From the US debt crisis to the global debt crisis

Introduction

As of September 2025, the scale of U.S. federal debt has soared to a record $37.4 trillion, a figure that stands like a towering iceberg, calm on the surface but concealing turbulent global risks beneath. The debt issue is not unique to the United States; it is a core challenge of the contemporary economic system, intertwined with fiscal policy imbalances, sluggish productivity growth, and the inherent fragility of the monetary system. From the relative stability after World War II to today's exponential expansion, the evolution of U.S. public debt not only tests the resilience of the domestic economy but also profoundly impacts international trade patterns, monetary hegemony, and geopolitical competition. Understanding the causes, manifestations, and chain reactions of this crisis is crucial for investors, economists, and policymakers. This article will start with the historical evolution of U.S. debt, analyze current data and indicators, examine recent crisis events, explore the mechanisms of bond market and global interconnection, reveal the intertwined effects of geopolitics, analyze the dilemmas of solutions, and look forward to global trends. Through an objective perspective, we will reveal how the U.S. debt crisis has evolved into a global debt crisis and explore its potential structural reset.

The debt crisis is like a silent financial storm, originating from policy choices and affecting the real economy and social stability. Historically, the debt expansion of the Roman Empire led to currency devaluation and the collapse of the empire; in the 19th century, Britain resolved the threat of peak debt through the Industrial Revolution. The current path of the United States resembles the former—its debt/GDP ratio has exceeded 120%, far above the 60%-80% threshold recommended by the International Monetary Fund (IMF). This ratio not only suppresses economic growth but also amplifies inflationary pressures and financial instability. More seriously, as the policies of major creditor nations like Japan shift, global bond market yields are rising in unison, signaling a reshaping of capital flows and a potential reset of the monetary system. In September 2025, the yield on the U.S. 10-year Treasury bond was about 4.05%, the yield on Japan's 30-year government bond reached 3.26%, and the yield on Eurozone 10-year bonds was approximately 3.16%. These figures are not isolated but rather a reflection of the global total debt exceeding $324 trillion. This article aims to reveal the multi-dimensional aspects of this crisis through systematic analysis and provide insights for addressing it.

The Historical Evolution of U.S. Debt

The history of U.S. public debt dates back to the early days of the nation in 1789, when the debt was only $54 million, primarily stemming from the financing needs of the Revolutionary War. However, the roots of the modern debt crisis mainly formed in the mid-20th century. During World War II, the U.S. issued massive war bonds to support the Allies and domestic production, leading to a total public debt of $258.9 billion by 1945, which accounted for as much as 120% of GDP. This peak was astonishing, but the post-war economic miracle—thanks to Keynesian stimulus and the stability of the Bretton Woods system—quickly reduced the debt burden. By 1960, the debt level stabilized at around $300 billion, with the debt/GDP ratio falling below 35%, reflecting the vitality of the U.S. as the global economic engine.

Since the 1970s, debt growth has entered an accelerated phase. This shift is closely related to the protracted Vietnam War, rampant inflation, and the expansion of the social welfare system. In 1970, public debt was $370 billion; by 1980, it had ballooned to $907 billion, with the debt-to-GDP ratio rising to 32%. The Reagan administration's “supply-side” reforms stimulated economic growth, but the surge in military spending and tax cuts further increased the deficit. Entering the 1990s, the fiscal surplus during the Clinton era briefly reversed the trend — from 1998 to 2001, the United States achieved four consecutive years of budget surpluses totaling over $500 billion — but this “honeymoon period” was soon disrupted.

In the early 21st century, the “9/11” terrorist attacks marked a new stage of debt expansion. The soaring expenses of the War on Terror and conflicts in Afghanistan and Iraq pushed debt from $5.7 trillion in 2000 to $10 trillion in 2008. The 2008 global financial crisis became a turning point: the subprime mortgage collapse triggered a credit freeze, leading the Federal Reserve and Congress to launch trillion-dollar stimulus plans, including Quantitative Easing (QE) and the American Recovery and Reinvestment Act. During the Obama administration, debt continued to rise, reaching $19.5 trillion by 2016. Under Trump, the 2017 tax reform (Tax Cuts and Jobs Act) reduced federal revenue by about $1.5 trillion, while pandemic response spending further exacerbated the burden, pushing debt past $27 trillion by the end of 2020. The Biden administration continued the expansionary fiscal policy, with the infrastructure bill and the “Build Back Better” plan increasing expenditures, leading to debt exceeding $31 trillion in 2023.

