The U.S. government plans to crack down on its $40 trillion debt - but brace for a 'wrenching time' ahead

By Robert Schroeder

Washington has no shortage of options. None are easy.

Entitlement programs like Medicare drive up U.S. government debt - but who's going to touch them?

With the U.S. national debt topping $40 trillion and bond markets getting battered, top Trump administration officials like Treasury Secretary Scott Bessent are promising a new push for "fiscal consolidation." So what are their choices, and when can markets expect to see results?

Alternatives abound. Quick results aren't guaranteed.

"Lawmakers have no shortage of options before them, though none are easy. They boil down to a few categories: cut spending, raise taxes and grow the economy. No one category is sufficient on its own to stabilize debt and deficit levels. And some tax increases will do lots more damage to the economy than others," Andrew Lautz, senior director of federal policy at the Tax Foundation, told MarketWatch.

Start with the big drivers of the debt. Washington can certainly try to save money via reductions to entitlement programs like Medicare, Medicaid and Social Security.

The problem with targeting these popular programs is that it's a "nonstarter in the near term," in the words of Evercore ISI's Sarah Bianchi, and "even more so after the midterms if Democrats control at least one chamber of Congress." Meaningful reforms require lawmakers to act, and there isn't much time before the Nov. 3 elections.

Opinion: This isn't a plan to save Social Security. It's a plan to have a plan.

How about a new pledge or a fresh goal for the federal government's red ink? One Washington-based group, the Committee for a Responsible Federal Budget, is urging lawmakers to commit to no new borrowing and, from there, to agree on a fiscal goal for the country. They note that a deficit target of 3% of gross domestic product already has bipartisan support.

And then there's that other classic Washington move: rooting out fraud.

Bianchi says the Trump administration may be able to tackle fraud in Medicare and Medicaid via executive action. It could pay off, she says, with "nontrivial," though modest, savings. But that too would take what she calls a significant amount of time.

Bessent hasn't tipped his hand as to exactly what he or President Donald Trump would target in their new effort. But he said the administration is looking at both taxes and spending.

"In the administration, we are announcing probably at the end of this week, beginning of next week, an increased focus on fiscal consolidation, and it's coming from President Trump," Bessent told CNBC on Thursday. He also called the $40 trillion debt milestone "nothing magic" and said the U.S. could grow its way out of it.

"Russ Vought and myself will be examining both on the revenue side and the cost side what we can do," Bessent said, referring to the head of the White House's budget office.

In the meantime, the Treasury chief said he's ready to act again and intervene in the bond market BX:TMUBMUSD10Y with bigger buybacks than before.

Washington has seen no shortage of commissions, ideas and efforts to address the debt or save money. But as Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, points out, the national debt has doubled in the last 10 years and quadrupled in fewer than 20 years.

Whatever solutions Bessent or lawmakers agree on, longtime budget watchers see a tough pill for Americans to swallow.

"We have waited far too long to do this in a way that protects either the economy or the most vulnerable among us from some disruption," Mitch Daniels, who served as White House budget director in the George W. Bush administration, told CNBC.

"We're going to go through a fairly wrenching time," he said.

-Robert Schroeder

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08-21-26 0700ET