Who Will Finance America’s $40 Trillion Debt?

The United States’ national debt surpassed $40 trillion this year.

At first glance, a debt of this magnitude seems impossible to repay.

But the reality is that this debt is not designed to be paid off. It is designed to be continuously rolled over.

In other words, when existing debt matures, it is covered by issuing new debt.

For this system to keep working, someone must be willing to lend money to the United States.

Throughout history, America has relied on different sources of financing.

Today, the next buyer is sitting in your smartphone: stablecoins.

So how did we get here? Let’s go back to the beginning.

America’s Debt Has Always Had a Foundation

The United States has never carried this debt entirely on its own. In every era, it has relied on something to support the system.

Initially, that foundation was gold.

Under the monetary order established after World War II, the dollar was tied to gold. Every dollar had gold backing held in the US government’s reserves.

Countries could take their dollars to the United States and exchange them for gold.

That arrangement gave the world confidence in the dollar and encouraged countries to lend money to America.

Over time, however, the United States began spending more than its gold reserves could support. Wars and expanding government expenditures fueled continuous money creation.

Eventually, the amount of dollars circulating around the world far exceeded the gold held in American vaults.

Countries began returning their dollars and demanding gold in exchange. America’s gold reserves were rapidly running out.

In 1971, President Richard Nixon shut that door by suspending the dollar’s convertibility into gold.

The first foundation had disappeared.

The dollar was no longer backed by gold. America needed a new anchor, and it found one in oil.

In 1974, the United States reached an agreement with Saudi Arabia. Saudi oil would be sold exclusively in US dollars.

Saudi Arabia would also invest the dollars it earned in US Treasury securities. In return, America provided security guarantees and military equipment.

As a result, every country that wanted to purchase oil needed dollars. Meanwhile, revenues from oil sales repeatedly flowed back into the United States.

Oil had effectively taken gold’s place.

Now Stablecoins Are Entering the Picture

That system lasted for decades. Today, however, it is also beginning to lose its strength.

China has been reducing its holdings of US Treasury securities for years. Its holdings stood at $1.3 trillion in 2013, but today they have fallen to roughly half that amount.

Japan remains the largest foreign holder of US debt, but it is no longer holding as much as it once did.

Even oil-producing countries are discussing ways to move away from the dollar. In other words, traditional buyers are showing less interest in America’s long-term debt.

At precisely this moment, a new buyer has emerged. This time, it is not a country. It is a stablecoin.

A stablecoin is a digital form of the dollar designed to maintain a value of exactly $1.

Money and payments are gradually moving onto blockchain networks around the world. The dollar is making that transition too, in the form of stablecoins.

But what makes this new buyer so important?

A law passed in the United States in 2025 brought this system under a regulatory framework. Under the rules, every stablecoin must be backed by cash or short-term US Treasury securities.

Because Treasury securities generate interest, companies tend to favor them. This means a substantial portion of the money entering the blockchain ecosystem eventually flows back to the US government as lending.

The clearest example is Tether, a stablecoin issuer. It currently holds more than $120 billion in US Treasury securities.

That is more than the holdings of many countries. A private company has effectively become a lender to the United States on the scale of an entire nation.

The United States is also increasingly relying on short-term borrowing. It is buying back some of its long-term debt and replacing it with short-term securities.

And those short-term securities are precisely what stablecoin companies are buying.

As traditional buyers pull back, this new source of capital is filling the gap.

What makes the arrangement even more remarkable is that it feeds itself. As the crypto market expands, more stablecoins are issued.

Every new stablecoin means another potential purchase of US Treasury securities. As money moves onto the blockchain, America’s debt continues to find new buyers.

Crypto Is Now Financing the System It Was Created to Challenge

Now step back and look at the bigger picture.

Gold had to be extracted from the ground. Oil had to be pumped out of wells. Today’s foundation, however, is far easier to access: an application on your smartphone.

The foundation has changed, but the debt has never shrunk. It has continued to grow.

This is precisely the system that crypto originally emerged to challenge.

In 2009, Satoshi Nakamoto, the creator of Bitcoin, wrote:

“The root problem with conventional currency is all the trust that’s required to make it work. The history of fiat currencies is full of breaches of that trust.”

Yet today, the newest force financing that very system is crypto itself, the technology that was born out of a desire to escape it.

I’m following these developments closely. I’ll keep you informed.

Kaynak: Penguin X (ThePenguinBTC)