• Treasury Secretary Bessent argues the U.S. can outgrow its $40 trillion debt burden.
  • The administration's strategy: accelerate growth, contain borrowing costs, and improve the debt-to-GDP ratio.
  • Critics question whether growth alone can stabilize the debt, given large deficits and rising interest costs.

The $40 Trillion Milestone

The United States crossed the $40 trillion gross-debt threshold in mid-August, a symbolic milestone that has intensified scrutiny of federal borrowing. Treasury Secretary Scott Bessent, however, downplayed the number, saying there is "nothing magic" about it. Instead, he emphasized the ratio of debt and deficit to GDP, arguing that the country can grow its way out of debt.

"The only way to get out of debt is to grow our way out of debt," Bessent told Reuters (TRI) on August 30, ahead of a G20 finance-leaders meeting in Asheville, North Carolina. He pointed to U.S. growth and the relative performance of the Treasury market as evidence against claims of bond-market turmoil.

The Growth Strategy

The administration's approach rests on accelerating economic growth to expand the tax base and lower debt ratios, rather than relying primarily on tax increases or large spending cuts. This includes fostering investment, productivity gains—particularly in AI-related sectors—and energy supply. Bessent has also targeted a deficit near 3% of GDP by 2028, though the Congressional Budget Office (CBO) projects a $2.1 trillion deficit for fiscal year 2026, roughly twice that percentage target.

The immediate controversy is that the deficit remains extremely large, and long-term Treasury yields have been under pressure. Markets and fiscal analysts question whether growth alone can make the debt path sustainable. A recent estimate cited by the Washington Examiner put the needed real growth rate at roughly 4.3% annually over the coming decade—far above conventional long-run expectations.

Treasury's Buyback Program

To manage borrowing costs, Treasury has increased planned repurchases of long-dated government bonds. For 10–20-year and 20–30-year securities, the per-operation buyback cap will rise from $2 billion to at least $4 billion from September 9 through November 4. Treasury describes the program as liquidity support, but many investors interpret its timing as an effort to ease upward pressure on long-term yields.

Bessent said regular Treasury auctions—including long-dated bond auctions—will continue, so the buybacks do not represent a halt to net borrowing. However, critics like Stanley Druckenmiller argue that reducing long-term yields through buybacks weakens the bond market's role in signaling fiscal risk. Supporters counter that the operation is modest relative to the total market and can improve liquidity during stressed periods.

The Arithmetic of Debt

The core challenge is whether nominal GDP can grow faster than debt and interest costs. Faster real growth, higher inflation, or both raise nominal GDP and tax receipts, but persistent primary deficits and high interest rates add to debt faster. As of July, the federal-funds target range was 3.50%–3.75%, and inflation has remained above the Fed's 2% target. The July FOMC minutes cited 4.1% year-over-year headline PCE inflation in May and 3.4% core PCE, with policymakers warning that additional tightening might be necessary if disinflation stalls.

This is the central constraint on Bessent's approach: an economy can grow robustly, but if inflation expectations stay high, bond investors may demand higher yields, raising the government's interest expense and offsetting some gains. Net interest costs are projected at about $1 trillion in 2026, rising to $2.1 trillion in 2036, according to CBO.

Stakeholders and Debate

The debate is not whether growth helps—it does. The dispute is whether growth alone can reduce the debt burden when the government continues running large deficits and faces high interest costs. Fiscal hawks and several economists argue that durable stabilization typically requires some combination of faster growth, expenditure restraint, and additional revenue. Former House Speaker Paul Ryan similarly argued that GDP must grow faster than servicing costs to stabilize debt, but that total debt reduction cannot realistically rely only on growth.

The implications of this policy extend beyond the U.S. Treasury market. U.S. Treasuries are a foundational global reserve asset, and a sustained rise in U.S. long-term yields can raise financing costs for households, firms, emerging-market borrowers, and foreign governments. Conversely, actions perceived as suppressing yields without credible fiscal adjustment could raise concerns about dollar credibility.

Outlook

The Treasury's expanded buybacks begin September 9, with a scheduled revisit at the November 4 quarterly refunding. Investors will watch long-term yields, auction demand, inflation reports, and budget data for evidence of whether financing pressures are easing. The immediate risk is a credibility test: if growth, revenue, and deficit figures do not improve, investors could demand higher yields, worsening the interest-cost problem.

Historically, the U.S. has successfully reduced debt burdens relative to GDP, most prominently after World War II, through a combination of rapid nominal growth, financial conditions that held borrowing costs down, and fiscal restraint—not from growth alone. Today, with debt held by the public projected at about 101% of GDP in 2026 and rising to 120% by 2036, the task is more difficult.

Bessent's statement identifies a necessary ingredient—strong growth—but not, in the view of most independent fiscal analysts, a sufficient complete strategy on its own. The practical takeaway is that without a credible plan to address deficits and interest costs, the "grow our way out" approach may fall short.