We’ve established two things in our national-debt-for-normal-people series.

First:

The United States is approaching $40 trillion in gross federal debt.

Second:

America doesn’t owe that money to one mysterious creditor—or even primarily to China.

Treasury securities are held by Americans, retirement funds, mutual funds, banks, insurance companies, foreign investors, the Federal Reserve, federal government accounts and many others.

So now we arrive at the obvious solution.

Why don’t we just pay it off?

After all, that’s what your financial adviser would probably tell you to do with debt.

Got a $15,000 credit-card balance?

Pay it off.

Car loan?

Pay it off.

Mortgage?

Eventually, pay it off.

So if the United States owes roughly $40 trillion, shouldn’t the goal be:

GET THE BALANCE TO $0?

Here’s where government finance gets weird.

The United States theoretically could reduce its debt dramatically over time.

But completely eliminating Treasury debt would require extraordinary economic and political choices.

And even stranger:

We probably wouldn’t actually want the United States to have zero debt.

Let’s explain why.

First: Governments Don’t Pay Debt Like You Pay a Mortgage

This is probably the biggest misconception about the national debt.

Imagine you take out a 30-year mortgage for $400,000.

Every month you make a payment.

Eventually, if everything goes according to plan:

Balance: $0.

Congratulations.

You own your house free and clear.

People naturally assume the federal government should do the same thing.

But governments generally operate differently.

Treasury securities are constantly:

issued,

maturing,

being repaid,

and

being replaced with new debt.

This is called refinancing or rolling over debt.

Suppose Treasury issued a $10 billion security five years ago and it matures today.

The government owes the investor $10 billion.

Treasury can repay that obligation while simultaneously issuing new securities to other investors.

So an individual Treasury security can absolutely be paid in full while the government’s overall debt remains the same—or grows.

Think of it like refinancing a mortgage.

You paid Mortgage Company A.

But you borrowed from Mortgage Company B to do it.

Your first loan disappeared.

Your debt did not.

Does America Ever Actually Pay Its Debts?

Absolutely.

Treasury securities mature constantly.

Investors receive payments according to the terms of those securities.

When someone says:

“America never pays its debt!”

that’s misleading.

Individual government obligations are constantly being satisfied.

The real issue is that Treasury also continuously issues new debt.

And when the government runs a budget deficit, it generally needs to borrow even more than the amount necessary merely to refinance maturing obligations.

That’s how total debt grows.

What Would It Take to Actually Reduce the National Debt?

Here’s where the math becomes uncomfortable.

Suppose the federal government collects:

$5 trillion.

And spends:

$7 trillion.

We have a $2 trillion deficit.

So before we can meaningfully start paying down accumulated debt, we first have to deal with the fact that we’re still adding to it.

It’s like someone saying:

“I’m going to pay off my credit cards!”

while charging another $3,000 every month.

Step one isn’t figuring out how to eliminate the old balance.

Step one is:

Stop making the balance bigger.

At the federal level, that means moving toward budgets where revenue is sufficient to cover spending.

Then, to actually reduce debt rather than merely stop adding to it, the government generally needs sustained budget surpluses.

Revenue needs to exceed spending.

Okay. So Let’s Run a $1 Trillion Surplus Every Year.

Great.

Now we can start paying down $40 trillion.

At $1 trillion per year:

40 years.

And that’s an intentionally ridiculous simplification.

It ignores changes in interest costs, economic growth, inflation, future borrowing, recessions, wars, emergencies, demographic changes and dozens of other factors.

But the exercise demonstrates the scale.

Creating a $1 trillion annual surplus would itself require an enormous fiscal swing.

You would need some combination of:

Much higher tax revenue.

Much lower government spending.

Much faster economic growth.

Or all three.

And here’s the problem:

Everybody loves reducing the national debt in theory.

The disagreement begins approximately five seconds after you ask:

“Okay. How?”

Option #1: Raise Taxes

Want more government revenue?

Taxes are the obvious place to look.

Raise individual income taxes.

Raise corporate taxes.

Create new taxes.

Broaden the tax base.

Reduce deductions.

Increase payroll taxes.

Change capital-gains taxation.

There are countless possibilities.

And every one of them creates economic and political consequences.

People change behavior in response to taxes.

Businesses respond.

Investors respond.

Voters definitely respond.

