As the whole world is closely watching the U.S. fiscal cliff, Trump has once again dropped a bombshell on the market—completely abolishing the debt ceiling.


In the latest comments released on social media, Trump not only openly supports the abolition of the federal borrowing limit but also unusually stated, 'I am glad to finally reach a consensus with Senator Warren on one issue.' This is undoubtedly a dramatic turnaround for the two long-time political rivals. And this game over the debt ceiling is quietly rewriting global financial market expectations.



Why does the abolition of the debt ceiling shake the market?


Currently, both parties in the U.S. are fiercely competing for legislative control of the (Beautiful Big Deal) led by Trump, which aims to fully implement a new round of tax cuts and policy stimulus. However, they are troubled by the upcoming fiscal deadline in August—if Congress cannot timely raise the debt ceiling, the U.S. government will face default risks.


This time, Trump directly advocates: instead of using the debt ceiling as a political bargaining chip each time, it is better to abolish the system entirely. He emphasized that the existence of the debt ceiling gives politicians a chance to exploit it, which in turn increases the instability of the global financial system.


Historically, this is not the first time Trump has raised similar views. As early as last December during an NBC interview, he pointed out that government budget negotiations should consider adjusting the debt ceiling as one of the basic conditions. This time, his comments clearly reflect deeper strategic considerations.


It is worth noting that Senator Warren, who rarely aligns with Trump, has also been advocating for the abolition of the debt ceiling, arguing that it would prevent the government from frequently approaching the brink of shutdown due to debt ceiling issues. Trump further mentioned that he 'also likes' Warren's proposal for a $4 trillion issuance plan, but hopes to complete the operation in the shortest possible time.



Divergence: The anxiety of Washington and Wall Street


However, within the Republican Party, there is not much support for this. Currently, the new tax and expenditure bill being expedited in the House focuses on increasing rather than abolishing the debt ceiling. According to estimates by the Congressional Budget Office (CBO), if this bill is enacted, it would add $2.4 trillion in debt before 2034.


At the same time, six Nobel laureates in economics issued a joint open letter, sharply criticizing this bill. They pointed out that the House's proposed cuts would slash $700 billion from the Medicaid budget and $300 billion from the SNAP budget, creating the largest reduction in social safety net history. Moreover, even with these cuts, it still won't cover the fiscal gap caused by tax cuts.


The open letter bluntly states: 'Such a budget arrangement will further exacerbate the social divide in the U.S., impose heavy burdens on the bottom 40% of families, and increase the U.S. debt burden.'


Musk also voiced his opinion immediately. He stated on social media that the U.S. is 'accelerating towards the abyss of debt slavery' and called for the government to establish a new spending framework that avoids significant deficit expansion while controlling the scale of new debt. He even directly named the request to raise the future budget ceiling to $5 trillion.



What is the impact on global financial markets?


If the debt ceiling is abolished, the U.S. Treasury will be completely free from Congress's debt authorization constraints, potentially making bond issuance more flexible. However, this could also exacerbate global capital market unease—will the unrestricted expansion of U.S. Treasuries trigger a new round of inflation? Will the credit premium of dollar assets be damaged? These questions are becoming the focus of central banks and institutional investors worldwide.


The latest data from the on-chain data monitoring platform Mlion.ai shows that the pace of large international capital flow into the U.S. Treasury market has begun to slow down recently, and some funds have already shifted to traditional safe-haven assets like gold and cryptocurrencies, highlighting the market's sensitive response to the direction of U.S. fiscal policy.


What is more concerning is that if the abolition of the debt ceiling leads to significant fluctuations in U.S. Treasury yields, the resulting liquidity shock could affect the global market, especially in high-leverage emerging market asset sectors.


In this complex context, AI research assistants like Mlion.ai can help investors grasp changes more accurately, avoid potential risks, and find optimal asset allocation solutions through real-time analysis of macro policy changes, capital flows, and market sentiment.



Final Thoughts


Behind Trump's and Warren's 'Handshake of the Century' is a barometer of the radical shift in U.S. fiscal policy. The removal of the debt ceiling seems to temporarily resolve budget disputes, but the hidden risks are more worth noting.


As history repeatedly proves, the market often breaks through at unexpected nodes. For investors, facing such a major change, how to make rational judgments based on data, rather than being swayed by emotions, may be the real game changer.



Disclaimer: The above content is for information sharing only and does not constitute any investment advice!