USA: Why the world's largest economy has mortgaged its future and every storm could bring the house of cards crashing down

The 10, 20 and 30 percent scenarios: What happens if the world sheds America's debt?

China's gold strategy: The silent attack on the US dollar has begun

Outwardly, the United States, under the leadership of Donald Trump, is demonstrating absolute strength: "America First," massive tariffs, and a military buildup dominate the headlines. But anyone who shifts their focus from political rhetoric to the stark figures of the US Treasury is staring into an abyss. With a national debt of an unfathomable $38.5 trillion—growing by another $8 billion every day—the world's largest economy is teetering on the brink.

The US finds itself in a historic paradox: Never before has a nation been so militarily dominant and simultaneously so financially vulnerable. Interest payments on the gigantic mountain of debt have long since surpassed the Pentagon's budget. While Washington attempts to project strength, its major creditors are quietly withdrawing in the background. China is dumping US bonds and buying gold, the dollar is gradually losing its status as the undisputed reserve currency, and confidence in the world markets is crumbling.

This article takes a look behind the scenes of the American financial architecture. We analyze why Trump's tariffs don't even cover half of the monthly interest payments, the geopolitical dynamite contained in the holdings of foreign central banks, and what would happen in three specific scenarios if the world suddenly turned off the money tap. It's the anatomy of a colossus with feet of clay, whose stumble could drag the entire global financial system down with it.

Behind the facade of the superpower: When interest rates devour world power

Under the presidency of Donald Trump, the United States presents itself as an invincible economic power, seeking to reshape the world through punitive tariffs, military buildup, and nationalist rhetoric. But behind this facade lies an economic reality whose dramatic nature can hardly be overstated. As of January 2026, the total US national debt stands at approximately $38.43 trillion, representing a daily increase of roughly $8.03 billion. The debt mountain grows by almost $93,000 every second. This translates to a debt burden of approximately $285,000 per household. These figures describe not merely an accounting number, but a structural vulnerability that could destabilize the entire global financial system if the wrong lever is pulled at the wrong time.

The US stands naked before the world, not because it is poor, but because its prosperity is built on borrowed money. This paradox of a superpower economically dependent on the goodwill of other nations deserves a thorough analysis that goes beyond the usual headlines and exposes the underlying mechanisms.

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The anatomy of a mountain of debt: Who really owns the USA

To understand the scale of US debt, one must first grasp the structure of these liabilities. The $38.5 trillion is divided into two major categories: intragovernmental holdings, meaning debts within the government, and public debt holdings, meaning debts owed to the public.

Intragovernmental holdings amount to approximately $7.2 trillion and consist primarily of funds that government trust funds have invested in U.S. Treasury securities. The largest item is the Social Security Old-Age and Survivors Insurance Trust Fund at about $2.4 trillion, followed by the Department of Defense's Military Pension Fund at about $1.8 trillion and the Public Sector Pension Fund at roughly $1 trillion. These debts are essentially obligations of the government to itself, but they represent real claims on the assets of millions of American retirees, veterans, and government employees. If these funds ever need to be called upon, the government will require fresh money, either through tax revenue or by issuing new debt.

The remaining approximately $31 trillion is held by external creditors, ranging from the U.S. Federal Reserve to domestic investment funds, pension funds, and insurance companies, as well as foreign governments and private investors. The Federal Reserve at one time held over $5 trillion in Treasury securities, but as part of quantitative tightening, it reduced its holdings to between $6.25 trillion and $6.5 trillion of total assets by the end of 2025, before halting the reduction in December 2025. Domestic investors, including investment funds, banks, insurance companies, and state and local governments, hold the largest share of public debt. Investment funds and pension funds alone account for approximately $5 trillion, while state and local governments hold over $1 trillion.

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Overseas creditors: A global network of dependency

The most geopolitically sensitive part of US debt is that held abroad. As of November 2025, foreign investors held a record $9.26 trillion in US Treasury securities, an increase of about six percent over the previous year. This figure marks an all-time high and shows that, despite all the debates about de-dollarization, the world continues to invest heavily in American debt.

The ranking of the largest foreign creditors reads like a geopolitical map with surprising accents. Japan tops the list with approximately $1.2 trillion, followed by the United Kingdom with about $878 billion and China with roughly $689 billion. What at first glance appears to be dry statistics reveals, upon closer inspection, a dense web of mutual dependencies. Japan, America's closest ally in the Pacific, finances the superpower, which in turn guarantees Japan's security umbrella. China, America's greatest geopolitical rival, holds hundreds of billions of dollars in American debt despite increasing tensions.