So while:

“Just raise taxes and pay off the debt”

sounds mathematically simple, implementing tax increases large enough to generate sustained trillion-dollar surpluses would be anything but simple.

Option #2: Cut Spending

Fine.

Don’t raise taxes.

Cut spending.

Sounds easy.

Until you look at what the federal government actually spends money on.

Huge portions of federal spending involve programs and obligations such as:

• Social Security
• Medicare
• Medicaid and health programs
• National defense
• Veterans’ benefits
• Income-security programs
• Federal retirement programs
• Interest on the national debt

So when someone says:

“Just cut government waste!”

that’s a perfectly reasonable goal.

Nobody should want the government wasting taxpayer money.

But waste reduction and eliminating a structural fiscal imbalance measured in trillions of dollars aren’t necessarily the same mathematical problem.

Eventually, serious debt reduction forces conversations about large programs.

And large programs generally have large constituencies.

That’s where the politics become brutal.

Option #3: Grow Our Way Out of It

Now we’re getting somewhere.

There’s another way to make a huge debt burden more manageable:

Make the economy much bigger.

Imagine two people each owe $500,000.

Person A earns $60,000 per year.

Person B earns $5 million per year.

Same debt.

Completely different financial situation.

Countries work similarly.

Economists therefore frequently compare government debt with gross domestic product, or GDP.

GDP is essentially a measure of the value of goods and services produced by the economy.

The question isn’t simply:

How many dollars do we owe?

It’s also:

How large is our economy relative to that debt?

This is one reason economic growth is so important.

If the economy grows faster than debt over long periods, the debt burden can become more manageable relative to national income.

In other words:

We don’t necessarily have to make the numerator dramatically smaller.

We can also make the denominator bigger.

Inflation Can Shrink Debt Too—Sort Of

Here’s another uncomfortable fact about debt.

Inflation can reduce the real, inflation-adjusted burden of fixed-rate debt.

Suppose I lend you $100,000 today.

Thirty years from now you repay me exactly $100,000.

Technically:

You gave me my $100,000 back.

But if prices doubled during those 30 years, that $100,000 buys much less than it did when I lent it to you.

The borrower effectively repaid the loan with less valuable dollars.

Governments can benefit from this effect on existing fixed-rate nominal debt.

But deliberately trying to inflate away government debt would be an extraordinarily dangerous strategy.

Investors aren’t stupid.

If investors expect high inflation, they’ll demand higher interest rates on newly issued debt.

And high inflation hurts households by reducing purchasing power.

So inflation isn’t a magical free-debt button.

Why Can’t We Just Print $40 Trillion and Pay Everyone?

Because we’d be confusing money with wealth.

Imagine tomorrow every American wakes up and discovers their bank account has an extra:

$10 million.

Amazing!

Except we didn’t simultaneously create millions of new houses.

We didn’t create millions of new cars.

We didn’t double the number of doctors.

We didn’t magically manufacture more food, energy, hotel rooms or airplanes.

We dramatically increased money without proportionately increasing the goods and services money can purchase.

What do you think happens to prices?

Printing money doesn’t automatically make society richer.

And attempting to monetize enormous government obligations without regard to inflation could seriously damage confidence in the currency.

So:

“Just print $40 trillion.”

isn’t the cheat code it appears to be.

What If a Billionaire Just Paid It?

Let’s have some fun.

Suppose the world’s wealthiest people became extraordinarily patriotic and announced:

“We’ll take care of it.”

Even fortunes measured in hundreds of billions of dollars are tiny compared with $40 trillion.

If someone had an astonishing:

$200 billion

and somehow handed every penny to Treasury:

$40 trillion would become approximately:

$39.8 trillion.

Thanks.

Seriously.

But we still have a problem.

That’s how enormous a trillion is.

A million seconds is about 11.6 days.

A billion seconds is about 31.7 years.

A trillion seconds is about 31,700 years.

Forty trillion is difficult for the human brain to comprehend because human beings weren’t designed to intuitively understand numbers that large.

Could We Sell Government Assets?

Another proposal occasionally appears:

Sell federal property and use the proceeds to pay down the debt.

The federal government owns enormous amounts of land, buildings, equipment and other assets.

Could some assets be sold?

Certainly.

Would selling unused or unnecessary property potentially make sense?

Sure.

But again, scale matters.

