Aug. 17—The huge size and rapid growth of the United States’ $40 trillion federal debt—adding at least $10 trillion in each recent five-year period and now projected to hit $50 trillion in just four years—excites apprehension in every thinking American, and awakens hyperbole in every new President and congressional leader, who claim to cut it and then further accelerate it. Despite the claims of the current President, Donald Trump, and his Cabinet, which included the wild boasts of sometime trillionaire Elon Musk, the fiscal situation has deteriorated further throughout 2026.
July’s Federal budget deficit was a huge $432.3 billion, 22% higher than July of 2025. Net interest on the national debt—that is, the interest to be paid after subtracting the interest the government receives on the Treasuries held in its Social Security, Medicare, and other trust funds—was $104 billion in July alone, and $931 billion for the first 10 months of Fiscal Year 2026. This total already exceeds the net interest for FY2025 as a whole, and projects to be more than $1.1 trillion net interest for this fiscal year.
The current Treasury Secretary, George Soros hedge fund protégé Scott Bessent, is no different from his successors. He claimed, on taking office in February 2025, that he would target a reduction in the federal deficit to 3% of U.S. GDP. As of July 2026, the deficit was at about 6% of GDP and the heedless President had plans to raise it further with war spending and new tax cuts, trying to improve Republicans’ poll numbers.
The Treasury faces increasing struggles—and uses a growing number of tricks—just to pay the interest due on the debt; how can it ever hope to pay down any of the principal? Shall the dollar become infamous at last, in a default and a global financial crash?
Alexander Hamilton’s Surprise
Of course, our first Treasury Secretary, Alexander Hamilton, faced an even worse situation in 1790, with debts owed both by the new national government and by the new states, upon most of which, both interest and principal were far in arrears, or not being paid at all. Yet he assumed all of those debts and began immediately to pay them down.
Hamilton first increased the total debts, by assuming the state debts as federal obligations. Then he replaced that unpayable debt with federal bonds whose “means of extinguishment” (repayment) were guaranteed by new excise taxes and tariffs. And finally, he exchanged those bonds for capital shares (stocks) of a new Bank of the United States, which in turn issued banknotes that became the nation’s first circulating paper currency, and a national source of credit for such economic infrastructure as post roads, canals, ports, and lighthouses.
Hamilton had shown, as he wrote in his 1791 Report on Manufactures, “how much can be done by a proper application of the public Debt.” The first Treasury Secretary’s actions were a complete surprise to President George Washington and the rest of the Cabinet, some of whom opposed them vociferously—but they worked. By 1804, the previously bankrupt and “worthless” American debt was accepted as “as good as money” in Europe as well as in the United States.
American History’s Examples
When the First Bank of the United States’ charter expired, and then was renewed for 20 years in 1816, the administrations of Presidents James Monroe and John Quincy Adams enacted new tariffs to assure that the new Bank’s capital shares were serviced, just as Hamilton and Washington had done.
When President Lincoln’s new administration faced Civil War and Wall Street’s refusal to lend, Lincoln’s Treasury issued a new paper currency, called Greenbacks, and backed them with new, 20-year bonds whose payment was guaranteed by new business and income taxes (1913 was not the beginning of the income tax in America!), just as Hamilton and Washington had done.
The very large Civil War debt of Lincoln’s Treasury was “extinguished” by 1905.
When President Franklin Roosevelt faced the Great Depression, he tried to establish Hamiltonian “credit banks” in each of the 12 Federal Reserve districts. When that failed, he got legislation in 1934 allowing the Reconstruction Finance Corporation (RFC) to function as such a national bank for credit, with its own bond issues through the Treasury.
The huge publicly held debt from World War II, which exceeded 100% of GDP by the end of that war, was down to 25% of GDP by the early 1970s.
Its share has risen ever since, and with Trump’s wars, is again over 100% of GDP.
The next American President may have to be chosen quite soon. That President, and a new Congress, can accomplish an even greater task—to avert what is now, clearly, a looming crash of dollar debt—by halting and then gradually reversing its growth.
Several Principles
The devious strategies of Treasury Secretary Bessent, will not serve. His latest trick, announced Aug. 18, is straight out of Wall Street stock manipulations: buy back outstanding Treasury debt with Treasury funds. Of course, as Allianz chief economist Mohamed El-Arian and others helpfully clarified, buying back long-term Treasuries—whose interest costs have been rising sharply—means issuing more short-term Treasury debt to buy them with! Not exactly a long-term solution.
To make such a national debt into a source of national credit for infrastructure and manufacturing, requires at least that four simple requirements be met, in more or less the order in which Hamilton established them:[1]
- First, that the means be guaranteed for “extinguishing” the debt by regular payment (from tax revenues), even if the payment is over a lengthy period;
- Second, that the “lengthy period” be firmly set, by issuance of new, federally guaranteed bonds of a national (or international) bank or credit institution. This institution’s long-term bonds may assume some of the old national debt;
- Third, that the sources of new tax revenue which are established, must be able to pay, on schedule, at least the interest on the bonds of the new bank or credit institution. The new credit institution can pay the principal on the new bonds over a much longer term, benefiting from increased productivity from the projects being funded; but the interest on those bonds must be assured, by revenue, from the start;
- And fourth, either that those new bonds themselves be used as currency (put in circulation) for issuing new productive credit; or, that the nation may put out a new issue of currency, equal in amount to the old debt which has been exchanged for the bonds of the new institution.[2]
Overriding all four, is a principle one could call “the (monetary) consent of the governed”: The new bond issues must be taken up by the people and commercial institutions of the nation. The purpose of their issuance should be public and publicly understood, just as “war bonds” were during World War II.
