Category: The Resistance

Now that the national debt has reached an eye-popping $40 trillion, my fear is not simply that America has accumulated an enormous amount of debt. My greater fear is that, when the moment comes when something finally has to be done about it, the political system will be so polarized that Washington will be incapable of doing what is necessary.

And that is where things could get genuinely frightening.

The United States has now crossed a fiscal threshold that would have seemed almost incomprehensible to previous generations. The Treasury reported that gross federal debt surpassed $40 trillion in August 2026, with roughly $32.3 trillion held by the public and another $7.8 trillion in intragovernmental holdings. The gross debt has doubled since 2017. Meanwhile, annual interest payments on the debt have risen above $1 trillion and have become one of the largest items in the federal budget.

Yet $40 trillion, by itself, does not mean that the United States is about to go bankrupt. America is not a household that has somehow accumulated a $40 trillion credit-card bill. The federal government has enormous taxing power, controls the world’s most important reserve currency, and issues the securities that have traditionally been regarded as the foundation of the global financial system.

The more immediate danger is political.

A sovereign debt crisis can happen because a government is genuinely unable to pay its debts. But the United States has a peculiar additional vulnerability: Congress periodically has to authorize the government to borrow the money necessary to meet obligations that Congress has already incurred.

That means America can theoretically default on its debt not because it lacks the economic capacity to pay, but because its political institutions refuse to authorize the borrowing necessary to pay it.

That is an extraordinary situation.

And it becomes considerably more dangerous in an era in which the two American political coalitions increasingly regard one another not merely as political opponents but as existential threats to the country.

The Debt Ceiling Is the Loaded Gun

This is the part of the American fiscal system that has always struck me as particularly bizarre.

Suppose Congress passes legislation spending $100 billion. The government then spends the money. Later, Congress reaches the statutory limit on how much the Treasury is allowed to borrow. At that point, Congress can effectively say: We authorized the spending, but we aren’t going to authorize the borrowing necessary to pay for it.

That is not a normal fiscal-policy disagreement. It is a hostage situation built into the machinery of government.

Historically, Washington has repeatedly approached the edge of this cliff and then backed away. Financial markets have generally assumed that, at the last moment, political leaders will recognize that actually defaulting on U.S. Treasury obligations would be catastrophically stupid.

But there is an obvious problem with relying on that assumption forever.

Eventually, somebody might actually be willing to find out what happens.

The Federal Reserve has previously warned that even a temporary federal default could produce sharply higher Treasury yields, higher private borrowing costs and substantial financial-market disruption. A prolonged confrontation could impair markets that depend on Treasury securities as collateral and could create liquidity problems in money-market funds and other financial institutions. The Fed has also emphasized that a U.S. default would be fundamentally unprecedented because Treasury securities occupy a unique position in the global financial system.

That last point is worth dwelling on.

The United States is not simply another country with a lot of government debt. Treasury securities are woven into the plumbing of global finance. They are held by banks, pension funds, insurance companies, foreign governments, corporations, investment funds and ordinary Americans. They are used as collateral. They serve as a benchmark for pricing other forms of debt.

The dollar itself is the principal reserve currency of the world.

So if the United States voluntarily demonstrated that its government could be prevented from paying its debts because Congress had reached a political impasse, the damage would extend far beyond Washington.

The $40 Trillion Problem Is Bigger Than the Debt Ceiling

There is another reason I think the $40 trillion milestone deserves attention.

The real problem is not the number itself. It is the trajectory.

America has been running large structural deficits even when the economy is growing. Aging demographics are increasing spending on Social Security and Medicare. Defense spending is enormous. And now the government is paying more than $1 trillion a year simply in interest on money it has already borrowed.

This creates a nasty feedback loop.

The more debt the government accumulates, the more interest it has to pay. The more interest it pays, the larger the deficit becomes. The larger the deficit becomes, the more it has to borrow. And the more Treasury securities it has to issue, the more important interest rates become.

