See how well you understand the Finances of America. Every American should understand the basic components of how our Government manages the finances of the Country. Only through knowledge are we able to understand the financial state of the country, and thus the health of the country and from this knowledge the ability to make informed decisions.
“Knowledge will forever govern ignorance; and a people who mean to be their own governors must arm themselves with the power which knowledge gives.”
James Madison
Test Government Finance Knowledge
About how much Revenue does the U.S. Federal government collect in a typical recent year?
Order of magnitude: Federal revenues are in the mid single-digit trillions, not billions. For example, in Fiscal year 2024 the federal government collected about $4.9 trillion in revenue. That was just under 20% of U.S. GDP for that year. Learn more: Federal Revenue overview.
How the U.S. Could Reduce Debt Without Breaking the Economy
The U.S. National Debt just passed $38 trillion according to the US Treasury’s Debt to the Penny. [1][2] Not all debt is bad, but if it gets too large then debt can matter a lot, even those denominated in a fiat currency, because interest costs compound and grow they can crowd out other national priorities. Growing up your parents may have told you that it’s a lot easier to get into something, then to get out. That is especially true for debt, easy to get in, and painful to get out. Now that we have reached the point where interest payments are over $1 trillion annually, the US has crossed into that uncomfortable territory. The real challenge is to bring debt growth under control without causing a recession or a bout of high inflation. Ray Dalio, a billionaire hedge fund manager who has written books on Why Nations Succeed and Fail, and How Countries go Broke, popularized the idea of a “Beautiful Deleveraging” – a balanced, multi-year process that reduces the painful process of deleveraging when lowering debt burdens through a mix of growth, moderate inflation, controlled austerity, and targeted debt adjustments, rather than a painful deleveraging that could lead to recession, extreme reductions in services, tax increases, and austerity measures. [3][4]
This piece frames what a Beautiful Deleveraging could look like for the United States, why it’s hard, the challenges faced, and how policy could balance the Deflationary forces of tightening with the Inflationary tools sometimes used to ease the adjustment—aiming for a soft landing that improves the country’s long-run fiscal and economic health, while minimizing the pain along the way.
Current Status
National Debt: The National Debt stands at just over $38 trillion (gross) with over $30 trillion of which is Debt held by the public. [2]
Deficits: Structural Annual deficits running over $1trillion at around ~6% of GDP. [5][6]
Interest Costs: Net Interest over $1 trillion annually. The Congressional Budget Office (CBO) Long-Term Budget Outlook (March 2025), Net Interest reaches 5.4% of GDP by 2055, up from ~3.2% of GDP around 2025. [7][8] Independent analysis by the Committee for a Responsible Federal Budget (CRFB) highlights a related pressure point: by the 2050s, net interest would consume roughly 28% of federal revenues, absent policy changes. [9]
According to CBO’s latest long-term outlook, by 2055 total Federal outlays (spending) are projected at about 26.6% of GDP, with Net Interest (interest paid on National Debt) near 5.4% of GDP. That means that roughly one-fifth (~20%) of Federal spending will be used to pay interest on the debt. At that scale, interest costs rival or exceed most standalone programs and risk crowding out other priorities if unaddressed. [7][8][9]
What “Beautiful Deleveraging” Means
In Economic terms, Beauty is about reducing debt while avoiding (or at least minimizing) the painful parts of deleveraging and therefore managing that successfully can be Beautiful. Dalio’s Deleveraging framework was originally developed to explain past debt cycles and emphasizes a balanced mix of tools so that the economy can reduce debt without crashing demand and involves these components:
Spending Restraint (public and private demand constraint),
Income growth (real GDP growth),
Debt Restructuring or Terming out (Monetary intervention when necessary), and
A measured amount of Money/Credit creation (Moderating and managing inflation).
These components, when executed with great skill, political courage, and balance, can help the economy grow enough to ease debt ratios while avoiding a deflationary spiral. [3][4]
For a sovereign like the U.S., that balance translates into a policy with credible fiscal consolidation, productivity-oriented growth policies, and a monetary policy that avoids both runaway inflation and hard-landing deflation. Because the U.S. issues debt in its own currency with deep capital markets, it has more room to maneuver than most, but it is not immune to arithmetic: if interest rates (R) run above growth (G) (See our Article on R > G), debt ratios tend to rise unless deficits are reduced. CBO’s long-term projections foresee precisely this pressure in their future outlook. [9]
Pain Points: Why Deleveraging Is Hard
There is a reason it’s hard, in general large broad spending cuts, and more and higher taxes are not popular. While the components and levers are well known, it takes a healthy amount of political courage to propose policies that maybe unpopular, a great deal of skill and coordination to execute these policies, and likely a good amount of luck and good timing for a sustained period likely across several administrations. A deleveraging can proceed along two of these painful paths, spending cuts and tax increases, and each has tangible real-world consequences:
Spending cuts: Less public consumption and investment, fewer or slower growth in transfers, and potentially fewer (e.g. program eliminatinos) or lower service levels (e.g., processing times, enforcement, infrastructure maintenance). In macro terms, cuts are deflationary, they reduce aggregate demand, which can cool inflation but also growth and employment in the short run.
Tax increases: Higher effective tax rates reduce disposable income and/or after-tax returns to investment, is also deflationary. Design matters: broadening the base (fewer exemptions) generally distorts behavior less than steep marginal rate hikes, but either path tightens demand.
Because both mechanisms have a contractionary/deflationary impact and create conditions that can lead to recession, economic hardship, and job loss, a multi-year consolidation approach is part of Dalio’s framework. Instead of a fiscal cliff and extreme austerity based spending cuts; Dalio’s approach phases changes over time; and pairs tighter budgets with growth-friendly policies (innovation, expansion, permitting, skills, productivity increases) that lift the supply side. The goal is to keep nominal GDP growth (real growth + inflation) from collapsing, otherwise debt-to-GDP can rise even while you cut, because the revenue denominator shrinks.