Simply declaring and putting out a new currency—whether fiat, digital, crypto, measured by commodities, etc.—does not create credit. Credit is measured by people, not commodities; by giving people more work, greater productivity, savings, and wealth.
Swords to Plowshares
In the United States’ present predicament, the clear target for the requirement above—the “source of revenue able to pay, on schedule, at least the interest on the bonds” issued for the new credit institution—is war; not merely war spending in general, but wars.
The frequent comment, that funds wasted on wars and destruction should be expended instead for such as transport, housing, education, etc., is true; but the impact of making that shift, is greatly multiplied by employing a national credit-issuing bank, rather than simply changing what taxes and Treasury borrowings are spent on.
According to long-run calculations by the Brown University Costs of War Center, U.S. expenditures solely for the fighting of foreign wars in recent decades, have been as follows:
- Short-term: Since 2022, $35 billion per year or more in aid to Ukraine, for war against Russia; and since 2024, $10 billion/year in military aid to Israel and $15 billion per year in other expenditures for war in Southwest Asia;
- Longer-term: In the 25 years since “9/11,” more than $100 billion per year for Afghanistan, Iraq, Libya, and Syria war appropriations, under the Pentagon category of Overseas Contingency Operations and its successor category, Overseas War Operations.
The next President, acting independently of the “two-party system,” should seek, as rapidly as possible, agreement with Congress to end all of this escalating spending on foreign wars of choice. Out of the well-more-than $100 billion in overseas war funds which are saved by peace, they need use only a fraction—$15 billion per year—to charter and establish a United States Bank for Infrastructure and Manufacturing, capable of issuing $1 trillion in credit in five years.
How?
Capitalization of the U.S. Bank for Infrastructure and Manufactures
This Bank will be capitalized for the purpose as follows:
- U.S.-based holders of any fixed-rate Treasury notes and bonds of three years or more duration, will be offered an exchange of that Treasury debt, for equity in the U.S. Bank. They will receive the Bank’s preferred stock, in the form of 20-year debentures with an interest rate one full point higher than the 20-year Treasury bond rate (currently at 5.25%). No distinction will be made between Treasuries already owned by U.S.-based holders, and new issues of Treasuries bought by U.S.-based holders.
This debt-for-equity exchange with the Bank—based, again, on the bonds of Treasury Secretary Alexander Hamilton—will tend to attract particularly pension, insurance, and other long-term savings funds, although any public holder of Treasuries will be eligible for it.
For the Treasury, this will counteract the present speculative and risky practice of issuing the largest volumes of the shortest-term securities—Treasury bills, with maturities of one year down to just four weeks. - The capitalization of the U.S. Bank by such debt-for-equity exchanges, will be aimed at $200 billion each year, and $1 trillion over five Fiscal Years.
- To the extent that Treasury notes and bonds are voluntarily exchanged for Bank debentures, they cease to be debt obligations of the Treasury and instead become 20-year obligations of the Bank.
- Interest owed by the Bank: The interest owed by the U.S. Bank on its debentures—nominally $13-15 billion per year—will be covered by transfer to the U.S. Bank of the $15 billion fraction of the federal funds saved by ending foreign wars of choice.
In addition, a portion of the current annual revenues of the National Transportation Trust Fund (current total: about $45 billion per year), may be transferred to the U.S. Bank by the Department of Transportation, as Congress may decide, if the Bank agrees to supply loans for national transportation improvements, such as high-speed rail systems, highway maintenance, airports and rail hubs, bridges and tunnels, etc.
Projects of the Bank: Reindustrialization
The U.S. Bank for Infrastructure and Manufactures, thus capitalized, will be able to issue loans annually, more than equal to its own capital, for projects and improvements; that is, at least $200 billion each year for capital projects, and more if funds are transferred from the National Transportation Trust Fund as mentioned above.
The Bank should be authorized to: provide credit for major national projects of infrastructure; including surface transportation and ports, national intercity high-speed rail transport; water management and supply, drought prevention, flood prevention and storm protection, electrical energy production and distribution, and space exploration; it should make loans to agencies of the United States authorized for such projects.
Its task will have to include assisting the reindustrialization of plants which are currently making weapons of various kinds, so as to apply them to civilian production; and assistance to institutions of higher education to enable them to support critical science missions such as space exploration, fusion power, and plasma technology development.
Because international economic development is a crucial requirement for peace, the Bank should enter joint ventures with agencies of other nations, mutually to provide credit for major international projects of new infrastructure.
The most immediate examples of such “great projects” of economic infrastructure have long been discussed and planned. These include a Bering Strait Tunnel linking North American railways through Alaska to Eurasia’s development corridors, discussed at the Alaska summit by Presidents Trump and Putin; a Bi-Oceanic Railway or transcontinental rail corridor across South America, discussed and planned for many years by several nations; and the great North American Water and Power Alliance (NAWAPA) against desertification of the western half of North America.
Credit from such a U.S. Bank for Infrastructure and Manufacturing can make these great projects feasible.
Notes
- The author owes a debt, for the clarity of her decades of work on Hamilton, to historian Nancy Bradeen Spannaus, particularly her book, Hamilton Versus Wall Street, The Core Principles of the American System of Economics, published in 2019.
- The only proposal for a new BRICS or “BRICS-centered” reserve currency, which observes this requirement, that the nations involved issue bonds and have them successfully taken up, is the April 2026 Valdai discussion paper by Brazilian economist and former bank official Paulo Nogueira Batista, Jr. It proposes the issuance of new bonds by participating nations to a new international bank, to back the new currency, but does not elaborate on the purpose of the bank other than to support a potential new reserve currency alongside the U.S. dollar, euro, yen, and renminbi.
