WHY DO INVESTORS BUY U.S. DEBT?
- Greenmark 101
- 17 hours ago
- 5 min read
Investors buy up U.S. debt because they trust the system behind it: — the independence of the Federal Reserve, the predictability of the Treasury’s issuance strategy, the rule of law and the partnerships that underpin the dollar’s centrality in global finance.
Are these conditions being embraced by the Trump administration?
Before the question can be prudently answered, it's fair to note; Donald Trump was inaugurated for his second presidential term on January 20, 2025. On the day he began his second term, the U.S. national debt was approximately $36.2 trillion. Therefore, he cannot be fully blamed for the inherited nation debt.
Look to prior administrations for a relative measure of debt growth:
George W. Bush (2001–2009): The national debt increased by 105.08% during his two terms, largely driven by the wars in Afghanistan and Iraq and the 2008 financial crisis response.
Barack Obama (2009–2017): The debt grew by 69.98%, as the government implemented stimulus measures in response to the Great Recession and passed the Affordable Care Act.
Donald Trump (2017–2021): The national debt increased by 40.43% during his single term, with significant borrowing related to the COVID-19 pandemic relief efforts.
Joe Biden (2021–present as of Sep 2024): The national debt increased by approximately 24.75% in his first three and a half years in office.
Ronald Reagan (1981–1989): The national debt nearly tripled, increasing by 186.36% over his two terms, due to a combination of tax cuts and increased military spending.
AS OF LATE DECEMBER 2025, the U.S. national debt is over $38 trillion, with specific figures fluctuating slightly but consistently above that mark, nearing $38.4 trillion, according to U.S. Treasury data and fiscal watchdogs. The total debt comprises debt held by the public (investors) and intragovernmental debt (transactions within the government), with the debt increasing rapidly, adding over $2 trillion in just the past year. For the first time in modern history, America is paying more interest on its debt, now more than $30 trillion, than it spends on national defense. And there is no end in sight, with our deficits running larger than we’ve seen outside a crisis.
Investors buy up U.S. debt because they trust the system behind it: — the independence
of the Federal Reserve, the predictability of the Treasury’s issuance
strategy, the rule of law and the partnerships that underpin
the dollar’s centrality in global finance.
Are these condition being embraced by the Trump administration?
No. Donald Trump's 2017 Tax Cuts and Jobs Act (TCJA) significantly cut corporate and individual taxes, adding nearly $2 trillion to the national debt, as it wasn't fully paid for; instead, it was financed through borrowing and some modest offsets like repealing net operating loss carrybacks and limiting some deductions, while current proposals for making cuts permanent aim to use spending cuts (e.g., healthcare, climate programs) and increased tariffs as funding sources. Tariffs remain a significant, albeit controversial, funding source for the U.S. government by taxing imported goods, generating billions in customs revenue (like $195 billion in FY 2025), lowering budget deficits, and funding industrial policy. Projections suggest tariffs could generate over $2.8 trillion in net new revenue over the next decade on a conventional basis.
IF THE U.S. SUPREME COUNThttps://www.northridge123456.com/post/not-retroactive-supreme-court-rules-on-tariff strikes down the current tariff programs, the government could owe businesses potentially hundreds of billions in refunds, triggering complex financial disputes, while consumers likely won't see their tariff-related price increases reversed; the administration would then need to find alternative, potentially less effective, legal avenues for trade policy, leading to market uncertainty and potential economic instability.
According to our SPM Event Series AI algorithm, the TCJA would be classified as
unfunded tax cut to cause US Treasuries to collapse in value.
The events will follow what happened to UK when British Prime Minister Liz Truss presented her plan for large, unfunded tax cuts on September 23, 2022, the UK government bond market experienced a severe crisis: Prices collapsed as investors rapidly sold off UK government bonds, known as gilts, in a dramatic sell-off. Yields surged because bond prices and yields move in opposite directions, the yield (the interest rate the government pays to borrow) on gilts spiked at an unprecedented speed. The yield on 30-year gilts rose by more than a full percentage point in just a matter of days, reaching a peak of around 5%. The 10-year gilt yield also saw a one-day jump of 50 basis points at one point. Borrowing costs soared, a sudden spike in yields made it significantly more expensive for the UK government to borrow money, damaging its fiscal credibility. The market dysfunction posed a "material risk to UK financial stability," forcing the Bank of England to intervene on September 28, 2022. It announced an emergency, temporary program to buy up to £65 billion in long-dated government bonds to stabilize the market and prevent a systemic collapse of pension funds.
THERE'S NO NEED FOR PANIC JUST YET: The dollar remains the world’s reserve currency, and U.S. debt is still the world’s safe-haven asset. No other country comes close to rivaling America’s financial leadership. But complacency is no strategy. With its debt load increasing and the disposition of its creditors changing, the country must ensure that its debt remains attractive to picky private investors around the world. That means resisting easy answers to our debt problem. Absent a true miracle, technologies such as A.I. won’t single-handedly propel the country out of its debt.
Most dangerous are proposals for the government to take convenient shortcuts.
One would have the Treasury tactically shift what type of debt it issues to take advantage of one-off moves in market conditions, rather than doing so in a regular and predictable manner. Even if feasible, this approach would almost certainly not result in lower borrowing costs in the long term. Another would have the Fed aggressively cut interest rates to make U.S. borrowing cheaper. Indeed, investors are increasingly concerned that the United States might engage in “debasement” to inflate away the real value of its debt — harking back to the days when monarchs diluted their gold and silver coins with cheaper metals such as copper.
Inflating away the debt is a partial default by another name, and the market would treat it as such. History teaches that the foundation of any debt market is credibility: Borrowers must deliver the full value they promised to creditors.
If the U.S. dollar loses its world standing, the U.S. faces higher borrowing costs, increased inflation,
and diminished global power, while the world sees greater financial fragmentation, volatility,
and shifts in economic influence as countries seek alternatives, though this transition
would likely be gradual, unfolding over decades.
Impacts on the U.S.
Higher Costs: U.S. government and consumers would pay more for borrowing (mortgages, credit cards) due to higher interest rates.
Inflation & Weaker Dollar: A weaker dollar makes imports pricier, fueling domestic inflation, and reducing U.S. purchasing power.
Reduced Power: The ability to finance large deficits and maintain global leadership through military and economic power would shrink.
Economic Strain: The U.S. would lose its "exorbitant privilege" of cheap borrowing, potentially impacting social programs and defense spending.
Impacts on the World
Financial Fragmentation: The integrated global system could break into regional blocs, increasing volatility and costs.
Currency Shifts: Other currencies (like the Euro or Yuan) and assets (gold, commodities) would rise as alternatives, bringing short-term benefits but also stress due to market limitations.
Trade & Investment: Global trade invoicing and cross-border lending would diversify away from the dollar, impacting financial flows.
Geopolitical Realignment: Countries would shift alliances as reserve holdings and payment systems change.
A DETHRONED DOLLAR wouldn't mean the U.S. economy collapses overnight, but it would signal a significant, costly shift in global economic and political power, creating a less stable, multipolar financial world.
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