The positions of smaller financial and offshore centers are particularly striking. The Cayman Islands, with roughly $440 to $450 billion, Belgium and Luxembourg, each with about $410 billion, Ireland with approximately $340 billion, and Switzerland with $310 to $330 billion, together hold more US debt than China. Behind the Cayman Islands are hedge funds and institutional investors, while behind Belgium and Luxembourg are European clearing houses like Euroclear, which process international transactions. The actual allocation of the debt is therefore more complex than the official TIC data from the US Treasury Department suggests, as securities are often held in custody via third countries.

The top three creditors, Japan, the United Kingdom, and China, together hold about one-third of all foreign-held US Treasury securities. Other major creditors include Canada with approximately $360 to $370 billion, France with about $360 billion, Taiwan with $290 to $300 billion, Singapore and Hong Kong with roughly $240 to $250 billion each, and India with $220 to $240 billion. Brazil with approximately $210 billion, Norway with $190 to $200 billion, Saudi Arabia with $130 billion, South Korea with $120 billion, the United Arab Emirates with $110 to $120 billion, and Germany with approximately $110 billion also play a significant role.

The avalanche of interest rates: When debt servicing devours the state

The real explosive potential of US debt lies not only in its absolute size, but in the exponentially rising interest payments. In fiscal year 2025, which ended in September, the US government paid approximately $1.22 trillion in gross interest on its debt, with net payments totaling $970 billion. The interest burden thus nearly tripled in just five years. In the first four months of fiscal year 2026, from October 2025 to January 2026, cumulative interest payments already amounted to $346 billion, an increase of 7.4 percent compared to the same period of the previous year.

This dimension becomes tangible when placed in the context of the overall budget. Interest payments are now the third-largest single item in the federal budget, surpassed only by Social Security and Medicare. They exceed defense spending by $57 billion. While defense spending is projected to rise to over $1 trillion in fiscal year 2026, even this enormous sum will be consumed by interest payments.

The Congressional Budget Office's projections paint an even bleaker picture. Annual interest payments are expected to reach $2.14 trillion in 2036, nearly double the defense budget at that time. Over the next decade, projected net interest payments total $16.2 trillion. The average interest rate on marketable debt was 3.362 percent as of December 2025, up from just 1.552 percent five years earlier. With a debt level exceeding $38 trillion, every one-basis-point increase translates into billions of dollars in additional annual costs.

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The Great Illusion: Tariffs, Boasting, and the Arithmetic of Powerlessness

Donald Trump and his administration are portraying tariff policy as a revolutionary instrument for debt reduction. The president himself declared that the tariffs would drastically reduce the debt, citing a CBO analysis that projected tariff revenues of around $4 trillion over the next decade. The reality is considerably more sobering.

In fiscal year 2025, tariffs generated $202 billion in revenue, a 142 percent increase over the previous year. In the first four months of fiscal year 2026, another $124 billion was added, a 304 percent increase. These figures sound impressive until you compare them to the interest payments. In July 2025 alone, accrued interest on various Treasury instruments amounted to approximately $61 billion, while tariff revenue in the same month reached only $29.6 billion. Thus, tariffs cover less than half of the monthly interest burden.

To make matters worse, Trump has proposed a tariff dividend of $2,000 per person, which, according to calculations by the Committee for a Responsible Federal Budget, would cost approximately $600 billion annually. At the same time, the One Big Beautiful Bill Act, Trump's flagship domestic policy project, has increased projected deficits by $4.7 trillion over ten years. Thus, tariff revenues will not only be consumed by debt interest payments but more than offset by new spending programs and tax cuts.

The CBO projects cumulative deficits for the period 2026 to 2035 that are $1.4 trillion higher than estimated a year ago. The average annual deficit is expected to reach 6.1 percent of GDP, twice the 3 percent needed to stabilize the debt-to-GDP ratio. The debt-to-GDP ratio is projected to rise from its current level of around 100 percent to 120 percent in 2036.

China's quiet retreat: When its biggest rival loses confidence

A tectonic shift is taking place within the creditor structure, with far-reaching geopolitical consequences. China, once the largest foreign creditor of the US, has been systematically reducing its holdings of US Treasury securities for years. By the end of 2025, China's official holdings had fallen to $682.6 billion, the lowest level since 2008. Compared to its peak, Beijing has reduced its holdings by approximately 35 percent.

This shift is no accident, but a deliberate strategic decision. The Chinese leadership is pursuing a multi-pronged strategy to reduce its dependence on the dollar. First, the People's Bank of China is massively diversifying its reserves into gold. By December 2025, the central bank had purchased gold for 14 consecutive months, increasing its holdings to 2,306 tons, valued at approximately $319 billion. This trend continued into January 2026, with the value of gold reserves climbing to $369.58 billion. Several analysts believe that actual Chinese gold purchases significantly exceed the officially declared amounts.

