$40 Trillion in Debt — and a Trick the US Already Used Once
US national debt passed $40 trillion this week. The same question was put to the US once before — in 1946. A 2024 IMF study recalculated what actually happened.
How the US "grew out" of 106% debt-to-GDP — or did it?
After World War II, US federal debt stood at 106% of GDP — the highest level ever recorded. The Federal Reserve had already capped long-term interest rates at 2.5% in 1942, acting less like an independent central bank and more like an arm of the Treasury. Postwar inflation simultaneously took off, reaching about 14% in 1947. 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.
Growth didn't shrink the debt — savers footed the bill
A study by two IMF economists (Julien Acalin and Laurence Ball, IMF Working Paper 2024/005) recalculated the standard narrative. 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. In the end, whoever kept their money in fixed-income assets or a savings account paid for it.
The tools changed. The function didn't.
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. In 1942 it was the Fed capping long-term rates directly. Today it's the Treasury itself, using targeted buybacks to push in the same direction. 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.
"Scarce, if ever, fairly paid"
As early as 1776, Adam Smith wrote that there is scarcely an example of a government ever 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.
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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.