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In this article, we will discuss the possible evolution of U.S. debt in the future, the potential reshaping of the global economic landscape, and the deeper impacts on ordinary people. Further revealing the complexity of the U.S. debt issue and its profound significance in the global financial system.
I. The U.S. Debt Crisis: The Evolution from 'Gray Rhino' to 'Systemic Risk'
U.S. debt is now like a 'gray rhino,' a foreseeable, gradual risk. However, as the global economic environment changes, the U.S. debt issue may evolve from a 'chronic disease' into a more destructive systemic risk. Here are several possible scenarios:
🔹 Scenario One: 'Soft Landing' Under Dollar Hegemony
The U.S. might dilute its debt burden through 'orderly inflation' or debt monetization (the Federal Reserve continuously purchasing government bonds) thanks to the global reserve currency status of the dollar and the flexibility of the Fed's monetary policy. This approach is akin to 'hidden default,' shifting the debt cost onto countries and investors holding dollar assets through inflation. However, this will weaken the long-term credibility of the dollar, potentially leading to capital outflows from emerging markets and fluctuations in global asset prices.
🔹 Scenario Two: 'Hard Landing' Triggered by External Shocks
If geopolitical conflicts (such as intensified U.S.-China confrontations), energy crises, or further disruptions in global supply chains undermine confidence in the dollar and U.S. debt, foreign capital may accelerate its withdrawal from the U.S. debt market. This will push up U.S. debt yields, forcing the Federal Reserve into a dilemma between 'controlling inflation' and 'stabilizing debt,' which could ultimately lead to dollar depreciation, stock market crashes, or turbulence in global financial markets.
🔹 Scenario Three: 'Governance Crisis' Caused by Internal Political Deadlock
The original text mentions the negative impact of political polarization in the U.S. on debt management. If in the future, the U.S. Congress cannot pass debt ceiling legislation or fiscal reform plans due to party struggles, it may lead to technical defaults or market panic. This 'self-destructive' crisis, while having a low probability, would severely damage the global trust foundation of U.S. debt as a 'risk-free asset.'
The core of the U.S. debt issue is not just the scale of the debt, but whether the U.S. economic and political system can adapt to the trend of global multipolarization. If the U.S. cannot restore fiscal discipline through reform, its debt issue may become the trigger for the restructuring of the global financial system.
II. Global De-Dollarization and the 'New Role' of U.S. Debt
The global reserve currency status of the dollar is an important guarantee of the 'safety' of U.S. debt. However, in recent years, the trend of 'de-dollarization' has been accelerating, especially with the promotion of 'local currency settlement' mechanisms in non-Western countries like China, Russia, and India, which deeply threatens the dollar's status as a global reserve currency.
If global central banks reduce their holdings of U.S. debt and shift to assets like gold, renminbi, or other diversified reserves, the cost of dollar financing will rise, pushing up U.S. debt yields.
For example, as of early 2025, China and Japan remain the largest foreign holders of U.S. debt, but there has been a clear trend of reduction in recent years. If this trend continues, the U.S. will rely more on domestic investors and the Federal Reserve to purchase government bonds, increasing fiscal pressure.
🔻 The 'New Role' of U.S. Debt
In the context of de-dollarization, U.S. debt may gradually shift from being a 'global risk-free asset' to a 'regional safe-haven asset,' primarily serving the dollar economic circle (such as North America and some European countries).
At the same time, emerging markets may accelerate the development of their own bond markets (such as Chinese government bonds and Indian rupee bonds), diverting global capital and weakening the liquidity advantage of U.S. debt.
The future of U.S. debt depends not only on the U.S.'s fiscal policies but also closely relates to the power redistribution within the global financial system. De-dollarization is not an overnight process, but its long-term trend may force the U.S. to redefine the role of U.S. debt in the global economy.
III. The 'Invisible Transmission Chain' of the U.S. Debt Issue on Ordinary People
The U.S. debt issue indirectly affects ordinary people through interest rates, fiscal tightening, and economic slowdown, like an 'invisible transmission chain.'
🔹 Deterioration of Inflation and Living Costs:
If the U.S. dilutes its debt by printing money, global commodity prices (especially energy and food) may rise due to dollar depreciation. This will directly increase the living costs for ordinary people, especially affecting countries that rely on imports and low-income groups. For example, the global inflation wave from 2022 to 2023 has already shown the spillover effects of dollar policies.
🔹 Increasing Wealth Inequality:
High debt and high-interest rate environments may lead to asset price volatility (such as real estate, stock markets, and crypto markets), and instability in the financial markets often adversely affects low- and middle-income groups. The wealthy can hedge risks through diversified investments, while ordinary people may fall into financial difficulties due to shrinking pensions and increased mortgage pressures.
🔹 Long-term Risks to Employment and Social Security:
The fiscal squeeze effect may force the government to cut public spending on education, healthcare, and social security, weakening the social safety net and increasing ordinary people's vulnerability to economic uncertainty. At the same time, economic slowdown caused by debt issues may suppress corporate investment, leading to a shrinking job market, particularly affecting young people and low-skilled workers.
The U.S. debt issue is not only a macroeconomic topic but may also exacerbate social inequality and intergenerational conflicts. Ordinary people, while not directly participating in the national debt market, will inevitably be affected in terms of their quality of life and future expectations.
IV. How Can Ordinary People Protect Themselves During the U.S. Debt Crisis?
1️⃣ Asset Diversification:
Reduce dependence on a single currency (such as the dollar) or a single asset (such as U.S. debt-related funds) and consider investing in gold, tangible assets, or emerging market assets to hedge against dollar risks.
For individuals with investment capabilities, attention can be paid to rapidly growing markets such as China and India to diversify geopolitical and currency risks.
2️⃣ Enhancing Understanding to Invest in Oneself:
In the context of economic slowdown and pressure on the job market, we should invest in ourselves, just as Buffett said, the best investment is in oneself.
One cannot earn money beyond their understanding, so to increase the thickness of the wallet, the premise is to first broaden the understanding.
3️⃣ Pay Attention to Policy Signals:
While ordinary people cannot directly influence macro policies, they can adjust their personal financial planning in advance by paying attention to key events such as the Federal Reserve's interest rate decisions and Congress's debt ceiling negotiations. For instance, a high-interest rate period may be a good time to save, but caution is needed regarding rising mortgage costs.
In the context of increasing global economic uncertainty, our 'financial security' no longer relies solely on savings or a single investment, but rather requires stronger risk awareness and adaptability.
V. The Intersection of the U.S. Debt Issue and the New Global Economic Order
The U.S. debt issue is not just a fiscal challenge for the U.S. itself but also a microcosm of the global economic power rebalancing. In the short term, the dollar's hegemony and the depth of the U.S. debt market may continue to 'safeguard' it; however, in the long term, de-dollarization, global multipolarization, and internal governance crises in the U.S. may push U.S. debt toward a more uncertain future.
For ordinary people, the U.S. debt issue seems distant, but it subtly influences lives through channels such as inflation, interest rates, and employment. In the face of this 'gray rhino,' we cannot change macro trends, but we can find a foothold amid uncertainty through knowledge accumulation, financial planning, and adaptability.
Ultimately, the future of U.S. debt is not only about the United States but also about the shaping of a new global economic order. In this historic turning point, everyone is both an observer and a participant.