As we enter 2025, the momentum of debt growth shows no signs of slowing down. According to data from the U.S. Treasury, as of September 2025, the total public debt is approximately $37.4 trillion, with publicly held debt at $30.1 trillion and intra-governmental debt at $7.3 trillion. This figure represents an increase of about $1.9 trillion from the $35.5 trillion at the end of 2024, averaging an addition of about $160 billion per month. The magnitude of this debt can be likened to a time scale: one hundred million seconds is equivalent to 3.17 years, tracing back to 2022; but one trillion seconds would take 31,700 years, far exceeding the history of human civilization. This exponential leap is the result of the cumulative effects of war, economic recession, and social change. Historically, debt traps often lead to currency devaluation and social unrest, as seen with the devaluation of Roman silver coins or the fiscal collapse prior to the French Revolution. The current path of the U.S. is similar and requires vigilance regarding its sustainability threshold.

Debt growth is not linear but a product of policy cycles. The Keynesian-dominated post-war period emphasized deficit spending to stimulate demand but overlooked long-term supply-side constraints. The globalization dividend of the Reagan-Clinton era temporarily alleviated pressure but exposed the vulnerabilities of financialization after 2008. The pandemic accelerated this process: from 2020 to 2022, the debt/GDP ratio reached 132.8% at one point. Now, with an aging population and slowing productivity (the average annual growth rate from 2020 to 2025 is only 1.2%), debt has become a structural shackles, constraining fiscal space.

Current Debt Data and Indicators

The latest data from September 2025 shows that the U.S. debt crisis has shifted from a potential risk to a real threat. The total public debt amounts to $37.4 trillion, with foreign investors holding about 30% (approximately $11.2 trillion), mainly including Japan ($1.147 trillion) and China (around $756 billion). The debt-to-GDP ratio has reached 124%, up from 123% in 2024, far exceeding the IMF threshold. The historical warning significance of this ratio is profound: when it exceeds 100%, the average economic growth rate declines by one-third, as David Hume stated, crossing the “Rubicon” will suppress productivity and innovation.

Household debt remains a red flag. According to data from the Federal Reserve, the total household debt is projected to reach $20.1 trillion by the second quarter of 2025, with a debt-to-income ratio of about 97%. Mortgages account for more than 60% (approximately $12 trillion), student loans are at $1.6 trillion, and credit card debt is $1.1 trillion. These indicators reflect the vulnerability of the middle class: high housing prices and education costs are driving up leverage, and any increase in interest rates could trigger a wave of defaults. Corporate debt totals about $19 trillion, with leverage at an all-time high, and the debt-to-GDP ratio for non-financial corporations reaching 95%, higher than the peak in 2008.

The interest burden of government debt has become a “ticking time bomb.” In fiscal year 2025, interest payments are expected to reach $1.2 trillion, accounting for more than 15% of the federal budget, doubling from $300 billion in 2020. This surge is driven by the Federal Reserve's benchmark interest rate being maintained at around 4.5%, and the yield on 10-year Treasury bonds rising to 4.05%. Combined with rigid expenditures such as Social Security (about $1.4 trillion), Medicare ($1.2 trillion), and defense ($900 billion), these items now account for 75% of the budget, significantly up from 65% in 2016. Tax revenues are struggling to keep up: federal tax revenue for 2024 is projected at $4.9 trillion, with a deficit of $1.8 trillion; the deficit for 2025 is expected to reach $1.9 trillion.

The IMF predicts that without reform, the debt/GDP ratio will reach 140% by 2030, with interest payments accounting for 20% of the budget. These figures reveal structural imbalances: weak productivity growth (with a labor force participation rate of only 62.5%), aging (with 20% of the population aged 65 and over), and global competition (such as US-China trade frictions) collectively amplify risks. The debts of households, businesses, and governments reflect one another, forming a “debt trinity”; any break in one link could trigger systemic collapse.

Recent Debt-Related Crisis Events

The debt crisis transitions from the abstract to the concrete through specific events. The repo market crisis in September 2019 was a precursor: the overnight repo rate soared to 10%, driven by insufficient bank reserves and an oversupply of government bonds. The Federal Reserve injected hundreds of billions of dollars in liquidity to calm the situation. This exposed the fragility of shadow banking and the Federal Reserve's role as the “lender of last resort.”