Deleveraging Menu (and Their Trade-offs)
The Tax Project has outlined (See our Article: “Ways Out of Debt”) a non-exhaustive review of policy options to deleverage. Below we provide a summary group them by mechanism. [10]
1) Consolidation via Revenues (Tax Increases)
Summary: Revenue measures (Tax Increases) are deflationary near-term but can be structured to minimize growth drag (e.g., emphasize consumption/external taxes with offsets, or reduce narrow, low-value tax expenditures).
2) Consolidation via Outlays (Spending Cuts)
Summary: Spending cuts can be deflationary; pairing it with supply-side reforms (education/skills, streamlined permitting for productive investment, R&D incentives, labor force productivity growth) can mitigate growth losses and raise potential output over time.
3) Pro-Growth, Supply-Side Reforms (Growth)
Summary: Growth and Supply side reforms (e.g. Productivity, Innovation, Permitting, Energy inputs) that generate real productive growth is the least painful way to lower debt-to-GDP without relying on high inflation.
4) Inflation and Financial Repression (Print Money)
Summary: Modest inflation can ease real debt burdens, part of Dalio’s balance, while managing highly destructive excess inflation. That is why the “beautiful” approach uses only modest inflation alongside real growth, fiscal and monetary management, not inflation as the main lever. [7][9]
The Sooner we Start, the Easier it is
The bottom line is, the longer we wait the harder it gets, the problem will not go away on its own, it only gets worse over time. The 2025 CBO long-term outlook provides a forecast, and it doesn’t paint a great picture:
Debt Outlook: Debt held by the public rises toward 156% of GDP by 2055, under current-law assumptions. [8][11]
Outlays vs Revenues: Outlays (spending) climbs from ~23.7% of GDP (2024) to 26.6% (2055); revenues rise more slowly to 19.3% – expanding an already large and persistent structural gap. [8][12]
Net interest: Reaches 5.4% of GDP by 2055—roughly one-fifth of total federal outlays and around 28% of Federal revenues. [7][8][9]
Those numbers underscore the reason to start now: the later the adjustment, the harder the challenge required to stabilize debt. Conversely, a timely package that the public views as credible and fair can anchor long-term rates lower than otherwise, reducing the interest burden mechanically.
A “Beautiful” U.S. Deleveraging
The Tax Project does not propose or advocate specific policies, however a workable plan using the Dalio Framework would likely include a mix of the following components aimed to stabilize debt-to-GDP within a decade and then bend it downward while sustaining growth and guarding against excessive inflation relapse. A balanced approach:
A multi-year fiscal framework enacted up front allowing for a ordered and measured deleveraging.
Credible guardrails: Deficit targets linked to the cycle; a primary-balance path that improves gradually, with automatic triggers to correct slippage.
Composition: Roughly balanced between base-broadening revenues and spending growth moderation in the largest programs (phased in).
Quality: Protect high-return public investment; target lower-value spending and tax expenditures first.
Administration: Resource the revenue authority to improve compliance; align incentives and simplify.
A growth package to offset the deflationary impulse.
Supply-side reforms with high ROI: energy and infrastructure permitting; skilled immigration; workforce skills; competition policy that fosters innovation and productivity tools.
Private-sector: Reduce regulatory frictions that impede capex expenditures in goods and critical infrastructure.
Monetary-Fiscal Coordination in the background—not Fiscal Dominance.
Monetary-Fiscal Coordination: The Federal Reserve keeps inflation expectations anchored; it does not finance deficits but it can smooth the adjustment by responding to the real economy and anchoring medium-term inflation near target. Over time, a credible Fiscal policy promoting growth helps bring Rates (R) down toward Growth (G), easing the arithmetic. [7][9]
Contingency tools (use sparingly)
“Terming out” Treasury debt Lock in more fixed, long-term loans and rely a bit less on short-term IOUs. Why it helps: If rates rise, less of the debt has to be refinanced right away, so interest costs don’t spike as fast. If the term premium is reasonable and the Fed is in an accommodative stance, shorter term lower rate treasuries maybe attractive to reduce Net Interest expenses.
Targeted restructuring (not the federal debt—specific borrower groups) Adjust terms for groups where relief prevents bigger damage (e.g., income-based student loan payments, disaster-area mortgage deferrals). Why it helps: Stops small problems from snowballing into defaults and job losses while the government tightens its own budget.
This mix qualifies as “beautiful” by balanacing inflationary and deflationary elements. It shares the burden across levers; it avoids hard financial shocks; it relies primarily on real growth + structural balance rather than high inflation or sudden austerity. Done credibly, long-term rates fall relative to a laissez-faire (do nothing) approach, lowering interest costs directly and via lower risk premia. The country benefits both intermediate (by not inducing a recession and harsh economic measures), and long term freeing up revenue to more productive uses than Debt payments, and supporting growth.
Managing the Macro Balance: Deflation vs Inflation
All this sounds good, but the practical art is to offset deflationary consolidation with pro-growth supply measures, not with high inflation. Consider the balancing act between these different variables:
Consolidation (deflationary): Fiscal discipline reduces demand, manages structural gaps, good for taming inflation; risky for growth if overdone or badly timed.
Growth Reforms (disinflationary over time): Expand supply, lower structural inflation pressure; raise real GDP and productivity, improving the debt to GDP ratio.
Monetary Stance: Should keep inflation expectations managed; if growth softens too much, gradual monetary easing is available if inflation is on target.
Inflation temptation: Modest inflation can reduce some of the burden mechanically, but leaning on inflation as the adjustment tool can backfire if markets demand higher interest rate (term) premiums; nominal rates can rise more than inflation, worsening R > G and Net interest. CBO’s baseline already shows interest outlays rising markedly even without an inflationary strategy. [7][9]
A “Beautiful Deleveraging“ aims too creates a “soft landing” keeping nominal GDP growth positive, inflation expectations managed, and real growth strong enough that debt-to-GDP falls without creating undue Economic hardships. Managing each of these variables with the often blunt tools available, many of which don’t manifest for months, or years is quite the magic trick, requiring patience, skill, and acumen.
