there’s another reason we’re talking about this today.
Just this week, the Treasury Department announced it would at least double certain buybacks of older, longer-term government debt as long-term borrowing costs climbed.
Reuters reported today that some market analysts interpreted those moves as an effort to restrain long-term rates. Deutsche Bank strategist George Saravelos went so far as to describe the approach as a form of “soft” financial repression.
Again, I wouldn’t take that to mean America has suddenly embarked on a grand financial-repression program.
But the fact that serious analysts are using that language at all tells us something about the pressures Washington faces.
There is, after all, no magical way to make a $40 trillion debt burden disappear.
Higher interest rates make carrying the debt more expensive, and considering how much homes and cars cost these days, nearly every American family carries debt.
Large spending cuts impose obvious costs. Large tax increases impose obvious costs.
And financial repression imposes costs, too – they’re simply less obvious.
Here’s where inflation comes back into the story…
Financial repression and inflation are different mechanisms, but historically they have often worked together. If government borrowing costs are held down while inflation runs above those rates, the real, inflation-adjusted value of the government’s debt declines over time.
Yesterday’s dollars are being repaid with tomorrow’s less-valuable dollars.
That makes the debt easier for the borrower to carry. But remember who is on the other side of that transaction. Savers, like you and me.
The old research on financial repression sometimes describes this as a kind of hidden tax. Because no one sends you a bill marked “National Debt Cleanup Fee.” That, at least, would be a lot more honest…
In fact, your bank account balance might not decline at all.
It just buys less.
Somebody always pays
I think that’s the part of the $40 trillion milestone that’s easiest to miss.
The number itself is frightening because it’s enormous. But we’ve crossed enormous round-number debt milestones before.
$1 trillion. $10 trillion. $20 trillion. $30 trillion.
None of those numbers caused the sky to fall the day we crossed them.
The more important question isn’t whether $40 trillion is some magical breaking point.
It’s what happens when the cost of carrying a gigantic and growing debt burden takes up more and more of the federal government’s resources.
Eventually, somebody pays. Spending cuts have identifiable losers. Tax increases have identifiable taxpayers. Higher borrowing costs consume money that could otherwise go elsewhere, for the government and the family alike.
But financial repression can quietly shift that cost onto lenders and savers alike through lost purchasing power.
That’s why I think this story matters even if you never expect to read another CBO report in your life. The national debt isn’t just Washington’s problem.
The way Washington chooses to manage it can eventually become our problem.
And while none of us can dictate how Congress spends money, where interest rates go or whether policymakers someday lean more heavily on financial repression, we can decide how concentrated our own savings are within that same debt-and-dollar system.
That’s one reason people have historically turned to physical precious metals during periods of inflation, currency uncertainty and concern over government finances.
Physical gold doesn’t eliminate risk, and it isn’t a guarantee against inflation. But it does give savers something fundamentally different – a tangible asset that isn’t a government’s promise to pay.
If you’re interested in learning more about diversifying a portion of your retirement savings with physical precious metals, you can request our free 2026 Precious Metals Information Kit here.