Second, Beijing's latest directive is directed at commercial state-owned banks to reduce their holdings of US Treasuries. This move marks an escalation compared to previous measures, which were limited to central bank reserves. Third, within the framework of BRICS cooperation, China is actively promoting the internationalization of the renminbi as an alternative trade and reserve currency. The motivation behind this is multifaceted: protection against potential US sanctions modeled on those imposed against Russia, hedging against the growing volatility of US fiscal policy, and the long-term establishment of a multipolar monetary system.

Parallel to China, other BRICS countries such as India and Brazil have also reduced their holdings. This development runs counter to the general trend, as countries like Belgium, Canada, South Korea, France, and the United Arab Emirates have increased their positions. Therefore, there is no general flight from US bonds, but rather a significant shift away from geopolitical rivals and toward closer allies and financial center nations.

The dollar as the world's reserve currency: A privilege under erosion

The US's ability to borrow at low interest rates and denominate its debt in its own currency rests on the so-called exorbitant privilege of the US dollar as the dominant global reserve currency. But this privilege is crumbling. As of the first quarter of 2025, the dollar's share of global foreign exchange reserves stood at 57.74 percent, and in the second quarter it fell further to 56.32 percent. This is the lowest figure in decades and represents a decline of almost 15 percentage points compared to the levels of 71 to 73 percent in the early 2000s.

This shift is driven by several factors. The aggressive use of the dollar system as a geopolitical weapon, particularly the freezing of Russian foreign exchange reserves after the invasion of Ukraine, has prompted many countries to reconsider their reliance on the dollar. Growing public debt and increasingly erratic economic policies under Trump, especially the massive tariff escalations, have undermined international investors' confidence in the stability of US fiscal policy. Although absolute dollar reserves have increased from under $1 trillion in 1999 to over $6.7 trillion by mid-2025, the declining percentage reflects a deliberate diversification strategy by many central banks.

The euro has increased its share to around 20 to 21 percent, and non-traditional reserve currencies are also gaining in importance. While the Chinese renminbi currently only accounts for about 2.1 percent, the trend is clear. The dollar continues to dominate, accounting for 88 percent of all foreign exchange transactions and 54 percent of global export invoicing, but the erosion at the extremes is unmistakable.

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Debt ratio in historical and international comparison

The US national debt as a percentage of gross domestic product (GDP) will reach 124 percent as of September 2025. Historically, this is a level only seen in the aftermath of World War II, when the ratio stood at 106 percent of GDP in 1946. However, the postwar situation was fundamentally different: at that time, the debt burden consisted of war financing, the economy was experiencing a catch-up boom, and inflation eroded the real value of the debt. Today, debt is growing in peacetime amidst already high levels of prosperity, driven by structural deficits in social security, healthcare costs, and a bloated defense budget.

The picture is more nuanced in international comparison. Japan, with a national debt ratio of around 250 percent of GDP, is far above the US level, but Japan holds over 90 percent of its debt domestically and pays minimal interest thanks to the Bank of Japan's ultra-loose monetary policy. Germany, with a ratio of around 63 percent, and Switzerland, with about 40 percent, demonstrate that large economies can function with significantly lower levels of debt. Crucial factors are not just the ratio itself, but also the composition of creditors, the interest rate level, and the ability to service debt from current economic growth. This is precisely where the growing problem in the US lies: Interest costs are rising faster than nominal GDP, setting in motion a self-reinforcing debt cycle.

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Scenario one: Ten percent capital deduction and the first wave of pressure

What would happen if ten percent of foreign creditors were to sell their US Treasury holdings? With a total foreign holding of approximately $9.3 trillion, this would equate to a selling pressure of about $930 billion. For comparison, the average daily trading volume on the US Treasury market is around $600 billion. A sell-off of this magnitude, even if it extended over several weeks, would put considerable pressure on the market.

The immediate consequences would be a noticeable increase in bond yields, as the oversupply drives down prices. Since Treasury yields and prices are inversely proportional, a price decline would push yields higher. A yield increase of 50 to 100 basis points would be plausible in this scenario. Because US Treasuries serve as a benchmark for virtually all other interest rates in the American economy, mortgage rates, corporate bond yields, credit card rates, and auto loan rates would follow suit.