Risks and Pitfalls
The road ahead can be bumpy and full of challenges, managing the risks is key to a successful deleveraging. Here are some areas that can derail a “Beautiful Deleveraging.”
Front-loaded austerity that slams demand into a downturn or recession; a gradual path anchored by rules and automatic stabilizers is safer and creates less hardships. It means that we will endure less pain over a longer period. Some may want to rip the band aid off and take the measures all at once.
Policy whiplash (frequent reversals) that destroys credibility and raises risk premia (higher Interest rates); stable consistent policies beat one-off “grand bargains” and political vacillations.
Over-reliance on rosy outlooks; plans should make conservative growth assumptions, and reasonable baselines.
“Kicking the can” down the road with laissez-faire policies until interest dominates the budget, leaving painful, crisis-style adjustments as the only option is the biggest of all the Risks. CBO’s outlooks illustrates how waiting raises the eventual cost, and negative consequences. [7][8][9]
Is it Worth it?
On the surface, that’s an easy question, however the answer may pit generations against each other each with their own point of view and different perspectives. Current generations at or near retirement who may not see the worst effects of a laissez-faire policy may see the risk of recession, and cut backs in service as an unacceptable change to their Social Contract which they may have worked a lifetime under a set of expectations that they counted on. Younger generations, may see it as generational theft, placing an undue burden on them for debt they had little or no part in creating. Both are valid perspectives, however, the long term effects of a “Beautiful Deleveraging” will deliver these positive durable payoffs for the Country:
Out of Doom Loop: High debt is a trap, as out of control interest expenses rise, debt grows and the gap between revenue and debt rises in a self reinforcing doom loop. Breaking that loop is key to a healthy economy.
Lower Interest burden: As debt drops, so does Net Interest expenses. Instead of crowding out other expenses, revenue is freed up to other National Priorities (e.g. Healthcare, Education, Infrastructure, Social Services, Surplus, Sovereign Wealth). [7][9]
Greater Macro resilience: With manageable debt exogenic shocks, pandemics, wars, financial events, give the Government financial space to manage these events without taking on negative levels of debt.
Higher Trend growth: When consolidation is paired with genuine productivity reforms, lower debt ratios are correlated with higher growth, supporting living standards and the tax base. [14][15][16]
Summary
A “Beautiful Deleveraging” is but one way to approach the intractable problem of high debt. It represents a reasonable approach that balances near term realities with long term impacts. Our choices now will define the America of the future, and the quality of life younger Americans will have and future generations will inherit. Will it be painless? Probably not, it will likely require some sacrifice and discipline. The challenge wasn’t created in a short period, and it won’t be solved in a short period. Is it achievable? If we face the truth with candor about trade-offs, accept phased steps that the public deems fair, and have a bias toward investments that raise long-term productive capacity, than it is possible. The biggest question is the will of the American people. That, more than any single policy, will determine our future. At the Tax Project we will always bet on informed Citizens making the best choices for America – we will always bet on America. That defines the essence of a “Beautiful Deleveraging.” [3][4][10]
Citations
[1] U.S. Department of the Treasury, America’s Finance Guide: National Debt (accessed Oct. 2025): “The federal government currently has $37.98 trillion in federal debt.” (fiscaldata.treasury.gov)
[2] Joint Economic Committee (JEC) Debt Dashboard (as of Oct. 3, 2025): Gross debt ~$37.85T; public ~$30.28T; intragovernmental ~$7.57T. (jec.senate.gov)
[3] Ray Dalio, What Is a “Beautiful Deleveraging?” (video explainer). (youtube.com)
[4] Ray Dalio, short-form clip on “beautiful deleveraging.” (youtube.com)
[5] Reuters coverage of CBO near-term deficit path (FY2024-2025). (reuters.com)
[6] Associated Press summary of CBO’s 10-year outlook (debt +$23.9T over decade; drivers). (apnews.com)
[7] Congressional Budget Office, The Long-Term Budget Outlook: 2025 to 2055—headline results: net interest 5.4% of GDP by 2055; outlays path. (cbo.gov)
[8] Peter G. Peterson Foundation, summary of the 2025 Long-Term Outlook: outlays to 26.6% of GDP; interest path and historical context. (pgpf.org)
[9] Committee for a Responsible Federal Budget (CRFB), analysis of CBO 2025 outlook: interest consumes ~28% of revenues by 2055; R > G later in the horizon. (crfb.org)
[10] Tax Project Institute, Ways Out of Debt: US Options for National Debt (June 14, 2025). (taxproject.org)
[11] Reuters recap of CBO long-term debt ratio (public debt ~156% of GDP by 2055). (reuters.com)
[12] CBO, Budget and Economic Outlook: 2025 to 2035 (context for near-term path). (cbo.gov)
[15] Cecchetti, S. G., Mohanty, M. S., & Zampolli, F. (2011). The Real Effects of Debt (BIS Working Paper No. 352). Bank for International Settlements.
[16] Eberhardt, M., & Presbitero, A. F. (2015). Public debt and growth: Heterogeneity and non-linearity. Journal of International Economics, 97(1), 45-58.
Confused about the National Debt, why you hear so many different numbers, and what they mean. Here’s a plain English explainer to help you make sense of it all. The National Debt is the total amount the U.S. Federal government owes to its creditors. It does NOT include the Debt held by State and Local Governments. Think of the National Debt as the running total of past annual deficits (when the government spends more than it collects in taxes and other income) minus any surpluses (when it collects more than it spends). The debt grows when there’s a deficit and shrinks—at least relatively—when there’s a surplus or when growth/inflation outpace new borrowing. [1][5]
Terms you should know:
DEFICIT: A deficit is a one-year budget shortfall (this year’s shortfall, which can occur every fiscal year).
NATIONAL DEBT: The debt is a accumulated total of all Deficits minus any Surpluses (the total outstanding IOUs accumulated over time).
