The US national debt has exceeded $37 trillion. How serious is this problem for the markets?

Kitco Media
By TradingView
Published:
Updated:
Kitco Commentaries
Opinions, Ideas and Markets Talk

Featuring views and opinions written by market professionals, not staff journalists.

The US national debt has exceeded $37 trillion. How serious is this problem for the markets? teaser image

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.

Kitco Media

TradingView

TradingView is a leading global charting platform and social network, dedicated to providing traders and investors with access to high-performance data and sophisticated analytical tools that enable them to stay ahead of the curve in the fast-paced financial markets. With a mission to democratize the world's financial markets, TradingView has quickly emerged as one of the most popular and trusted platforms in the industry.

At the core of TradingView's success is its commitment to creating cutting-edge analytical tools that enable traders and investors to take their market research further. Through detailed interactive charts, a powerful stock screener, a comprehensive economic calendar, and more, TradingView empowers its users to identify even the most subtle market signals and leverage them to build robust and insightful analyses. Whether a seasoned professional or just starting out in the world of trading, TradingView's tools, resources, and community can help individuals make more informed investment decisions.

As the financial industry continues to evolve at breakneck speed, TradingView remains at the forefront of the pack, driving innovation and setting new standards for excellence in the field of financial and technical analytics. With a passionate and dedicated team of professionals, a commitment to cutting-edge technology, and a customer-centric approach, TradingView puts traders and investors first. Look first, then leap.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.