The Federal Reserve would face a dilemma. On the one hand, it could step in as a buyer of last resort and purchase the excess bonds to stabilize yields. On the other hand, the Fed was in the middle of an interest rate-cutting cycle at the end of 2025 and had halted its balance sheet reduction in December. A massive bond buyback would effectively mean a return to quantitative easing, increasing the risk of inflation and undermining the already fragile credibility of monetary tightening.

In an orderly sell-off over several months, this scenario would be painful but manageable for the US. The dollar would likely suffer moderate losses, stock markets would correct, and borrowing costs for businesses and consumers would rise. The economic impact would be a slowdown in GDP growth of an estimated 0.3 to 0.5 percentage points and a noticeable decline in housing investment and consumer spending.

Scenario two: Twenty percent capital deduction and the crisis of confidence

A sell-off of 20 percent of foreign holdings, or approximately $1.85 trillion, would trigger a qualitatively different dynamic. This amount exceeds three times the average daily volume on the Treasury market and would cause a severe liquidity crisis, even if the sale were spread out over months.

Yields are expected to surge by 150 to 250 basis points. A two-percentage-point increase in interest rates on the total marketable debt of approximately $29 trillion would result in additional annual costs of $580 billion for the US government if all debt had to be refinanced at the new interest rate. Since the average maturity of the debt is around five to six years, this effect would unfold gradually over several years, but new borrowing and the refinancing of short-term securities would be affected immediately.

This scenario would likely trigger a recession in the US. Rising financing costs for businesses, a collapse in the housing market, and falling stock prices would create a negative feedback loop. Tax revenues would decline, the deficit would continue to rise, and the government would face a choice between drastic spending cuts, tax increases, or even more aggressive money creation by the Fed.

The global repercussions would also be substantial. Since US Treasuries serve as the benchmark for almost all financial products worldwide, a massive price drop would trigger losses in the portfolios of banks, insurance companies, and pension funds around the globe. The experience of March 2020, when the Fed had to purchase roughly one trillion dollars in Treasuries within a few weeks to restore market liquidity, provides a glimpse of the intervention measures that would be necessary in such a scenario.

Scenario three: Thirty percent capital withdrawal and the systemic upheaval

A sale of 30 percent of foreign-held US Treasury securities, roughly $2.8 trillion, would exceed the limits of manageability and trigger a systemic event of historic proportions. To grasp the scale: This amount is roughly equivalent to the entire GDP of France.

In this scenario, an orderly market would no longer be guaranteed. Treasury yields could rise by 300 to 500 basis points or more, pushing the interest rate on ten-year bonds into the seven to nine percent range. The last time such interest rates prevailed was in the early 1990s, in a fundamentally different debt landscape. With a debt level of $38.5 trillion, the consequences this time would be far more dramatic.

The Federal Reserve would have to step in as a buyer on an unprecedented scale. The trillion dollars purchased during the COVID crisis would be only a fraction of what would be needed. Such monetary financing of the national debt would massively devalue the dollar. In an extreme scenario, the dollar could lose 20 to 30 percent against a basket of major currencies, which would fuel imported inflation in an already fragile economy.

The geopolitical consequences would be no less dramatic. The US government could, under the International Emergency Economic Powers Act, freeze the assets of foreign central banks participating in the sell-off. However, such a measure would permanently destroy confidence in US financial assets and only accelerate the outflow. It would be the fiscal equivalent of self-mutilation.

A domino effect on the global banking sector would be inevitable. European banks holding massive amounts of US Treasuries as collateral and liquid reserves would suffer substantial losses. Stock markets worldwide would crash, potentially dwarfing the 2008 financial crisis. Simultaneously, countries dumping their bonds would also incur massive losses, as they would only be able to sell their holdings at drastically reduced prices. China, for example, would realize book losses in the tens of billions in such a scenario. This is therefore a scenario of mutually assured financial destruction, which makes it unlikely, but by no means impossible.

Structural vulnerability: Why America is exposed

The crucial question is: Why are the USA so vulnerable despite its economic and military strength? The answer lies in a series of structural factors that reinforce each other.

First, the American economy has been systematically living beyond its means for over two decades. Since 2001, the federal government has spent more than it has taken in every single year. These chronic deficits have piled up into a mountain of debt that has now taken on a life of its own, because interest payments alone continue to inflate the deficit.

Second, there is a lack of political will to consolidate the budget. Democrats are unwilling to cut social spending, while Republicans refuse to raise taxes or reduce defense spending. Trump increased defense spending by $113 billion to around $962 billion in fiscal year 2026, while simultaneously extending tax cuts and launching new spending programs. CBO projections show that deficits will average 6.1 percent of GDP over the next decade, twice the historical average.