Figure 1 Historical Federal Budget Deficits and Surpluses Source: OMB
The U.S. Treasury’s Debt to the Penny website publishes the official daily total and its two big parts (explained below). You can look up yesterday’s number, last month’s, or data back to 1993. [2]
When people talk about the “National Debt,” they often mean one of three closely related figures:
Debt held by the public This is U.S. Treasury securities (Bills, Notes, Bonds, TIPS, etc.) held outside federal government accounts—by households, businesses, pension funds, mutual funds, state and local governments, foreign investors, and the Federal Reserve (America’s central bank). It’s the broadest “market” concept and is the figure economists often use when comparing debt to the size of the economy (debt-to-GDP). [3][4]
Treasury defines it as “all federal debt held by individuals, corporations, state or local governments, Federal Reserve Banks, foreign governments, and other entities outside the United States Government.” [3]
Intragovernmental holdings These are Treasuries held within the federal government – mainly trust funds such as Social Security and Medicare. When these programs run surpluses, they invest in special Treasury securities; when they run cash shortfalls, Treasury redeems those securities to pay benefits, and the government borrows from the public if needed. [4][1]
Total Public Debt Outstanding This is simply the addition of (1) Debt held by the public + (2) Intragovernmental holdings. This is the top-line number on Debt to the Penny. [2][4]
Total Public Debt Outstanding = Debt held by the public + Intragovernmental holdings
Why the distinctions matter:
Debt held by the public is what markets price and what drives interest costs the government pays to outside holders (including the Federal Reserve).
Intragovernmental debt reflects promises among parts of the federal government; it affects future cash needs but doesn’t have the same market dynamics.
Total Public Debt Outstanding is the full legal amount subject to the debt limit (with a few technical exclusions), which matters for statutory debt-limit debates. [4][5] When there are discussion in Congress about the Debt ceiling this is the number discussed.
How deficits add to the National Debt
Each fiscal year, Congress sets taxes and spending. If outlays (spending) exceed receipts (revenue), the government runs a deficit and must borrow by issuing new Treasury securities. Those new securities add to Debt held by the public, and thus to the total debt. The Congressional Budget Office (CBO) publishes baselines and explains the arithmetic and risks of rising Net interest (what the government pays in interest). In 2024, Net Interest on the Debt alone was over $1 Trillion, making it the 3rd largest budget item, larger than National Defense. [5][7][18][22]
In years with a surplus, Treasury can redeem (pay down) outstanding securities or reduce the need to issue new ones—slowing debt growth. But because recent years have seen persistent deficits, the debt has generally climbed. [22]
“Debt to the Penny”
For the Official US National Debt numbers, you can go straight to Treasury’s Debt to the Pennypage. On the site you can:
See today’s total (updated daily except during weekends and holidays) and the split between debt held by the public and intragovernmental holdings.
Download historical CSVs to chart the series yourself.
Check big shifts around tax dates, debt-limit suspensions, or major fiscal packages. [2][15]
Who does what: Role of Treasury vs. the Federal Reserve
The U.S. Treasury (through the Bureau of the Fiscal Service and the Office of Debt Management) issues Treasury bills, notes, and bonds to finance the government at the lowest cost over time. It auctions securities on a regular calendar and redeems them at maturity. Treasury also manages cash (the Treasury General Account at the Fed) to pay the government’s bills. [4][2]
The Federal Reserve (the “Fed”) is the central bank. It does not set taxes or spending and does not decide how much debt the government issues. The Fed’s role here is monetary policy: it influences interest rates and financial conditions. The Fed has a dual mandate to maintain stable prices (control inflation), and manage Employment (manage environment to keep unemployment low). It buys and sells Treasuries only in the secondary market (from dealers), not directly from the Treasury, to maintain its independence and implement policy. [6]
“The Fed does not purchase new Treasury securities directly from the U.S. Treasury, and purchases…from the public are not a means of financing the federal deficit.” [6]
The New York Fed executes these operations for the System Open Market Account (SOMA), the consolidated portfolio of Treasuries and other securities the Fed holds. [12]
What is Quantitative Easing (QE)?
Quantitative easing (QE) is a policy the Fed uses in severe downturns or when short-term interest rates are already near zero. When the Fed is using QE, the Fed buys longer-term securities, such as Treasuries and agency mortgage-backed securities, to push down longer-term interest rates and support the economy. The Fed conducted several large purchase programs after the 2008 Financial Crisis and again during 2020-21 COVID Pandemic. [8][21][14]
Mechanically, when the Fed buys a Treasury, it pays by crediting banks’ reserve accounts at the Fed. That swaps a Treasury security held by the public for a bank reserve (a deposit at the Fed). Crucially, this transaction does not change the total amount of Treasury debt outstanding—it changes who holds it (more at the Fed, less in private hands). [10][6]
“When the Federal Reserve adds reserves…by buying Treasury securities…This process converts Treasury securities held by the public into reserves…[and] does not affect the amount of outstanding Treasury debt.” [10]
Federal Reserve Balance Sheet
Does QE “add to the National Debt”?
No. QE doesn’t authorize or cause Treasury to borrow more or add to the Debt. The deficit determines how much debt Treasury must issue. QE affects yields and liquidity by changing the composition of holders (more at the Fed/SOMA, fewer in private portfolios), not the quantity of debt the government has issued. The Fed repeatedly emphasizes it does not buy securities directly from Treasury or to finance deficits. [6][7][9] (Federal Reserve)
QE can, however, indirectly affect the budget over time through interest rates (lower yields can reduce Treasury’s borrowing costs; the reverse is true when QT—quantitative tightening—lets the portfolio roll off and rates are higher). Several primers walk through these channels. [17][18][7]
How interest flows work when the Fed holds Treasuries
Here’s the accounting workflow in plain English:
Treasury pays interest on all outstanding Treasuries—whether they’re held by a pension fund, a foreign central bank, or the Federal Reserve. That shows up in the budget as Net interest outlays (spending). [18]
When the Fed holds Treasuries (in SOMA), the interest it receives becomes part of the Fed’s net income.