To eliminate $40 trillion, you’d need $40 trillion.

Selling some office buildings doesn’t solve a $40 trillion problem.

And selling productive or strategically important government assets simply to reduce debt may create new problems.

It’s the household equivalent of selling your refrigerator to make a credit-card payment.

Yes, technically you reduced the balance.

But now you don’t have a refrigerator.

Here’s the Really Weird Question: Would We Want Zero Federal Debt?

This is where the story gets much more interesting.

Suppose we somehow did it.

The federal government runs gigantic surpluses year after year.

Treasury buys back or retires outstanding debt.

Eventually:

NATIONAL DEBT: $0

Everyone celebrates.

Fireworks.

Politicians congratulate themselves.

Someone puts a giant PAID IN FULL stamp across the Treasury Department.

But then the financial world starts asking:

Where did all the Treasury securities go?

Remember our previous article.

America’s debt isn’t merely America’s liability.

It’s somebody else’s asset.

Treasury securities are owned by:

• Retirement funds
• Banks
• Insurance companies
• Mutual funds
• Money-market funds
• Individuals
• Foreign governments
• Central banks
• Businesses
• Financial institutions around the world

U.S. Treasury securities also serve important functions throughout the financial system.

They are used as investments.

They are used as collateral.

They are used for liquidity management.

They are used as reference interest rates.

They are held as reserves.

They are commonly treated as a benchmark for low-credit-risk dollar assets.

So if Treasury debt completely disappeared, the financial system would have to replace an enormous supply of assets it currently relies upon.

That’s why:

“National debt = bad, therefore zero national debt = perfect”

is too simplistic.

America Has Actually Been Close to Debt-Free Before

This isn’t entirely hypothetical.

In 1835, during Andrew Jackson’s presidency, the United States briefly paid off its national debt.

It remains the only time in U.S. history the federal government was essentially debt-free.

It didn’t last.

Government finances changed.

Economic conditions changed.

Borrowing resumed.

And the country eventually discovered something important:

Governments sometimes have perfectly legitimate reasons to borrow.

Sometimes Debt Makes Sense

Imagine the United States is attacked.

Should the government say:

“Sorry. Defense isn’t in this year’s cash budget.”

Of course not.

Imagine a catastrophic economic depression.

A pandemic.

A banking collapse.

A massive war.

An extraordinary national emergency.

Borrowing allows the cost of extraordinary events to be spread over time rather than forcing taxpayers to immediately finance everything happening today.

Governments can also borrow for long-term investments.

The debate, therefore, shouldn’t necessarily be:

Debt or no debt?

A better question is:

How much debt can we responsibly support, and what are we borrowing for?

That’s a much more sophisticated question.

Good Debt Versus Bad Debt?

People sometimes try to apply household terminology here.

Borrow $500,000 to purchase a productive asset?

Potentially reasonable.

Borrow $500,000 to throw the world’s greatest weekend party?

Probably less reasonable.

Government borrowing raises similar questions.

Borrowing to finance infrastructure that supports economic activity for decades may be viewed differently from borrowing simply because recurring expenses chronically exceed recurring revenue.

But even this distinction gets complicated.

Government spending can produce benefits that aren’t easily measured as financial returns.

National defense doesn’t produce a traditional profit.

Neither does disaster relief.

Yet society may consider both extremely valuable.

The point isn’t that one category is automatically good and another bad.

It’s that:

Why we’re borrowing matters.

The More Important Number May Not Be $40 Trillion

Imagine two governments.

Country A

Debt: $1 trillion.

Interest rate: 15%.

Weak economy.

Investors are terrified.

Country B

Debt: $10 trillion.

Interest rate: 2%.

Huge economy.

Investors desperately want its bonds.

Which country has the bigger debt problem?

You can’t answer simply by comparing $1 trillion with $10 trillion.

That’s why economists care about things like:

• Debt relative to GDP
• Annual deficits
• Interest expense
• Government revenue
• Economic growth
• Inflation
• Average maturity of debt
• Investor demand
• Future spending commitments

The headline debt number matters.

But it doesn’t tell the entire story.

The Number I’d Watch: Interest

This brings us back to the issue that matters enormously to ordinary taxpayers.

How much does it cost to carry the debt?

Suppose the United States has enormous debt but can finance it relatively cheaply.

That’s one situation.

Now suppose interest rates rise.