This is particularly uncomfortable because investors are already demanding higher yields on U.S. government debt. Reuters reported this week that foreign demand for Treasuries has been weakening while borrowing costs have risen toward levels not seen in many years.

That does not mean a debt crisis is inevitable.

But it does mean the margin for political stupidity is becoming smaller.

A government carrying relatively little debt can survive a few years of foolish fiscal policy. A government carrying $40 trillion in debt and paying more than a trillion dollars a year in interest has considerably less room for error.

And America’s political system is currently demonstrating rather a lot of enthusiasm for error.

What Would an Actual Default Look Like?

The word “default” makes people imagine something like Greece during the eurozone crisis or Argentina repeatedly failing to meet its obligations.

An American default would be different.

It could begin as a technical failure to make a scheduled payment on Treasury securities. Or it could involve the government being forced to delay payments to contractors, federal employees, beneficiaries or other creditors because it no longer has sufficient legal authority to borrow.

The exact sequence is difficult to predict because the United States has never experienced anything comparable.

That uncertainty is itself dangerous.

Financial markets do not particularly enjoy experiments.

Imagine that investors suddenly began wondering whether a Treasury security maturing next week would actually be paid on time. Even if everyone eventually concluded that the United States would make good on the obligation, the mere possibility of delay would introduce a risk premium into an asset that has traditionally been treated as essentially risk-free.

That could raise interest rates throughout the economy.

Mortgages could become more expensive. Corporate borrowing could become more expensive. State and local governments could face higher financing costs. Stock markets could fall. Banks and investment funds could suddenly find that assets they regarded as exceptionally safe were behaving in unexpected ways.

And because Treasury securities are embedded in the international financial system, the shock would not stop at America’s borders.

The Federal Reserve has explicitly noted that disruption to Treasury markets can transmit stress through dollar funding markets, asset markets, financial institutions and international trade and commodity markets.

In other words, a U.S. default would not merely be an American government having trouble paying its bills.

It could become a global financial event.

And Then There Is the Political Fallout

This is where my concern becomes less economic and more historical.

A financial crisis is bad enough.

A financial crisis occurring in a country already experiencing extreme political polarization is something else entirely.

Imagine a scenario in which Washington actually defaults.

The stock market falls. Interest rates spike. Retirement accounts lose value. Businesses begin laying people off. Banks become nervous. The dollar comes under pressure. Government payments are delayed. Politicians immediately begin blaming one another.

The MAGA movement says the establishment caused it.

Democrats say Republicans deliberately sabotaged the economy.

Republicans say Democrats spent the country into insolvency.

Democrats say Republicans refused to pay America’s bills.

Everyone has an audience willing to believe them.

And suddenly a technical fiscal crisis becomes a battle over the legitimacy of the American political system itself.

That is the part that worries me.

America has historically been remarkably resilient because, beneath our enormous political disagreements, there has generally been an assumption that the basic machinery of government will continue to function.

That assumption is more important than it looks.

People can tolerate losing elections. They can tolerate unpopular presidents. They can tolerate recessions. They can even tolerate periods of extraordinary political conflict.

What becomes much more dangerous is when large numbers of people conclude that the institutions themselves are illegitimate and that the opposing political coalition has no legitimate right to govern.

A default could become a catalyst for precisely that kind of crisis.

Could It Actually Lead to Revolution or Civil War?

I want to be careful here, because I don’t think a U.S. debt default would automatically produce a revolution or another American Civil War.

That would be an enormous leap.

America is not currently in a condition where a financial crisis would necessarily translate into organized armed conflict between competing governments or armies. There are many intermediate possibilities: recession, political realignment, mass protests, strikes, electoral upheaval, constitutional crises, institutional reform and a prolonged period of political instability.

But history teaches us something important about political crises: the consequences are rarely limited to the original problem.

A financial crisis can become a political crisis.

A political crisis can become a crisis of legitimacy.

And a crisis of legitimacy can become something much harder to control.

