US federal government debt exceeded $40 trillion in August 2026, triggering concerns about fiscal credibility and sustainability. This column argues that fiscal sustainability should be assessed using the consolidated balance sheet of the federal government and central bank and the present discounted value of current and future primary deficits. This includes accounting for non-debt liabilities as well as real and financial public assets. In total, the federal government’s non-monetary net worth is likely to be significantly higher. Ultimately, calming bond markets will require a fiscal framework that ensures government solvency and satisfies the central bank’s price stability mandate.
US federal government debt exceeded $40 trillion for the first time on 18 August 2026. This prompted warnings about fiscal credibility and sustainability, and the risk of fiscal dominance that would force the Federal Reserve to engage in large-scale inflationary monetisation of public debt. On 19 August 2026, Treasury Secretary Scott Bessent announced expanded buybacks of longer-term Treasury debt to drive down long-term interest rates, which had risen significantly above short-term rates.Treasury officials raised the possibility of tapping the nearly $1 trillion Treasury General Account (TGA), its checking account with the Fed, to fund these repurchases. This column argues that attention should switch from the $40 trillion federal government debt figure in the US to a likely significantly less negative non-monetary net worth figure for the consolidated federal government and central bank (henceforth the State) and that the debt buybacks cannot be expected to enhance debt sustainability.
US fiscal sustainability should be analysed using the consolidated intertemporal budget constraint of the State: the federal government and the Fed. Regional Federal Reserve Banks are notionally privately owned companies, but the Treasury is the beneficial owner of the entire Federal Reserve System (Fed). It receives all the Fed’s profits after payment of statutory interest on the paid-in capital of the ‘private shareholders’. Central bank monetary liabilities, while important determinants of inflation, should be excluded. While assets to holders, they are liabilities in name only for the central bank. A dollar note is just a claim on a dollar — that is, on itself. The same is true for central bank reserves held by commercial banks and similar institutions.
The two key drivers of fiscal sustainability, credibility, and dominance are the State’s consolidated balance sheet and the present discounted value of its (properly defined) current and future primary deficits. Evaluating sustainability and credibility requires measuring the balance sheet properly. The common omission of large non-debt liabilities and the woeful accounting for most real and many financial public assets should be corrected. Combining the balance sheet and the path of future primary deficits will tell us how much current and future central bank monetary issuance is required to avoid sovereign default and the likelihood of future fiscal dominance.
What is the (non-monetary) net worth of the consolidated State?
An entity’s conventional solvency condition is that the present discounted value (PDV) of its terminal net worth is non-negative as the terminal date goes to infinity. For the State, this requires that the correct Intertemporal Budget Constraint (IBC), which recognises that central bank money is a liability in name only, holds: the current value of its net worth, excluding central bank monetary liabilities, is greater than or equal to the present discounted value of the stream of current and future primary deficits (spending minus revenues, excluding net interest and other net asset returns) minus the present discounted value of current and future seigniorage. Seigniorage in any period is central bank money issuance minus interest paid on outstanding stocks of central bank money (see Buiter 2014, 2021).
Total federal debt outstanding on 20 August 2026 was $40.03 trillion. Of this, $7.75 trillion was intragovernmental holdings, which should be netted out, leaving $32.28 trillion as federal debt held by the public. The Fed is, erroneously, included in the public, so its holdings of Treasuries ($4.54 trillion on 19 August 2026) should also be subtracted. The federal government’s debt liabilities are therefore $27.74 trillion.
Data on federal government assets and non-debt liabilities are only available for the end of each fiscal year, and in what follows I use September 2025 data for these numbers. Reported non-debt liabilities of the federal government were $17.45 trillion. Of this, $15.45 trillion was federal employee and veteran benefits payable. Total liabilities of the federal government are therefore around $45.19 trillion.
The government owns or controls land, infrastructure, real estate, mineral rights, spectrum, loans, public corporations, development rights, and intangible assets such as data, registries, licences, software, and institutional know-how. They should be visible, appropriately valued, protected, maintained, and managed efficiently to optimise the fiscal capacity of the State.
