U.S. Debt balance changing

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.nytimes.com/2025/12/26/opinion/nationa…

The Quiet, Fateful Shift in Who’s Buying America’s Debt
The New York Times, Dec. 26, 2025
By Geng Ngarmboonanant

Mr. Ngarmboonanant is a managing director at J.P. Morgan and was a deputy chief of staff to Treasury Secretary Janet Yellen.

…
Foreign governments now make up less than 15 percent of the overall Treasury market. While they still hold roughly the same dollar amount of Treasuries as they did 15 years ago, foreign governments’ purchases haven’t kept pace with the growth in U.S. debt. At the same time, the Fed has reduced its Treasury holdings by roughly $1.5 trillion over the past few years…

The Treasury market is now more exposed to profit-driven market forces than before, and the country has high amounts of debt, making upswings in interest rates and changes in other borrowing terms very costly. As we sustain and potentially grow our extraordinary deficits, the return of the private sector into our debt markets will most likely result in higher interest rates, as private investors demand greater compensation for holding U.S. debt than their policy-driven counterparts. Rates will probably be more volatile as well, swinging more sharply in response to data, policy signals and America’s now chronic political dysfunction.

U.S. officials are especially nervous about the growing role of hedge funds, whose highly leveraged trades can be disrupted by market turbulence and amplify turmoil in the Treasury market. Over the past four years, hedge funds have doubled their footprint in the U.S. debt market, making the Cayman Islands — where many hedge funds are officially based — the place where the most U.S. debt outside the United States is held…

Recently, the United States has seen investors demanding higher premiums to invest in our long-term debt — a reflection of growing uncertainty about the country’s economic and fiscal outlook. According to the most commonly used measure, this premium currently clocks in at roughly 0.8 percentage points for the all-important 10-year Treasury, a seemingly small number that translates into billions of dollars in extra interest costs. … [end quote]

Barring massive QE from the Federal Reserve, the bond market is again controlling a free(er) market in the most important factor in any capitalist economy – the price of money. There are books written about the price of money in history. The current price of money is already very low by historic standards.

https://fred.stlouisfed.org/series/REAINTRATREARAT…

With increasing federal deficits, the temptation to “monetize” the debt by QE and President Trump about to appoint a weak new Fed governor who will cut the fed funds rate and spark inflation, the premium the bond market charges to buy government debt will probably rise. That will make all loans (including the record margin loans that are inflating the stock market bubble, real estate, auto and credit card loans) more expensive.

Only reducing the federal debt would take the pressure off. But how likely is that?

Wendy

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Raising taxes to gear real GDP growth would be a far better option.

In a great depression, when the wealthy are no longer wealthy, things will change.

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Well yeah.
But that is not going to happen.
Our nation will follow the “easy” path: “monetize” the debt by QE
Kick the can down the road.

US National Debt:

fred.stlouisfed.org

Federal Debt: Total Public Debt

Federal Debt: Total Public Debt

US interest payments on National Debt:

fred.stlouisfed.org

US National Debt as present of GDP:

fred.stlouisfed.org

Federal Debt: Total Public Debt as Percent of Gross Domestic Product

Federal Debt: Total Public Debt as Percent of Gross Domestic Product

Prediction of US National DEbt:

Peterson Foundation

The National Debt Is Rising Unsustainably

Here are six key takeaways from CBO’s latest Long-Term Budget Outlook projections.

Federal government current expenditures: Interest payments

Federal government current expenditures: Interest payments

Interest on the national debt exceeds annual spending on Medicare, as well as national defense. In fiscal 2024, the government’s net interest expense was $879.9 billion, or 13% of all that year’s expenditures, according to data from the Office of Management and Budget.[1]

[1]Key facts about the U.S. national debt | Pew Research Center

Another link that suggest the US dollar status as the Top Reserve Currency is losing ground.

It’s not that foreign central banks dumped US-dollar-denominated assets, such as Treasury securities. They did not. They added a little to their holdings. But they added more assets denominated in other currencies, particularly a gaggle of smaller currencies whose combined share has surged, while central banks’ holdings of USD-denominated assets haven’t changed much for a decade, and so the percentage share of those USD assets continued to decline.