The danger would be especially pronounced if a default occurred simultaneously with another major shock: a recession, an international war, a banking crisis, a major cyberattack, a severe AI-driven labor disruption or some other event that caused ordinary Americans to feel that the basic social contract was collapsing.

That is when seemingly abstract fiscal problems can suddenly become existential political problems.

People generally do not riot because the national debt has reached $40 trillion.

They riot because they cannot pay their rent.

They lose their jobs.

Their savings disappear.

Their government stops functioning.

They believe somebody stole their future.

And then somebody comes along and tells them exactly who is responsible.

The Global Consequences Could Be Even Worse

The international implications are potentially enormous.

For decades, the United States has enjoyed what is sometimes called an “exorbitant privilege”: the world wants dollars and Treasury securities, allowing the United States to borrow at enormous scale.

That arrangement is not simply a financial convenience. It is one of the foundations of American geopolitical power.

If Washington were to demonstrate that Treasury securities could become political hostages, foreign governments and financial institutions would have an additional reason to diversify away from American assets.

That would not mean that China, Europe or some other power could simply replace the dollar overnight. There is no obvious alternative with the same combination of liquidity, scale, political stability and financial infrastructure.

But reserve-currency status is ultimately based on confidence.

And confidence is much easier to destroy than to create.

The Federal Reserve has already modeled scenarios involving higher Treasury yields, global recession and substantial declines in asset prices. Its 2026 stress scenarios demonstrate just how interconnected higher interest rates, inflation, commodity prices and global financial markets have become.

A genuine U.S. default would be something else entirely: an event for which there is very little historical precedent.

The terrifying question is therefore not simply, “What would happen if America defaulted?”

It is:

What happens to the world when the country whose debt has traditionally been considered the safest asset on Earth demonstrates that its own political system can no longer guarantee payment?

Nobody really knows.

And that uncertainty is precisely what makes the prospect so dangerous.

The $40 Trillion Number Should Be a Warning, Not a Prophecy

There is a temptation whenever the national debt reaches another psychologically significant number to declare that America is about to collapse.

I don’t think that’s particularly useful.

The United States is still an extraordinarily wealthy country with enormous productive capacity, a huge economy, deep capital markets, world-leading companies, a powerful military and the world’s dominant reserve currency.

There is no economic law saying that $40 trillion in debt automatically causes national bankruptcy.

The danger is subtler.

The danger is that America’s fiscal problems are becoming increasingly difficult to solve while America’s political system is becoming increasingly incapable of reaching compromises.

Eventually, something has to give.

Perhaps Washington will eventually undertake a serious combination of spending reductions, tax increases and entitlement reforms. Perhaps economic growth will make the problem more manageable. Perhaps inflation will reduce the real burden of some of the debt. Perhaps technological advances, including artificial intelligence, will dramatically increase productivity and tax revenues.

There are many possible ways out.

What worries me is the possibility that the political system will refuse to choose any of them until the markets choose for us.

And that is the nightmare scenario.

The United States could spend decades arguing about whether the debt is a Republican problem, a Democratic problem, a spending problem, a taxation problem, a welfare problem, a military problem or an interest-rate problem.

But the bond market doesn’t care which political tribe is morally correct.

Eventually, somebody has to pay the bill.

And if Washington reaches the point where Republicans and Democrats would rather allow the United States to default than give the other side a political victory, the resulting crisis could be vastly larger than the original disagreement.

That is why the $40 trillion milestone bothers me.

Not because I think America is about to collapse.

But because $40 trillion is a reminder that the United States is accumulating enormous financial obligations at precisely the moment when its political institutions appear least capable of dealing with them rationally.

A debt crisis would not necessarily cause an American revolution.

It might not even cause a recession.

But if the worst political circumstances converged with the worst possible fiscal circumstances, it could produce something much more dangerous than either side currently imagines.

The great American experiment has survived wars, depressions, assassinations, political scandals and extraordinary social upheavals.

I would prefer not to discover whether it can survive a crisis in which Americans simultaneously lose faith in their money, their government and one another..