Federal government assets are reported at $6.06 trillion, so the federal government’s net worth is approximately negative $39.13 trillion. However, the asset listing is incomplete, and valuations seem far too low. Property, plant, and equipment (PP&E) are reported at $1.40 trillion. Most of the land owned by the federal government is not reported. The Department of War holds 70.2% of federal property, plant, and equipment and excludes all land and land rights from its balances. As of September 2025, excluded acreage was 35,156 square miles — an area more than twice the size of the Netherlands. Is all this land necessary for the Department of War’s essential responsibilities? Most of this asset class on the government’s balance sheet — much of it acquired long ago — is carried at historical cost, net of accumulated depreciation.They should be valued at either the current market price or the present discounted value of their expected future net earnings. The negative $39.13 trillion figure is likely a significant undervaluation of the federal government’s net worth.
The reported net worth of the Fed was $47.7 billion in September 2026, with total monetary liabilities of $5.36 trillion, a Treasury General Account balance of $944.4 billion, and other reported liabilities of about $388.3 billion. Total Fed assets are $6.74 trillion. The Fed classifies realised losses that would take its net equity below a threshold value (about $45 billion) either as a positive asset (the ‘deferred asset’, listed at $245.5 billion in June 2026) or as a negative liability (listed at negative $223.6 billion in September 2026). In addition, unrealised losses on the Fed’s portfolio of foreign and domestic securities (SOMA) were $856.7 billion in March 2026. Assuming that the $2.0 billion of ‘Accrued benefit costs’ includes the present discounted value of all current and future contractual benefits owed to Fed employees, ignoring the ‘deferred asset’ (see Buiter 2024), and recognising unrealised losses, the net worth of the Fed is around negative $1 trillion. The Fed’s real assets (‘Bank premises and equipment, net’) are recorded at $2.9 billion. This is too low, as they are valued at historical cost less accumulated depreciation. Given the available data, the net worth of the consolidated Treasury and Fed is approximately negative $40 trillion, implying a non-monetary net worth of approximately negative $33.8 trillion. True non-monetary net worth, obtained by properly valuing all assets and liabilities, is bound to be much higher. It is key to obtain a complete list and proper valuations of all assets and liabilities.
Repurchases are liquidity policies; they do not enhance fiscal sustainability
Like Janet Yellen’s shift of the federal borrowing mix towards short-duration Treasuries in November 2023 and the 1961 Operation Twist, the expanded buybacks of longer-term Treasury debt are a tool for minor improvements in Treasury market functioning. It targets illiquidity in the markets for off-the-run Treasuries.
The buybacks do little or nothing to improve fiscal sustainability even when they lower government interest payments in the short run. If purchases of long-dated debt are funded through increased issuance of short-dated debt, the total debt stock is unaffected. Interest payments decline in the short run because the current yield on long-term (ten- and 30-year) Treasuries exceeds the short-run rate. Ignoring term premia, in efficient markets, the long-term yield is an average of expected current and future short-term yields. Thus, when the Treasury rolls over its short-term debt, it can expect to do so at rising short-term rates. The Treasury could instead use the balances in its Treasury General Account to pay for its purchases of long-dated debt. On the surface, this might seem like a good idea because the Fed pays no interest on this account. However, this overlooks the fact that we care about the consolidated State balance sheet. Future profits of the Fed remitted to the Treasury will go down because the Fed can no longer invest its zero-interest balance in interest-bearing securities. Moreover, a sizeable Treasury General Account balance is desirable because it can be used to fund federal deficits when the federal debt ceiling has been reached, and to fund federal debt rollovers when Treasury markets are temporarily locked down.
Conclusion
A credible fiscal plan must include the current State balance sheet to determine fiscal capacity (see Ball et al. 2024). Focusing on the balance sheet is no licence, however, to borrow excessively under the label of ‘government investment’ or to sell off assets unwisely. Governments can waste money on capital projects as easily as on current spending, and they can also destroy public wealth by selling assets cheaply to flatter current debt figures.
The answer to bond-market anxiety is not clever debt operations. It is a fiscal framework that takes the State’s consolidated balance sheet as given and specifies a path of current and future primary deficits and central bank net money issuance — seigniorage — that will both ensure government solvency and satisfy the central bank’s price stability mandate.
Source : VOXeu
