$40 Trillion in Debt — and a Trick the US Already Used Once
Market commentary, 23 August 2026: US national debt passed $40 trillion this week. The US faced the same problem once before — in 1946. A 2024 IMF study recalculated what actually happened.
How did the US get out from under 106% debt-to-GDP after 1946?
By 1974, the debt ratio had fallen from 106% to 23%. According to the IMF recalculation, without the artificially depressed real interest rates and the surprisingly high postwar inflation, it would only have fallen to about 74%. In the end, whoever kept their money in fixed-income assets or a savings account paid for it.
How high was US debt after World War II?
Federal debt stood at 106% of GDP, the highest level ever recorded. The Fed had capped long-term rates at 2.5% in 1942, and postwar inflation reached about 14% in 1947.
The Federal Reserve was acting less like an independent central bank and more like an arm of the Treasury. Anyone holding government bonds or cash in a bank account earned a nominal 2.5% — and lost real purchasing power every year. Only in 1951, with the Fed-Treasury Accord, was the rate cap formally lifted.
By 1974, the debt ratio had fallen from 106% to 23%. For decades, that was read as proof of the healing power of economic growth alone.
- 106% US debt-to-GDP, 1946
- 23% Actual ratio by 1974
- 74% IMF counterfactual without repression
- $40T US debt as of 19 Aug 2026
Did growth shrink the debt?
No. According to an IMF study by Julien Acalin and Laurence Ball, without the depressed real interest rates and postwar inflation the debt ratio would only have fallen to about 74% by 1974, not 23%. Savers footed the bill.
Their central finding: without the artificially depressed real interest rates and the surprisingly high postwar inflation, the debt ratio would only have fallen to about 74% by 1974 — not 23%. Most of the actual decline came from a combination of primary surpluses, capped interest rates, and inflation running higher than expected — a pattern economists call financial repression.
The debt itself, in absolute dollar terms, never actually fell during this period; prices and incomes simply grew faster than the debt pile.
What has changed in the tools today?
In 1942 the Fed capped long-term rates directly; today the Treasury itself uses targeted buybacks. On 19 August 2026 it announced it would at least double its buybacks of longer-dated bonds.
Historically, large sovereign debts have rarely been repaid in the literal sense — they were either written off or slowly inflated away. The burden never really disappeared; it shifted, onto whoever held their wealth in nominally fixed assets.
Large creditors appear to know this history — China's sustained gold buying can be read as an attempt not to end up on the losing side of that equation again.
In periods when money loses value, wealth tends to shift toward assets whose supply can't simply be expanded: gold and silver, classically — and, sharing the same core traits of limited supply plus ongoing income, a well-structured German investment property (Kapitalanlage-Immobilie), whether a heritage building with accelerated tax depreciation (Denkmal-AfA under §7i EStG) or a care-home investment property (Pflegeimmobilie).
More on the connection between central bank bond buying and purchasing power loss in our related piece on Japan's 13-year experience with financial repression.
Have governments ever fairly paid off large debts?
Scarcely, if ever. As early as 1776, Adam Smith wrote that there is scarcely an example of a government having fairly and completely paid off large debts.
Relief has almost always come through some form of default — sometimes openly declared, but more often disguised as regular repayment. $40 trillion later, the example Smith was looking for still hasn't turned up.
Independent analysis based on public reporting (Reuters, CNBC, Bloomberg, IMF Working Paper 2024/005 by Acalin & Ball) and public statements by Scott Bessent, as of 21 August 2026. Not investment advice.
Frequently asked questions
How large is the US national debt right now?
US Treasury data confirmed the national debt passed $40 trillion for the first time on 19 August 2026 — up from roughly $19.95 trillion in 2017, a doubling in about nine years.
Has the US grown its way out of debt this large before?
After World War II, the US debt-to-GDP ratio fell from 106% (1946) to 23% (1974). A 2024 IMF working paper by Julien Acalin and Laurence Ball recalculated the episode: without the Fed's interest rate cap and higher-than-expected postwar inflation, the ratio would only have fallen to about 74% — most of the actual decline came from financial repression, not growth alone.
What is the US Treasury doing with bond buybacks right now?
On 19 August 2026 the US Treasury announced it would at least double its buybacks of longer-dated government bonds, from roughly $2 billion to at least $4 billion per operation, starting 9 September 2026. The 30-year Treasury yield fell from 5.26% to as low as 5.18% the same day.
Why look at German investment property in this context?
When debt is eroded through financial repression rather than repaid, whoever holds cash or fixed-income assets loses real purchasing power. Real assets with limited supply — gold, and structured income property such as a German heritage-building investment (Kapitalanlage-Immobilie with Denkmal-AfA under §7i EStG) or a care-home property (Pflegeimmobilie) — have historically held up better through this kind of cycle.
Free initial consultation
Non-binding, personal and tailored to your tax profile. Together we check which model fits your situation — listed-building depreciation (Denkmal-AfA), QNG new build or §7b special depreciation.
Related pages
Diese Seite auf Deutsch lesen
US debt has reached 40 trillion dollars. An IMF study shows the trick of 1946 – and what it means for investors today.
Related: Financial Repression & Real Assets
Central banks are buying government bonds again. What financial repression means for savers, and why real assets in Germany are one response.
Japan's 13-year experience with financial repression
For 13 years Japan has shown how central banks reduce debt through currency debasement. What this means for property investors in Germany.
Tax-optimised German investment property: why is the check the product?
Under §7 (4) sentence 2 EStG, an owner may base the building AfA on a shorter actual useful life than the typical 50 years, if it is proven.
Investment property FAQ: what do investors ask about tax, KfW and the process?
For some properties the developer or seller pays our fee; for others we receive nothing – their prices are commission-free.
Listed-building depreciation 2026: why Leipzig remains no. 1 for property investors
Leipzig combines three factors: listed-building depreciation (Denkmal-AfA) applies to high renovation shares of 60–75%, plus affordable prices and a growing rental market.
Heritage certificate (Denkmal-Bescheinigung) & costs (§7i (2) EStG)
For listed-building depreciation (Denkmalabschreibung) under §7i, the heritage authority decides by certificate which renovation costs qualify, not the tax office.
Content responsibility: Siegfried Perini — Managing Director of AUP Finanzservice, §34c GewO (property broker, loan intermediary), in the industry since 1992. Specialised in investment property with listed-building depreciation (Denkmal-AfA), QNG new builds and §7b special depreciation. No tax or legal advice — please consult your tax adviser.