As the dollar’s share declines toward the 50% line, the dollar would still be by far the largest reserve currency, as all other currencies combined would weigh as much as the dollar. But it does have consequences.

Being the dominant reserve currency had the effect of helping the US borrow more cheaply to fund its huge twin deficits – the trade deficit and the budget deficit – and thereby has enabled the US to run those huge twin deficits for decades. At some point, this continued decline as a reserve currency, as it reduces demand for USD debt, would make the trade deficit and the budget deficit more difficult to sustain.

At what point do the wheels fall off???
IMO our government waits until that occurs. Then a frenzy of meetings & activities similar to the 2008 real estate crisis will happen and a bandage will be slapped upon the gaping wound hoping to staunch a potential mortal wound.

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@tjscott0 I wish there was a super-rec because your post is worth 10 of most ordinary rec’d posts.

Thanks for sharing the scary data. And I agree with you. No tax increase. No government action until the crisis " hoping to staunch a potential mortal wound."
The question is: what actions should METARs take to protect ourselves?
Wendy

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I wouldn’t touch US debt (T-bills). I am not a macroeconomics guy, but at some point I would think they would become worthless. Or near worthless. When will the government say “sorry, we simply can’t service this debt, but thanks for buying our T-bills”? I have no idea, but I think that scenario is a possibility. Catastrophic, but at some point we may have no choice.

I have occasionally thought about trying to move my brokerage from a US firm to a European one. So if the US is embroiled in turmoil, and the dollar is going crazy, I would be denominated in Euros. There may be downsides to that. Not sure. I haven’t felt an urgency to really dig into it, but I think that would be an option. Or maybe I would have to relocate to do that? Northern France is very lovely.

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Yes, Wendy, TJ’s post was superbly summarative of a looming disastrous future.

The “current administration” and its generative political climate will be coming to an end within three years, and I believe likely much more rapidly (midterms!). I also see a huge amount of learning by the general public going on, mostly amounting to increasing realization that governance is quite a big more consequential than choices of “lifestyle signaling”.

I do see an absurdly high liklihood of fiscal catastrophe (and am investing with that in mind), but I also see a real possibility that in two years we will be caught up in a huge cycle of reform that would have achieving fiscal sanity and the political instruments necessary to maintain that as foundational.

Horrifically interesting times.

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Well, if you’re not sure…first look at the demographics and trends in Europe. They’re worse than the U.S. and the population of France tends to riot if they are told they may have to retire after age 60 or give up any of their very cushy benefits. You’d be jumping from the frying pan into the fire … from a Macroeconomic standpoint.

Aside from that, you’re right. Northern France is very lovely.

I don’t think the U.S. will default on the debt. They will monetize it (the Fed will buy it) and inflate it away.
Wendy

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You’re much more optimistic than I. I don’t think the public is learning a damned thing. They are just digging their heels in. Independents may be swinging, but the folks supporting the current administration don’t -yet- seem to be getting disillusioned. I’d love to be proven wrong on that point.

I really am trying not to get political, but this topic is saturated with politics. Yes, if we have a repudiation of the current administration in 2028, there will be some fiscal sanity (probably). But it won’t last. One side of the aisle (who shall remain unlabeled) drives up the debt, and then when the other side comes into power they reduce the debt (or, rather, the rate of growth of the debt). But then the pendulum swings back to the first side, and they run up the debt again. If you chart it over time, you can see the strong correlation between debt and party-in-control.

Yeah…like the Chinese curse: may you live in interesting times.

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Could you be more specific? I know they’ve taken a lot of refugees, and so Islam is a bit more prevalent than it used to be. But it’s generally pretty peaceful over there. And stable. Except for Putin, of course. But they’re coming together to defend against possible aggression on that front.

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Throwing out a list, would love to see opinions.

Assets to protect from USD inflation:
US stocks
Foreign currency stocks
Dividend stocks
Floating rate bonds/loans
TIPS
foreign currency bonds
REITS
commodities
precious metals
crypto
real estate (borrow at fixed rate further helps)

It seems like any asset except for USD fixed-rate bonds, government or corporate (non-TIPS, of course).

If you think deflation is likely instead, then maybe go for USD fixed-rate bonds (non-TIPS).

TIPS assume CPI measures inflation appropriately.