After covering its expenses, the Fed historically remits (gives back) its profits to the Treasury (these are “remittances”). In years when those profits are large, Treasury effectively gets back a chunk of the interest it paid—reducing the government’s overall cost ex post (after the fact). [9][20]
In times (like 2023-25) when the Fed’s interest expenses (mainly interest it pays banks on reserve balances and reverse repos) are greater than its interest income the Fed stops remitting, records a “deferred asset” (an IOU to itself), and resumes remittances only after it returns to positive net income. That deferred asset does not require taxpayer funding; it’s paid down by future Fed profits before any cash flows back to Treasury. [1][5]
“When the Fed’s income exceeds its costs, it sends the excess earnings to the Treasury…When its costs exceed its income, it creates a ‘deferred asset’…and resumes sending remittances after that is paid down.” [1]
Bottom line: whether private investors or the Fed hold a given Treasury, Treasury’s legal obligation to pay interest is the same. The difference is that Fed-held interest often returns back to Treasury (when Fed profits are positive), lowering the government’s ultimate net cost over time. [9][20]
Review of National Debt Concepts
Debt grows because of deficits. Congress’s tax and spending choices determine if there will be an annual deficit or surplus; deficits add to debt. Surpluses reduce the debt. [5][22]
Debt has two big parts. Debt held by the public (including the Fed) plus intragovernmental holdings (trust funds) equals Total Public Debt Outstanding. [2][4] (Fiscal Data)
QE doesn’t “create” more Treasury debt. It changes who holds it and influences rates and liquidity; the Fed buys in the secondary market and does not finance deficits. [6][10][7]
Interest flows are circular when the Fed holds Treasuries. Treasury pays interest; the Fed usually remits (returns) net income back to Treasury; during periods of negative net income, remittances pause and a deferred asset records what will be repaid from future profits. [1][5][20]
You can verify every number daily on Treasury’s Debt to the Penny site, and pair it with monthly public debt reports for detail. [2][4]
FAQ and Common Misconceptions
“If the Fed buys Treasuries, isn’t that just ‘printing money’ to fund the government?” No. The Fed buys from dealers in the open market, not from Treasury. Fed purchases swap Treasuries for bank reserves; they don’t change the amount of debt or directly finance the deficit. [6][10][7]
“Doesn’t the debt count everything the government owes, including future Social Security benefits?” The debt is legal obligations already issued (Treasury securities). Future promises (like future benefits) affect the budget and future borrowing, but they aren’t counted as debt until the government issues securities to pay for them. These are called Unfunded Liabilities (See our Article). Check the Debt to the Penny site for what is counted. [2][4][5]
“Why do some charts focus only on debt held by the public?” Because that’s the portion traded in markets, driving interest costs and macro impacts. It’s also the number most used in economic comparisons (for example, debt-to-GDP). [5]
Debt Guru: How to read the daily debt like a pro
Visit Debt to the Penny site and note Total Public Debt Outstanding.
Compare the split between public and intragovernmental. Persistent deficits typically raise the public share over time.
If rates are rising (or have risen), expect net interest in the budget to climb; CBO’s primers explain why interest costs can grow faster than the economy when debt is large. [2][18][22]
If you want more depth on how the Fed runs these operations, the New York Fed’s archive on large-scale asset purchases and the Board’s description of the System Open Market Account are the canonical sources. [8][12]
Putting it all into Context
If you want to understand how big the National Debt is, how it relates to other things like the size of our economy, how the budget deficits and surpluses compare in charts over the years historically and how that impacts the debt in charts, check out that and more in the Tax Project Institute’s Smarter Citizen App (A Free Citizen App, just register – no credit card and you’re in!)
Treasury security: An IOU the U.S. government sells to borrow money (Bills mature in a year or less; Notes in 2–10 years; Bonds in 20–30 years; TIPS are inflation-protected). Holders earn interest and get their principal back at maturity. [3]
Debt held by the public: Treasury IOUs owned by investors outside the federal government, including the Federal Reserve. [3]
Intragovernmental holdings: Treasury IOUs held by government accounts (e.g., Social Security trust funds). [4]
QE (quantitative easing): The Fed’s large purchases of longer-term securities to lower long-term interest rates when the economy needs help and short-term rates are generally already lower. [21][8]
Remittances: Fed profits (if any) sent to Treasury after covering expenses; paused when the Fed’s interest expenses exceed income (recorded as a “deferred asset”). [5][1]
References
[1] Board of Governors of the Federal Reserve System. (2024, July 19). How does the Federal Reserve’s buying and selling of securities relate to the borrowing decisions of the federal government?https://www.federalreserve.gov/ (Federal Reserve)
[2] U.S. Department of the Treasury, Fiscal Data. (n.d.). Debt to the Penny (daily dataset; coverage back to 1993). Retrieved October 16, 2025, from https://fiscaldata.treasury.gov/ (Fiscal Data)
[3] U.S. Department of the Treasury. (n.d.). Public Debt FAQs (definitions of debt held by the public & intragovernmental holdings). Retrieved October 16, 2025, from https://treasurydirect.gov/ (TreasuryDirect)
[4] U.S. Department of the Treasury, Fiscal Data. (n.d.). Monthly Statement of the Public Debt (MSPD) (monthly dataset). Retrieved October 16, 2025, from https://fiscaldata.treasury.gov/ (Fiscal Data)
[8] Board of Governors of the Federal Reserve System. (2025, September 23). Interest on Reserve Balances (IORB): FAQs (includes note that asset purchases convert Treasuries to reserves without changing outstanding Treasury debt). https://www.federalreserve.gov/ (Federal Reserve)
[10] Board of Governors of the Federal Reserve System. (2016, August 25). Is the Federal Reserve “printing money” in order to buy Treasury securities?https://www.federalreserve.gov/ (Federal Reserve)
[12] Board of Governors of the Federal Reserve System. (n.d.). Fed Balance Sheet—Table 1 (popup): U.S. Treasury, General Account (definition of the Treasury General Account). Retrieved October 16, 2025, from https://www.federalreserve.gov/ (Federal Reserve)
