US debt tops $40T as Treasury doubles bond buybacks to calm markets | Hacker News Reader

US debt tops $40T as Treasury doubles bond buybacks to calm markets

euronews.com

50 pointsabdelhousni45 comments

Can somebody explain what this means exactly?

Why do they need to pay it back? If they pay it back, then what will happen?

I'm from a developing country. My country is objectively much worse than US in every aspect. My country doesn't export anything significant. There's no innovation. insane level of corruption. Yet we don't have this issue. Nobody screams that the country will collapse.

Is this kind of doomsday thinking an American-only culture?

The world economy is based on the idea that America will always repay its debt. Them not paying it back will be the financial equivilent of a nuclear bomb, not just for them, but for literally everybody.

It's not just an idea; it's in our Constitution!

Fourteenth Amendment, section 4: "The validity of the public debt of the United States...shall not be questioned."

This seems to be in contradiction with the first amendment

That's not what "shall not be questioned" means. It's a term of art meaning that the Government cannot refuse to pay valid claims on its debt.

Ah, that makes sense

As long as the debt is in its own currency printing to repay is always an option.

Read it not as 'may not be', but 'nothing shall be done that should give cause to'.

For decades, the U.S government has been spending much more than it takes in from taxes. To make up for the shortfall, it uses debt in the form of U.S. treasury bonds. They currently pay about 5% a year.

They have long been considered risk free. Boring, safe, low return investments. Companies or people who need absolutely reliability in their investments buy them - the elderly, pensions, insurance companies, banks the world over.

The U.S. has issued so many of these bonds that the total amount outstanding right now is $40T. This amount is so staggering that to simply pay that 5% in interest payments costs us more than it takes to fund our very large, expensive military.

If they don't pay it back, and declare all those bonds worthless - well all of those people who were relying on what they thought was a rock solid, safe investment go bust. Banks fail worldwide, pensions run dry, retirement funds suddenly are empty, all kinds of businesses collapse. It would make the financial crisis of 08 look like a joke, and it would be a true catastrophe.

That is almost surely not going to happen.

What could happen is that we enter a debt spiral - investors get worried we won't be able to pay it back, and view bonds as less than perfectly safe. They now want 6%. The U.S. has to pay even more in interest every year, so they issue more debt to roll it over, which makes it worse and we get to 7%, etc.

Typically in this situation, a country either quickly gets its act together and commits to reducing spending and raises taxes, or they just turn on the money printers, and use inflation to make that debt smaller in real terms. I have little faith in the U.S. to commit to fiscal austerity and expect them to try to inflate the debt away.

The question is, are we going to have another Volcker willing to raise the prime rate to 20% to counteract our useless legislative branch? Or is the idea of an independent central bank dead at this point?

I don’t think raising rates like “Tall Paul” (Volcker) did would help in this situation. We are in a bit of a pickle. Raising rates would cause the servicing costs to become enormous and would likely just result in even more debt. The alternative, lowering rates, would likely cause a massive spike in inflation. Inflation makes the debt easier to manage because it’s worth less, but then that wreaks havoc on everyone (especially folks on fixed income).

I think the only way out is to reduce military spending, nationalize the health care system, and tax the hell outta the ultra wealthy. But I suspect that won’t happen at least based on the current oligarchy running the country.

It’s really unfortunate too, because we could be taking on debt to invest in citizens like making college free, improving teacher salaries, and general infrastructure but… we ain’t.

Doing that in the middle of the AI bubble would be a huge systemic risk to the US and world economy. Expansion of the US economy is now largely driven by the colossal amount of data centers being built. No one anywhere in the world would invest in risky data centers, LLM company IPOs etc if they could get a 30y 20% bond. Financial institutions like investment banks, hedge funds rely on the AI musical chairs to justify the trillions of commitments on their balance sheets. A Volcker style rate hike would trigger a dash for the exit and cause the collapse of some of these institutions, risking a domino effect rippling through the entire economy.

Plus it'd also massively increase USG deficits since all the debt that's added and rolled over would be financed at that elevated rate. At that point, cuts would amplify the above domino effect (cf. Kalecki Levy equation) reducing tax intake, but no cuts would mean unleashing a debt spiral.

Others have spoken to why US treasuries were considered a risk free asset, what is important now is that the US Treasury's market participation has been to attempt to keep borrowing costs lower without paying down the debt (US-Japan currency bailout, treasury bond buyback). The bond market is rejecting the theatrics. Fiscal policy can change (spend less, stop issuing new debt, start paying down existing debt), or yields will continue to rise, causing a potential debt spiral (as the US will be forced to issue new debt and refinance existing debt at ever increasing interest rates). Imagine your credit card interest rate keeps increasing, while you carry a balance the size of your annual income, you keep charging on the card, and the limit is unknown.

This will flow into consumer debt markets, pushing up borrowing costs for everyone (auto loans, credit cards, mortgages, etc), as all consumer debt is priced off of "risk free" US treasury yields. This could slow the US economy further, and the economy is already at stall speed without AI investment.

https://think.ing.com/snaps/us-treasury-ups-its-buying-of-lo...

https://think.ing.com/articles/rates-spark-what-the-is-going...

https://www.axios.com/2026/08/20/bonds-fed-treasury-policy

https://www.axios.com/2026/08/20/bonds-treasury-foreign-hedg...

https://www.axios.com/2026/08/19/rates-treasury-borrowing-be...

https://www.axios.com/2026/08/17/treasury-yields-warsh-bonds

https://www.axios.com/2026/07/30/warsh-fed-inflation-bonds

https://www.youtube.com/watch?v=yh18YXKMk3g

Additional citation:

Axios: Here's how America's $40 trillion debt can hit your wallet - https://www.axios.com/2026/08/20/us-40-trillion-dollars-nati... - August 20th, 2026

America Is About to Get More Expensive - https://news.ycombinator.com/item?id=49388369 - August 2026

US Debt is not the same as personal debt. US Treasuries are the same as cash so it is just a measure of how much USD are in the global economy. So long as the "debt" can be serviced there is no issue.