I’m not a fan of every option on that list, but it’s a list of possibilities.

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we are all placing our bets and taking our chances. Based on my perception that we as a nation are presently on a course of inflating and deficit spending our way to prosperity, combined with my loss of faith in our democratic institutions, I increased my position in an international etf (vsgx), and a European etf (vgk) in late spring, and added some cash to those positions during the summer. They solidly outperformed my U.S. holdings and pay higher dividends. It is probably not a coincidence that the dollar dropped in comparative value over that time period. Right or wrong. I am continuing to make that bet in 2026.

Thoughtful criticisms are welcome.

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The current situation did not happen overnight as one can see from the national debt chart. It is a result of bipartisan poor choices since FDR instituted many regulations to safeguard the nation.
50 years ago we discovered industries gained control of government officials of the regulating agencies.
Do we remove & replace those officials? Heck no!. We deregulate!
Then we discover further reason to continue to deregulate especially regulation upon financial institutions: to stimulate and sustain growth. By 2008 this growth was necessary to counteract an impending fiscal crisis of escalating national debt.

While political debates often attribute the deficit to excessive government spending, the reality is that two key economic policies have played the most significant role: trickle-down economics and financial deregulation, particularly the repeal of the Glass-Steagall Act.

These policies, implemented under multiple administrations, have disproportionately benefited the wealthiest Americans while shifting the economic burden to the middle and working classes. Furthermore, they have failed to generate the promised economic growth, instead leading to greater income inequality, financial instability, and increased national debt.

Especially during the recent period of higher interest rates. We can return to QE. But the level of debt is now too high. The correct solution is higher taxes: an anathema to an elected representative. [Remember Walter Mondale in 1984?] “Mr. Reagan will raise taxes, and so will I. He won’t tell you. I just did,” as a strategy to address the deficit through higher taxes. How did that go over. Nope “kick the can down the road” is the path to re-election.

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I too added a bit internetional exposure. MY choice: Vanguard International High Dividend Yield Index Fund ETF Shares [VYMI] YMMV
I thinking on investing in Vanguard Emerging Markets Government Bond Index Fund ETF Shares [VWOB] & Vanguard International Dividend Appreciation Index Fund ETF Shares [VIGI]
I still have some faith in the US stock market as it is largely made up of wealthy investors.

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Yep Monies will be needed to be diverted to fund the ever increasing number of retirees.

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Europe’s facing significant economic and political decline – stagnant growth, high unemployment and increasing energy costs. This situation is compounded by demographic challenges and a loss of global influence.

DB2

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How is that worse than us? We’re facing a debt bomb, and an unwillingness to increase taxes to alleviate it. We, too, have demographic issues; namely a large number of retirees (“boomers”), and a smaller population of young people to support their benefits. And we’re making that worse by deporting everyone we can so that they aren’t paying into the system that is supporting the seniors.

I think Europe is -overall- in better shape than we are, though that may not be saying much. At least they are relatively stable, have healthcare and no guns. We are quite volatile (e.g. Jan 6), have guns and no healthcare.

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I used to think this was possible. But that was back when I believed most of the treasury debt was in bonds (long-term instruments). But that is not the case, most of the debt is in relatively short-term instruments, and the USA pays ZERO of it down, and pays ZERO of the interest. Instead we refinance ALL of it, constantly, twice a week there are large auctions for treasury debt. Some weeks larger than others, but every single week of the year. Furthermore, not only do we refinance ALL of it, we also spend an extra trillion or two each year and finance all of that.

So, if trillions upon trillions have to be refinanced every year, via auctions twice every week, then it becomes difficult to impossible to “inflate it away”, because with each refinance during inflation, the rate goes higher and higher. Now, if the majority were 20 or 30 year bonds, and paid a nominal interest rate (i.e. not TIPS), then you can inflate it away to a large extent. But that is not the case [anymore].

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The unemployment will create deflation. The FED will be lucky to get a bit of inflation into the system.

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Bob,

The EU will be well. They are going to supply side economics and becoming a military industrial complex. The EUR will become the main reserve currency.

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Just last week, the Fed announced it would be injecting $40 billion of overnight funds to stabilize the banking system. But that’s not QE and won’t be inflationary. Right.
Wendy

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