Third, political dysfunction has undermined the credibility of US fiscal policy. The government shutdown from October to November 2025, the longest in US history at 43 days, coincided with a period when the national debt exceeded $38 trillion. When the world sees that the world's largest economy is unable to even keep its own government running while simultaneously accumulating over $8 billion in new debt per day, it fundamentally erodes confidence.

Fourth, the instrumentalization of the dollar as a geopolitical weapon, whether through sanctions, reserve freezing, or the threat of being cut off from the SWIFT system, has led to a growing number of countries actively seeking alternatives. China's aggressive gold purchases, the BRICS initiatives for alternative payment systems, and the gradual diversification of global foreign exchange reserves away from the dollar are direct responses to the perception that dollar investments represent a political risk.

The Paradox of Strength: Why the Power Pose Magnifies Weakness

Trump's America First policy exacerbates the fundamental paradox of US debt. The more aggressively the US acts, the more it imposes tariffs on trading partners, the more it undermines international institutions, and the more it uses the dollar as leverage, the greater the incentive for the rest of the world to reduce its dependence on the US.

Tariff policy is a prime example. While punitive tariffs may generate revenue in the short term, they are inflationary, a fact confirmed by the CBO, even if the White House denies it. Higher inflation means higher interest rates, higher interest rates mean higher debt service costs, and higher debt service costs eat up the tariff revenue and exacerbate the deficit. A vicious cycle ensues, in which the supposed solution actually makes the problem worse.

At the same time, the tariffs undermine the economic output of trading partners, who in turn have fewer resources to invest in US Treasury bonds. If China, which is already reducing its holdings, is further pressured by trade conflicts, this will accelerate the withdrawal from dollar-denominated investments. If Europe is unsettled by auto tariffs and security concerns, the political will to continue financing the American debt economy could also diminish there.

The irony is that the US built its hegemony on a foundation that requires trust and cooperation, while current policies are systematically undermining both. The dollar as the reserve currency, the backbone of American debt sustainability, is based not on coercion, but on the willingness of other countries to consider American financial assets safe. If this willingness erodes, not through a sudden break, but through a gradual reorientation, then the world's largest economy faces a challenge that cannot be solved with tariffs, bravado, and military might.

The ticking clock: Demographic and structural time bombs

Beyond short-term dynamics lurk long-term structural problems that further undermine debt sustainability. The baby boomer generation is retiring en masse, which will dramatically increase the costs of Social Security and Medicare in the coming years. The CBO projects that mandatory spending on social and health programs, along with interest payments, will dominate spending growth, while revenues will lag behind.

The Social Security Trust Fund, which, with $2.4 trillion in intragovernmental holdings, is the largest single internal creditor, is projected to be depleted in the early 2030s unless reforms are implemented. If this happens, benefits would either have to be cut or financed from the general budget, further inflating the deficit.

While the productivity growth of the US economy, which ultimately represents the only sustainable basis for debt repayment, is respectable by international standards, it is far from sufficient to nominally outgrow the debt. With nominal GDP growth of three to four percent and debt expansion of six to seven percent annually, the situation is steadily worsening.

The conclusion, which shouldn't be one: The inevitable reckoning

The US finds itself in a fiscal situation unparalleled in the peacetime history of democratic industrialized nations. A national debt of $38.5 trillion, growing by $8 billion daily, interest payments exceeding $1 trillion annually and projected to double by 2036, a debt-to-GDP ratio of 124 percent and rising, and a political class that shows neither the will nor the ability to correct course—all this describes a nation whose economic power is increasingly built on sand.

Boasting about tariffs and military might doesn't mask this vulnerability; it exacerbates it. Every trade war, every round of sanctions, every geopolitical provocation accelerates the rest of the world's search for alternatives to the dollar system. China's systematic withdrawal from US Treasuries, the record gold purchases by central banks worldwide, and the declining share of dollars in global reserves are not isolated events, but symptoms of a tectonic shift.

The three scenarios of creditor withdrawals of 10, 20, and 30 percent reveal a logic of escalation ranging from painful to crisis-ridden to systemic. While the scenario of mutually assured financial destruction makes a coordinated total sell-off unlikely, the gradual shifts already underway may be more dangerous in the long run because they are less visible and do not trigger a single crisis that forces a course correction.

The US faces a fundamental decision: either it reforms its fiscal policy and restores the confidence of the global investment community, or it spirals into rising interest rates, declining credibility, and the creeping marginalization of the dollar. History teaches us that great empires rarely collapse due to military weakness. They fail due to fiscal overextension and the loss of their creditors' trust. Today's US should heed this lesson, because the colossus stands on feet of clay as long as no one checks where they are stepping.

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