The U.S. national debt has crossed $40 trillion. Treasury Secretary Scott Bessent recently said: “There’s nothing magic about the $40 trillion number. And we can grow our way out of that.” [Fortune / CNBC interview]

That raises an important question for investors: what does “grow our way out of it” actually look like?

There is a historical precedent worth understanding. And if today’s policymakers ultimately follow even part of that playbook, it could have significant implications for how investors think about cash, bonds, equities and real estate over the next decade.

We’ve Been Here Before

At the end of World War II, the United States faced an enormous debt burden. Rather than immediately eliminating that debt through massive spending cuts or dramatically higher borrowing costs, the postwar period combined strong nominal economic growth, rising incomes and tax revenues, significant inflation, and unusually low government borrowing costs.

Beginning in 1942, the Federal Reserve formally pegged short-term Treasury bill rates and implicitly capped long-term Treasury bond yields at about 2.5% to help finance the war. After the war, the peg remained in place even as inflation surged. Federal Reserve History notes that CPI inflation was 17.6% from June 1946 to June 1947 and another 9.5% from June 1947 to June 1948. [Federal Reserve History]

The dollars used to repay government debt became worth less in real terms, while the economy producing those dollars became substantially larger. Put simply: the denominator grew.

This dynamic is often described as financial repression or, less technically, “inflating away the debt.” The government does not literally erase the debt. Instead, inflation and nominal growth reduce its real burden relative to the size of the economy.

Could We Be Seeing a Modern Version?

Today is not 1946. The economic structure, global capital markets, the Federal Reserve’s mandate, and the visibility of fiscal policy are all very different. But some recent developments are worth watching.

First, Bessent has emphasized growth as a solution to the debt burden. His “grow our way out of that” comment is not the same thing as advocating higher inflation. But it does point toward a policy preference for expanding the economy and the tax base rather than focusing only on the absolute level of debt. [Fortune]

Second, Treasury has become more active in the long end of the bond market. In August, Treasury announced plans to double the size of certain long-duration Treasury buybacks from $2 billion to at least $4 billion per operation as long-term yields climbed. [Reuters via Investing.com]

That move has led some market participants to use the phrase “financial repression” to describe efforts to keep government borrowing costs from rising as much as the market otherwise might demand. Citadel Securities, for example, criticized the Treasury’s efforts in those terms. [Business Insider]

Then There’s Kevin Warsh

Federal Reserve Chair Kevin Warsh is not signaling tolerance for runaway inflation. In fact, his recent Jackson Hole remarks were decidedly focused on price stability. He said inflation remains above the Fed’s 2% target and that the Fed’s predominant focus right now should be on prices. [Federal Reserve – Jackson Hole remarks]

But another part of the speech is especially relevant to this discussion. Warsh said the Fed needs “clear market signals, as unfiltered as possible” from Treasury securities, foreign exchange markets, credit conditions, commodities and asset prices. [Federal Reserve]

That creates an important tension. The Fed wants clean market signals. Treasury, meanwhile, is actively trying to improve liquidity and influence conditions in the long-duration Treasury market. Warsh and Bessent are not necessarily pursuing the same strategy, and neither has said the U.S. should “inflate away” the debt. But both are operating inside the same fiscal reality: a very large debt burden and a market increasingly sensitive to the cost of financing it.

The Math Is Becoming Increasingly Difficult

Broadly speaking, the United States has only a few ways to improve debt-to-GDP over time: reduce deficits through spending cuts and/or higher taxes, generate stronger real economic growth, or allow nominal GDP – real growth plus inflation – to grow faster than the debt burden.

In reality, any durable solution will likely involve some combination of those forces. But politically, allowing nominal growth to do more of the work can be easier than outright austerity.

That is why the post-WWII comparison matters. If nominal GDP grows faster than the government’s average financing burden for a sustained period, the debt can become more manageable relative to the economy even if the absolute dollar amount of debt continues to rise.

This Is Where the “Debasement Trade” Comes In

If investors begin to believe policymakers will tolerate higher nominal growth while also resisting a proportional rise in government borrowing costs, the question shifts from “Is my money safe?” to “Will my money retain its purchasing power?”

Cash may feel safe in nominal terms while losing purchasing power. Long-duration fixed-rate bonds can be vulnerable because their future payments are fixed in dollars. That can increase the relative appeal of assets that either have scarcity value or can reprice with the economy – including equities, gold, certain digital assets and real estate.

None of those assets is guaranteed to outperform. The point is that they represent ownership of something other than a fixed claim on future dollars.

Why Real Estate Is Particularly Interesting

Real estate can be especially compelling in this framework because it combines a productive asset with the possibility of fixed-rate leverage.

Consider an apartment property financed with long-term fixed-rate debt. The loan balance is fixed in nominal dollars. Over time, however, rents, wages and property income have the ability to adjust with the broader economy. If the price level rises materially over a decade, the original mortgage does not automatically rise with it. The borrower is effectively repaying yesterday’s debt with tomorrow’s dollars.

That can be powerful – but the path matters.

Higher inflation can also keep interest rates elevated, push cap rates higher, raise operating expenses and make refinancing more difficult. Floating-rate borrowers can get squeezed. Properties purchased at aggressive valuations with little margin for error can struggle even if the long-term inflation thesis is directionally correct.

So the conclusion is not: “Inflation is good for real estate.” The better conclusion is that real estate with durable income, a sensible basis and appropriately structured fixed-rate debt can be positioned to benefit from nominal growth while still requiring disciplined underwriting and strong operations.

The Opportunity May Be in the Transition

This environment can create both pain and opportunity. Owners who financed properties at aggressive valuations with short-duration or floating-rate debt may be forced to refinance, recapitalize or sell. At the same time, replacement costs remain elevated in many markets.

That can create opportunities for well-capitalized buyers to acquire existing properties at a meaningful discount to replacement cost and finance them more conservatively than the prior owner.

If that happens, investors may gain two potential advantages: a better basis today and a liability whose real value can decline over time.

Watch What Policymakers Do, Not Just What They Say

Nobody knows whether the next decade will resemble the post-WWII period. The comparison is useful as a framework, not a forecast.

Warsh is explicitly focused on controlling inflation. Bessent is emphasizing growth and lower financing pressure. Meanwhile, the bond market is demanding higher yields as investors weigh inflation, deficits and the supply of government debt.

The central question is this: Can the U.S. generate enough real and nominal economic growth to reduce the relative burden of its debt without allowing inflation or long-term borrowing costs to get out of control?

If the answer ultimately involves some combination of stronger nominal growth, persistent inflation and policies intended to contain government borrowing costs, the winners and losers could look very different from those of the low-inflation, falling-rate environment investors became accustomed to over the previous several decades.

For long-term investors, one question may matter more and more: How much of my wealth is simply a claim on future dollars – and how much is invested in productive assets capable of growing alongside the economy?

That is a question worth asking before the answer becomes obvious.

Sources & Further Reading

• Federal Reserve History – The Treasury-Fed Accord
• Federal Reserve History – From WWII to the Treasury-Fed Accord
• Federal Reserve – Chairman Warsh, 2026 Jackson Hole Remarks
• Fortune – Scott Bessent on the $40 Trillion National Debt
• Reuters via Investing.com – Treasury Doubles Long-Bond Buybacks
• Business Insider – Treasury Buybacks and “Financial Repression” Debate