In March 2020, the COVID-19 pandemic triggered a global panic of “cash is king.” U.S. Treasury bonds and the stock market plummeted simultaneously, with the Dow Jones Industrial Average dropping 20% within a week, and the 10-year yield falling to 0.3%. The Federal Reserve launched unlimited QE, purchasing $3 trillion in assets to stabilize the market. However, this “helicopter money” exacerbated asset bubbles and inequality.

The 2022 UK pension crisis has affected the world: Liz Truss's government's tax cut plan has pushed up UK bond yields, triggering a chain reaction of pension funds selling U.S. Treasuries. Inflation in the U.S. reached 9%, and the Federal Reserve's interest rate hikes have led to a 20% drop in bond prices. In 2023, five banks, including Silicon Valley Bank (SVB), collapsed, resulting in total losses exceeding $500 billion, primarily due to paper losses from holding long-term government bonds.

The “Trump Two-Step” event in April 2025 is more alarming: the Trump administration announced an upgrade of the “Liberation Day” tariffs, imposing a 60% tariff on China, but the next day, the treasury auction cooled down, with the subscription multiple dropping to 2.41 and yields soaring to 5%. The policy quickly shifted, highlighting the “barometer” role of the bond market. The debt ceiling crisis further escalated in January 2025: the ceiling was set at $36.1 trillion, and the Treasury exhausted its “extraordinary measures” on January 23, forcing Congress to legislate urgently. These events are not isolated, but rather signals of a debt-dominated credit market: an oversupply, weak demand, and policy uncertainty intertwining, foreshadowing a larger storm.

The repeated games over the debt ceiling have been adjusted 78 times since 1960, each time creating market volatility. In August 2025, the ceiling is expected to peak again, and if Congress delays, it could trigger the first default and a downgrade in credit rating (Moody's has already lowered it from Aaa to Aa1). These crises reveal that debt issues manifest before the stock market, and the bond market is the “nerve center” of the economy.

The Mechanism of the Bond Market and Global Linkage

The bond market is an amplifier of debt crises, with a scale exceeding $50 trillion, making it the largest credit system in the world. U.S. Treasury bonds serve as the “risk-free” benchmark, with their dynamics directly influencing the globe. In September 2025, global bond yields rose contrary to expectations: despite the Federal Reserve's meeting on September 17 predicting a 25 basis point rate cut to 4.25%, the 10-year yield still reached 4.05%. This phenomenon spans multiple countries: France's 10-year yield is at 3.2%, Canada's at 3.1%, and the UK's at 3.4%, reflecting the expansion of fiscal deficits and stubborn inflation.

The principle of bonds is simple: bonds are government IOUs, and yields are determined by supply and demand. When demand decreases, yields rise, increasing borrowing costs. Currently, global debt has reached 324 trillion dollars, with public debt exceeding 100 trillion dollars. Japan's policy shift is a key driver. The Bank of Japan's exit from yield curve control has led to the 30-year yield rising to 3.26%, a high not seen since the 1990s. This is due to aging (pension pressure) and rising inflation, prompting Japanese investors to turn domestic and reduce their holdings in U.S. Treasuries (holding 1.147 trillion dollars). The yield gap between Japan and the U.S. has narrowed (4.05% vs 3.26%), hedging costs have risen, and capital repatriation has accelerated.

This linkage poses a challenge to the United States' “exorbitant privilege.” The dollar's reserve status relies on demand for U.S. Treasuries, but the sanctions against Russia in 2022 accelerated de-dollarization: BRICS expanded to 10 countries, and non-dollar trade accounted for 30%. In 2025, trillions of dollars in debt will mature, and a reduction in Japanese holdings could trigger a financial crisis, leading to further increases in yields. The transmission effects are evident: mortgage rates rise to 7%, real estate cools; corporate credit tightens, and investment declines; consumption slows, with the unemployment rate reaching 4.3% in August. Inflation accelerated to 2.9% in August. The Federal Reserve is in a dilemma: lowering interest rates stimulates employment but risks inflation; maintaining stability exacerbates the recession.