Probably your country doesn't get good deals on money loans and hence it doesn't borrow more than it can pay.

The US on the other hand keeps borrowing and borrowing

Not at all true for most developing countries, they borrow despite the high interest. It just means that the burden of interest payments squeeze out welfare programs, development programs, etc. Usually the IMF/World Bank step in to influence austerity measures, fiscal and monetary policy for further loans to be disbursed.

Have you ever considered that part of the reason your country is like that is because of the government's poor fiscal position? If the US stops spending on science because they have to service debt, innovation might evaporate.

I am sure my country's economy sucks.

But then nobody really screams apocalypse. But, in US, people are so alarmed about US' economy collapsing.

> But, in US, people are so alarmed about US' economy collapsing.

It's more than US Treasuries (debt) are the safe asset upon which all other assets are priced. If they go mental, then lots of assumptions break and the machines will create a financial crisis for us (humans too, but the machines will start it).

Fed is paring back on open market operations while treasury is moving forward. The treasury buybacks are a pittance, though. This administration seems to be sleep walking into a debt crisis. I guess they think they can hold out long enough to blame it on the other party?

> I guess they think they can hold out long enough to blame it on the other party?

Blaming the democrats for republican deficits has worked for the past 40 years, why stop now?

Some people on this site genuinely believe we're still in a Biden economy and when things start to look positive that's when the Trump economy starts, so you're probably right.

The uncomfortable reality is that fixing this will require tax hikes AND spending cuts. Not just taxes on people you don't like and spending cuts on niche programs, real changes like a VAT and slashing the VA.

Both of which can trigger recessions.

Not paying back US debt triggers a global depression.

If e.g. taxes are raised, and GDP decreases, it is theoretically possible that net revenues decrease even though tax rates have increased. Or, revenues may increase but the debt to GDP ratio still increases (because the lower GDP) and borrowing costs increase as a result.

Note that this means, to me, we need to get our shit together sooner instead of later. A little austerity now may prevent outright default later when significant austerity is forced.

The most effective way is likely not broad-based cuts but targeted cuts to old-age spending via means-testing to induce liquidation of 401(k)s or other savings or tangible property to pay for their own care. I feel the longer (and slower) this trainwreck proceeds, the more likely this outcome is palatable. Roughly 52% of retirees have 250k or more in savings [1]. It is far preferable to drawdown those prior to either cutting benefits or raising taxes.

[1] https://www.aarp.org/money/retirement/peak-boomer-readiness/

Fyi asset testing and means testing are different, but yes that is absolutely a good way to implement things from a utilitarian perspective. From a political perspective... Old folks vote. It is a tough situation.

Assets are for practical purposes means and when relatively comfortable retirees draw on SS/401(k)s it is income. There are broadly two choices for the wealthy retirees:

1. cut back on SS and other benefits you can afford out of pocket 2. tax your income higher

I would wager they would choose 1. To this group, the taxes hurt worse than the benefit losses

For poor retirees: 1. cut benefits 2. don't cut benefits

I would wager they would choose 1

The other two commonly suggested fixes -- tax the wealthy and broad tax increases -- also fail in my opinion. The holes we are talking about are in the hundreds of billions per year and won't be fixed by taxing just the wealthy. A broad middle class tax increase will also likely be rejected as unpopular.

It really is my belief that a slow-motion failure here is best. If any fix occurs as the social security trust fund is at 0 cash and while the bond market is in revolt, there will be no fiscal room to maneuver to raise cash from the debt which forces rationing.

That would have been the fix a decade ago, the debt is too high now and the economy too weak.

Discussion: https://news.ycombinator.com/item?id=49366743

Can someone smart tell me how to profit from this if I believe this (plus everything else) is going to spiral into huge crisis?

If you have to ask, you’re too poor or powerless to properly profit.

I'll go and kill myself quietly then

no, no, no, make sure you spend a lifetime working and paying taxes and implicitly supporting the system first.

His reply seemed insulting but it's true. Anything you hear about on the news has already been "priced in." Everyone else in the world now has the same idea of what bandwagon to jump on.

GenX/Millennial retirement communities abroad. There won’t be any SS funds left for that generation so they won’t be able to retire in the US.

I hear this a lot, and for decades - yet during this time US debt and spending has exploded, including things like covid stimulus, great recession QE, etc. We happily printed/borrowed/etc but when it comes to social security - gee you're just out of luck, no money left, sorry!

In all seriousness - this level of debt will probably require somewhat high rates of inflation to reduce. I'd expect the inflation baseline to be relatively high over the next few decades.

High inflation helps those who borrow with fixed terms. If you have a mortgage, don't pay it off. Don't pay off low interest rate debt. Consider acquiring a responsible amount of low-medium interest rate debt. Put your money into stocks and other assets that will appreciate with inflation.

Have you seen mortgage rates? You really think someone with 6.5% rate should not pay that off early?

Go ask a (capable, preferably open) LLM. If it doesn’t give you a direct answer it will give you enough of a starting point to start asking more questions.

(This is not financial advice)

The best way to derisk would be to get out of the US and surrender your citizenship. But the alternatives may not be all that much better (France has marginally lower debt to gdp, japan has much higher, to give two examples).

Learn the ways of the kangaroo.

It really seems the US is done.

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