The US debt exceeds $37 trillion. So what?
One of the cornerstones of Trump's election campaign was his promise to solve the problem of the US national debt. To that end, a DOGE department was created under Elon Musk, which reportedly saved around $170 billion. But in the context of more than $37 trillion in obligations, that's just a drop in the ocean.
To be fair, economists warned from the very start that Trump's promise to "pay off the debt" was pure speculation, especially given his plans to cut taxes. As for the additional revenue from the trade wars, yes, it has increased, but it is nowhere near enough to offset the drop in budget inflows.
And then Trump signed a "One Big Beautiful Bill" that is estimated to add nearly $3.4 trillion to the national deficit over the next decade. So instead of solving the problem, he made it worse. Still, judging by the strong performance of the S&P 500, investors don't seem too concerned, at least for now.
And why would they be, when Japan's debt-to-GDP ratio is nearly three times higher than the U.S.'s?
The point is that Japan's debt is mostly domestic, while a large portion of US debt is held by foreign investors, and if they pull out, the risk is real. Therefore, as long as there is demand for US debt and the dollar remains the world's main reserve currency, the situation may remain sustainable.
In this context, it is worth noting that last week the US Treasury flooded the market with debt. It issued billions in bills, bonds, and notes in just four days. Although they focused more on short-term instruments to ease pressure on long-term yields, 10- and 30-year rates continued to rise slightly.
How the market will react to upcoming auctions will depend on A) how US macroeconomic data looks and B) whether something unexpected shakes investor confidence. For example, if the US increases tariffs against the EU, that could certainly hurt demand for US debt.
Can a change in Federal Reserve chair help?
If Jerome Powell is replaced by a more suitable candidate, it could shake confidence in the Federal Reserve, raising doubts about the dollar and US debt. Furthermore, lowering interest rates does not immediately affect long-term debt, so it would not significantly reduce financing costs.
At the very least, the focus should be on maintaining the attractiveness of US debt to investors.