The collapse of the yen arbitrage trade in August 2024 serves as a warning: low-interest yen leveraged investments in U.S. Treasuries, a shift by the BOJ leading to yen appreciation, tens of trillions of dollars in positions liquidated, a surge in U.S. Treasury yields, and a 10% drop in the stock market. In 2025, risks will amplify, and the global yield rising against the trend signals the “breaking of the illusion”—central bank credibility shaken, and the debt mirage collapsing.

Gold stands out: September price at $3689/ounce, a monthly increase of 10.72% and an annual increase of 43.35%. Central banks net bought over 1000 tons, hedging against devaluation. In the 1970s stagflation, gold prices rose by 2300%; today's scale is larger, predicting $3800 by the end of 2025.

The bond market linkage highlights its global nature: the US debt crisis acts like a domino effect, undermining capital flows and currency stability.

The Interweaving of Geopolitics and Debt

High debt erodes diplomatic flexibility. When debt/GDP exceeds 120%, policies are constrained by creditor countries. China holds $756 billion in U.S. Treasuries, and the U.S.-China trade war exacerbates fiscal pressure. Trump's “liberation day” tariffs aim to revitalize manufacturing but increase the deficit. Events in 2025 show that the bond market can reverse geopolitical ambitions.

Gradual De-dollarization: After the collapse of Bretton Woods, the dollar was maintained by petrodollars, but in the 2020s, Saudi Arabia accepted the renminbi, and BRICS promoted non-dollar settlements. In 2024, the share will be 30%, and central bank gold reserves will increase from 30,000 tons to 40,000 tons, with China exceeding 2,000 tons. Debt affects national defense: the 2025 budget is $900 billion, and interest squeezes space. High-debt empires often resort to war, as Rome plundered resources. Hemingway warned that debt crises are accompanied by “war dividends,” shifting burdens through inflation.

Geopolitical tensions amplify debt risks: the Russia-Ukraine conflict has driven up energy prices, and inflation remains stubborn; turmoil in the Middle East disrupts supply chains. Debt has become the “Achilles' heel,” limiting the U.S. “printing money” privilege and giving rise to a multipolar currency system.

The Dilemma of Solutions

Resolving debt requires multiple strategies, but options are limited. Firstly, growth-driven: revitalize manufacturing to boost GDP. Trump's DOGE plan aims to cut bureaucracy, expecting to save $250 billion, but productivity bottlenecks are hard to break. A 25 basis point interest rate cut saves $25 billion in interest, but the effect is limited.

Secondly, expenditure control: rigid expenditures account for 75%, and the political cost of tightening is high. The Austrian School advocates for “creative destruction”, but politicians fear losing votes. Inflation strategy: negative real interest rates dilute debt, with inflation expected to be 5%-7% from 2022 to 2025, but the real rate is higher, and the Federal Reserve's model overlooks tail risks.

Third, the default reset is rare. The Argentine Milei reforms (inflation decreased from 200% to 20%) provide a reference, but are difficult for the G7 to replicate. Increased tariffs or military expansion may lead to increased debt. Grantham points out that investors have a short-term mindset and lack courage.

Economist limitations: model optimization ignores complexity, Hayek's “knowledge limitations” warn. Politicians prioritize power, former Federal Reserve's Hoenig criticizes naivety. Need “honest brokers” like Milei to promote reform.

Global Trends and Future Outlook

Debt crisis accelerates transformation: gradual de-dollarization, BRICS currency basket, revival of the gold standard. Global public debt accounts for 100% of GDP. Social impact: wealth inequality, 90% of the stock market concentrated in the top 10%, rising frustration among the middle class, increased risk of turmoil. Erosion of civil liberties, such as the Patriot Act.

Market crash or government intervention, but history like the New Deal of 1929 shows that after rebirth, it is stronger. Investors diversify: gold, physical assets.

Outlook: The CBO predicts a debt/GDP ratio of 118% by 2035, with interest at 15.6%. Through reforms, the U.S. can reverse this, but bipartisan consensus is needed. Global coordination is required to promote sustainable debt management.

Conclusion

From the US debt crisis to the global debt crisis, it is a product of policy errors and systemic imbalances. $37.4 trillion in debt, a ratio of 124%, and a yield of 4.05% intertwine with inflation at 2.9% and unemployment at 4.3%, indicating stagflation. Japan is shifting to amplify vulnerabilities, and the bond market warns of a monetary reset. Reform requires courage, and investors should be wary of gray swans. In the long term, constructive destruction or the reshaping of a sustainable system is needed to avoid the twilight of empires.