As older securities mature, Treasury may have to replace some of them with new debt carrying higher rates.

Over time, the government’s interest bill can rise substantially.

And interest creates a nasty budget problem.

You can’t simultaneously spend the same dollar on:

Interest

and

Medicare

and

Defense

and

Roads

and

Education

and

Tax reductions.

When interest consumes a larger portion of federal resources, policymakers have less room for everything else unless they raise revenue or borrow even more.

That’s why I would pay at least as much attention to:

“How much interest are we paying?”

as:

“What is the total debt?”

So What Should America Actually Be Trying to Do?

Probably not write a $40 trillion check.

And probably not attempt to drive federal debt to zero as quickly as humanly possible.

The more realistic goal is fiscal sustainability.

In plain English:

Keep the government’s finances on a path we can reasonably afford over the long term.

That can involve some combination of:

Economic growth.

A larger economy can support more debt.

Responsible spending.

Government resources aren’t unlimited.

Adequate revenue.

Promises eventually have to be financed somehow.

Managing deficits.

Running enormous deficits indefinitely can cause debt to grow faster than the economy.

Maintaining investor confidence.

The government’s ability to borrow on favorable terms is an extraordinarily valuable national asset.

Protecting that credibility matters.

Think of It Like Weight, Not a Credit Card

Here’s perhaps a better analogy.

Suppose someone tells you:

“I weigh 200 pounds.”

Is that bad?

You can’t answer.

Are they 4’10”?

6’8″?

A professional linebacker?

An 80-year-old with serious health problems?

The raw number needs context.

National debt works similarly.

$40 trillion sounds terrifying because $40 trillion is objectively enormous.

But the important questions are:

How large is the economy supporting it?

How quickly is the debt growing?

How much interest are we paying?

How much revenue does the government collect?

What are we borrowing the money for?

And do investors still believe they’ll be repaid?

Those questions tell us far more than the headline number alone.

Could America Pay Off $40 Trillion?

In theory?

Over a sufficiently long period, with enormous sustained budget surpluses and favorable economic conditions, the federal government could dramatically reduce outstanding debt.

In practice?

Eliminating roughly $40 trillion would require fiscal changes on a scale almost unimaginable under today’s political and economic structure.

And getting to literally zero probably shouldn’t be the objective anyway.

Treasury debt performs important functions in both American and global financial markets.

The real goal isn’t necessarily:

$0 DEBT.

It’s:

MANAGEABLE DEBT.

Debt that doesn’t grow uncontrollably relative to the economy.

Debt whose interest costs don’t overwhelm the federal budget.

Debt investors remain willing to finance.

Debt that leaves the government enough flexibility to respond when the next recession, war, pandemic or national emergency arrives.

And Here’s the Part That Really Matters to You

You aren’t going to wake up tomorrow and receive an invoice saying:

Your family’s share of the national debt is due Friday.

That’s not how this works.

The consequences are much more indirect.

If America’s fiscal situation becomes increasingly difficult, your family could eventually experience it through:

Taxes.

Interest rates.

Inflation.

Government benefits.

Retirement policy.

Business conditions.

Investment returns.

Economic growth.

That’s why the national debt matters.

Not because somebody needs to find $40 trillion under the couch cushions.

But because carrying an enormous and growing debt eventually forces choices.

And those choices affect real people.

The $40 Trillion Question

So we’ve now answered three questions:

“What does $40 trillion in national debt mean?”

The federal government has accumulated enormous borrowing obligations after years of spending more than it collects.

“Who do we owe the money to?”

Millions of investors and institutions—including plenty of Americans.

And finally:

“Why don’t we just pay it all off?”

Because governments don’t manage debt like household mortgages, eliminating $40 trillion would require extraordinary sustained surpluses, and a world with absolutely no Treasury debt might create its own serious financial problems.

Which leaves us with perhaps the most important question of the entire series:

If we don’t have to pay off all $40 trillion, when does the debt actually become too much?

Is it $50 trillion?

$75 trillion?

$100 trillion?

Is there a number where America simply can’t borrow anymore?

Or could the national debt theoretically keep growing forever?

The answer is both reassuring and slightly terrifying:

There probably isn’t one magic number.

And that is exactly what we should talk about next.

This article is for general educational purposes only and is not financial, investment, tax, economic or legal advice.