[13] Board of Governors of the Federal Reserve System. (n.d.). H.4.1—Factors Affecting Reserve Balances (current and archived releases). Retrieved October 16, 2025, from https://www.federalreserve.gov/ (Federal Reserve)
[14] Federal Reserve Bank of St. Louis (FRED Blog). (2023, November 20). Federal Reserve remittances to the U.S. Treasury.https://fredblog.stlouisfed.org/ (FRED Blog)
[15] Board of Governors of the Federal Reserve System (via FRED). (n.d.). Liabilities & Capital: Earnings Remittances Due to the U.S. Treasury (RESPPLLOPNWW) (weekly series). Retrieved October 16, 2025, from https://fred.stlouisfed.org/series/RESPPLLOPNWW (FRED)
[16] Board of Governors of the Federal Reserve System. (2024, March 26). Federal Reserve Board releases annual audited financial statements (deferred-asset explanation). https://www.federalreserve.gov/ (Federal Reserve)
[17] Anderson, A., Ihrig, J., Kiley, M., & Ochoa, M. (2022, July 15). An Analysis of the Interest Rate Risk of the Federal Reserve’s Balance Sheet (Part 2). Board of Governors of the Federal Reserve System, FEDS Notes. https://www.federalreserve.gov/ (Federal Reserve)
[19] U.S. Department of the Treasury, Fiscal Data. (n.d.). America’s Finance Guide: National Debt (dataset links and coverage notes—e.g., Debt to the Penny since 1993). Retrieved October 16, 2025, from https://fiscaldata.treasury.gov/ (Fiscal Data)
[20] Data.gov (U.S. General Services Administration). (n.d.). Debt to the Penny (dataset catalog entry and composition note). Retrieved October 16, 2025, from https://catalog.data.gov/ (Data.gov)
[22] U.S. Department of the Treasury, Fiscal Data. (n.d.). Historical Debt Outstanding (long-run series). Retrieved October 16, 2025, from https://fiscaldata.treasury.gov/ (Fiscal Data)
The “Debasement Trade” is a prominent investment strategy in current finance, defined by the systematic movement of capital out of assets denominated by sovereign promises, such as fiat currencies and traditional fixed-income securities, and into assets characterized by verifiable, finite supply, often referred to as “hard assets” [1]. This strategy is fundamentally a defensive measure, designed to preserve the real value of wealth against the risk of the currency’s diminishing purchasing power, which results from accelerating national debt and large/rapid monetary expansion [2]. The shift reflects a growing, fundamental loss of confidence in the long-term fiscal solvency of major economies, especially the United States, whose currency serves as the global reserve.
I. Historical Context: Debasement as a Sovereign Tool
The act of currency debasement, the reduction of a currency’s intrinsic value without altering its face value, has been a recurring fiscal strategy throughout history. While the methods have evolved, the economic rationale remains consistent: to increase the effective money supply to meet government financial needs, typically to fund large expenditures or manage mounting debts [3].
Physical Debasement: The Precedent
In the ancient and medieval worlds, debasement was a physical process. The Roman Empire offers a classic example, where successive emperors reduced the silver content of the denarius over several centuries [4]. By substituting precious metals with cheaper base alloys, the government could mint a greater volume of currency from the same reserves, allowing the Treasury to stretch its resources for state expenses. This practice, however, led directly to rising prices (inflation) as merchants recognized the coin’s diminished intrinsic worth.
Another significant example occurred in 16th-century England under King Henry VIII, a period often cited as the “Great Debasement” [5]. To finance ongoing conflicts, the silver purity of English coinage was drastically reduced (From over 90% to as low as 25%). This act, while providing short-term funding for the Crown, destabilized domestic and international trade, leading to public mistrust and prompting the widespread hoarding of older, purer coins—an economic phenomenon later formalized as Gresham’s Law (“bad money drives out good”) [5].
The Structural Shift to Fiat Debasement
The transition to a fiat monetary system fundamentally redefined debasement. Following President Nixon’s 1971 decision to suspend the convertibility of the U.S. dollar into gold, the global financial system moved entirely away from the commodity-backed anchors of the Bretton Woods agreement [6] (See our Article on Bretton Woods). In this modern context, debasement is not about physical manipulation but about administrative action: the unconstrained expansion of the money supply through central bank policy. The erosion of a currency’s value is now primarily a function of excessive issuance relative to underlying economic productivity [7].
US M2 Money Supply
Figure 1 Source: Federal Reserve
II. The Conditions of the Modern Debasement Trade
The current period is characterized by macroeconomic conditions that have accelerated investor concern and institutionalized the Debasement Trade as a key portfolio consideration.
The Scale of Sovereign Indebtedness
The primary catalyst is the unprecedented scale of the U.S. National Debt, which is over $37 trillion [8]. Unlike previous debt cycles, the current trajectory is sustained by structural spending (23 consecutive years with deficit, last 5 $trillion+), regardless of the political party in power [9]. This fiscal reality presents governments with a limited set of options: implement politically unpalatable spending cuts or tax hikes, or employ the politically more palatable solution of allowing the currency’s value to decline.
The Debasement Trade is predicated on the rational assumption that policymakers will inevitably choose the latter, utilizing monetary tools to reduce the real burden of the debt and its service costs [1]. Through inflation, the real value of the debt owed to bondholders is effectively diminished over time, a process often described as “financial repression.”
Investor Flight to Scarcity
The response from institutional investors has been explicit. Citadel CEO Ken Griffin has been a vocal proponent of this thesis, characterizing the current market environment as a “debasement trade” [10]. Griffin notes a tangible shift in capital, with investors seeking to “de-dollarize” and “de-risk their portfolios vis-a-vis US sovereign risk” by accumulating non-fiat assets [10].
This trend is observable through market data:
Currency Depreciation: The U.S. dollar index (DXY) has experienced significant periods of sharp depreciation against major currencies and, more dramatically, against hard assets like gold [11].
Reserve Diversification: Globally, the dollar’s share as the primary reserve currency held by central banks has been steadily declining, reaching multi-decade lows [12]. This signals a structural move by foreign governments to reduce reliance on the U.S. dollar, further supporting the debasement thesis [13].
US Dollar Valuation
Figure 2 Source: Federal Reserve
III. Monetary Policy, QE, and Hyper-Liquidity
The mechanics of modern debasement are inextricably linked to central bank interventions, specifically Quantitative Easing (QE).
Quantitative Easing and Money Supply Growth
QE, a policy initiated following the 2008 Financial Crisis and dramatically expanded during the 2020 COVID pandemic response, involves the central bank (the Federal Reserve) creating new electronic money to purchase vast amounts of government and mortgage bonds [14]. This injects large amounts of money (hyper-liquidity) into the financial system, resulting in an exponential, historically unprecedented surge in the M2 money supply (See Figure 1) [14].
This expansion is the engine of modern debasement. When the volume of money in circulation grows at a pace far exceeding the underlying growth in the economy’s productive capacity, the result is an inevitable loss of the currency’s value [15].
Inflation as the Mechanism of Debasement
The consequence of this imbalance is widespread inflation, which acts as the functional manifestation of currency debasement. Inflation is not merely a rise in prices but a measurable loss of the currency’s ability to retain its value [15]. Some consider this type of inflation a hidden tax (See our Article on Is Inflation a Stealth Tax?). Data confirms this erosion: significant cumulative price increases over recent five-year periods have fundamentally lowered the purchasing power of the dollar [10].
The Debasement Trade views inflation as structural rather than temporary—a direct result of governments financing massive deficits through the printing press, effectively taxing the population through reduced purchasing power rather than legislative mandate.
US Inflation
Figure 3 Source: Federal Reserve
IV. Political Debate and the Precedent of the Plaza Accord
The current anxiety surrounding debasement is focused on specific policy discussions within Washington concerning the intentional manipulation of the dollar’s value.
The Deliberate Devaluation Thesis
Certain U.S. economic advisors, notably within the Trump administration, have argued that the dollar’s status as the world’s reserve currency creates a structural “overvaluation” that persistently harms U.S. trade competitiveness [16]. Proponents of this view suggest that managing a controlled depreciation of the dollar is a necessary measure to correct global trade imbalances and support domestic manufacturing [16].
This thesis has led to policy suggestions, sometimes grouped conceptually under the name “Mar-a-Lago Accord.” These suggestions include strategies such as utilizing tariffs to adjust global currency levels or even taxing foreign holders of U.S. Treasury debt [16]. Such discussions signal a willingness by policymakers to consider actions to achieve fiscal and trade goals, even at the expense of currency stability (Inflation).
Purpose: The Plaza Accord was a multilateral agreement signed by the G5 nations (France, West Germany, Japan, the United Kingdom, and the United States) [17]. Its specific goal was to engineer an orderly depreciation of the U.S. dollar against the Japanese yen and German Deutsche Mark. At the time, the U.S. dollar was considered significantly overvalued due to high U.S. interest rates and robust capital inflows, which led to a massive U.S. trade deficit [18].
Mechanism: The participating nations agreed to coordinate currency market interventions, specifically selling U.S. dollars, to achieve the desired depreciation [18].
Outcome and Relevance: The Accord successfully achieved its short-term goal, weakening the dollar significantly [18]. However, it ultimately failed to deliver long-lasting correction to the underlying U.S. trade imbalances because the structural domestic factors—namely, low private savings and high government borrowing—remained unaddressed [19].
The historical parallel is crucial: while a new “accord” might temporarily achieve a devaluation target, the Debasement Trade argument suggests that without fundamental fiscal discipline, any managed decline will merely lead to renewed instability and require further monetary interventions.
The Official Stance
Despite the policy discussions, U.S. Treasury Secretary Scott Bessent has publicly distinguished between short-term currency fluctuations and long-term policy [20]. He maintains that the core of the U.S. “strong dollar policy” is to take long-term steps to ensure the dollar remains the world’s reserve currency, focusing on U.S. economic growth and stability, rather than obsessing over the exchange rate [20]. This distinction is intended to reassure global markets that the U.S. is not actively pursuing the dollar’s demise, even if domestic fiscal and monetary choices suggest otherwise.
V. Implications for Citizens and the Move to Hard Assets
The consequences of currency debasement are most keenly felt by the average citizen, whose financial well being may depend on the dollar’s stability. This is especially true after the post COVID rapid inflation period felt by most Americans who are now keenly aware of the negative impacts of inflation.
Inflationary Wealth Transfer
Debasement operates as a stealthy wealth transfer mechanism [21].
Erosion of Fixed Income: Citizens holding dollar-denominated assets, such as savings accounts, fixed pensions, and bonds, see the real value of their wealth diminish steadily [7]. This is especially punitive for retirees and those on fixed incomes.
Asset Price Distortion: While nominal asset prices (stocks, real estate) reach record highs in dollar terms, this surge is often an illusion. When these assets are measured against hard assets like Gold or Bitcoin, the appreciation is significantly tempered, reflecting the currency’s dilution rather than pure economic growth [22].
This disparity: those who are asset-rich (owners of real estate, commodities, or equities) are protected, while the working class and cash holders are negatively effected as their wages and savings buy less in real terms.
The Embrace of Hard Assets
The Debasement Trade is the strategic answer to this inflationary trap. Investors are choosing assets defined by their scarcity:
Gold (Traditional Hedge): Gold has served as a reliable store of value and inflationary hedge for millennia, its value enduring precisely because it cannot be created by a central bank [23]. Surges in the gold prices directly reflect the decline in the dollar’s relative value [12].
Bitcoin (Digital Scarcity): Bitcoin has been increasingly adopted as a contemporary hard asset [1]. Its maximum supply of 21 million coins is secured by cryptography and network consensus, rendering it immune to sovereign fiscal or monetary manipulation [2]. Its inclusion in the Debasement Trade reflects a redefinition of “hard money,” moving beyond the physical limitations of precious metals to the mathematical certainty of code [22]. The dramatic appreciation of Bitcoin is viewed by many investors not as a speculative frenzy, but as a rational re-pricing of mathematical scarcity relative to infinitely expanding fiat currency [1].
USD vs Hard Assets
Figure 4 Source: TradeView
VI. Conclusion: A Structural Shift
The Debasement Trade is more than a momentary market tactic; it is a structural investment shift reflecting deep seated concerns over fiscal integrity of the world’s leading economies. Driven by high and persistent debt accumulation, coupled with the unconstrained power of central banks to expand the money supply through QE, the trade represents a fundamental shift in investor trust, from faith in government promises to reliance on the verifiable scarcity of hard assets. As long as the structural imbalance between monetary creation and productive capacity persists, the strategic movement toward assets like gold and Bitcoin will continue to be a defining feature of the global financial landscape.
Webull (syndicated from Bloomberg/Benzinga). (2025, July 3). U.S. Treasury Secretary Bessent refuted claims that the recent depreciation of the U.S. dollar would affect its status as the world’s major currency. https://www.webull.com/news/13098149616067584 (Webull)
As you grow older, you become more self assured, knowledgeable and more independent – able to make many decisions on your own. At some point in your teenage years, you may come to believe in your infallibility, and how correct you are in all things. As you get older, life has a way of teaching you new lessons, and if we were smart and true to ourselves there were probably lessons that our parents tried to teach us many years before and we were too smart at the time to listen. When you become a parent, you come to realize many more of those lessons after the fact. One big lesson for parents is that you can’t make decisions for your children all of the time, for one they won’t always listen, and two – they need to learn on their own. You try to protect them from the things that will really hurt them or having lasting effects, but sometimes a little blood and skinned knees can be way more instructive than any parental chat.
“When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished at how much the old man had learned in seven years.”
Mark Twain
Wisdom of the Mom: What we can learn from mothers
One lesson we learned, and we didn’t even realize we were being taught, was the “You Slice, You Choose” game. The “game” was simple, usually there was something desirable like a Pie and your mother would designate one person to slice, and another person got to choose which slice to take. Simple, but devious – at first glance without a lot of thought a young lad may think if I get to slice, I can slice a bigger piece of the pie. A wiser, more experienced child will realize that any deviation by the slicer from the center was a gain for them as they would invariably choose the larger slice. Overtime, as everyone knew the game the slices became more and more even, and the “game” self enforced fairness without any policing or intervention from parental units. After a while, you could swear that each slice was done by a computer aided laser in the planning and precision of the pie slice so perfectly even down the middle. Many years later, you marvel at the wisdom of mothers and wonder what other ancient mysteries and riddles could these geniuses have solved if their life mission wasn’t wasted helping you slice pie.
Mom and the Budget
Every year now it seems like the Federal Budget is now in play as a game piece to be negotiated by both parties trying to gain advantage over each other. Even though everyone knows the dates and when the deadline is, it always seems to go right up to the end, and in this case over the deadline. Such is the case in the partisan environment we live in today. However, I’m struck that it’s really nothing more than a high stakes game of “You Slice, You Choose.” That may over simplify it by quite a bit, but the fundamentals are the same.
Pie Analogy
Our Federal Revenue is the ingredients for the pie. Our Federal budget is the size of the pie. Some years the pie will be larger than what you can eat, known as a budget surplus, and you can put some in the fridge for later. Other years you can borrow extra ingredients to have a bigger pie now at the expense of smaller pies in later years, known as a budget deficit. Much like pies in our household, there was never enough. Since 1901 we’ve had 92 years of budget deficits.
Figure 1
Our debt keeps growing, as well as the interest on the debt. Each year eating more and more pie.
Pie Dynamics
Before you even slice the pie, you realize several pie dynamics are at play. The amount of ingredients each year, the more ingredients the bigger the pie – so as Revenue grows, so does the size of the pie. The size of pie we make is dependent on the quantity of ingredients we have, and if we choose to leave some pie for later (surplus), or we decide to borrow ingredients from the future (deficits) with the potential consequence of having to reduce the size of future pies.
Pie Slicing
After you understand the pie dynamics, you can begin the process of slicing. However, before you slice you want to have any idea of how you want to divvy up the pie, and knowing with the Federal Budget almost 3/4’s (74%) of the pie is already gone before you slice it allocated to Mandatory and Net Interest components. The Net interest is all the extra pie we had in previous years. The more we add to the deficit, the larger it get. As it keeps growing, the smaller and smaller the pie available is in the future. Unless new laws are passed, the debate is in the quarter of the pie designated as Discretionary. However, even many of those don’t feel discretionary like National Defense – you could cut it back, but you probably aren’t going to eliminate it.
Figure 2
Pie – Choosing your Slice
So the only thing left is tough choices. Slicing can be a painful process, because when it comes time to choose – you realize that something you may have wanted more of shrunk, and something you wanted less of grew and you are stuck with that choice. Unlike in the family edition of the “You Slice, You Choose” game, both parties participate in the slicing and choosing. There is no self reinforcing fairness mechanism other than the active participation of engaged and informed citizens. This is the game Congress must play each year.
Pie in the Sky
Increasingly, people bring up MMT (Modern Monetary Theory). Using our pie analogy, according to MMT as long as inflation is in check, your pie can be as big as you want it to be. We wish these Economists were available to instruct our parents. Alas, in our household there was no magic infinitely growing pie, just tough choices. Until such time as an infinite pie becomes available, we’ll have to face touch choices as a country.
You Slice, You Choose
Summary
The Federal Budget is much more complicated, and the outcomes and consequences much more serious than a game of “You Slice, You Choose” but the lessons from Mom are none the less instructive. We all have to choose between tough choices, we all have to make reasonable assumptions and trade offs, and create mechanisms for fairness and balance that reinforce themselves automatically and fairly. In the game of life understanding Government Financial Literacy gives us the tools to understand the rules of the game, how to participate, and understand the dynamics, and trade offs that must be made in order for all of us to thrive. We learn many lessons in life, some of them stick with you. Thanks mom, I miss you every day.
Tax Project Institute is a fiscally sponsored project of MarinLink, a California non-profit corporation exempt from federal tax under section 501(c)(3) of the Internal Revenue Service #20-0879422.
