From the U.S. debt crisis to the global debt crisis

As of September 2025, the scale of the U.S. federal debt has soared to a record $37.4 trillion, a figure that resembles a towering iceberg, calm on the surface but concealing surging global risks underneath.

The issue of debt 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 vulnerabilities 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 influences the international trade landscape, the status of monetary hegemony, and geopolitical games.

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 interconnections, reveal the intertwined effects of geopolitics, analyze the dilemmas of solutions, and look ahead to global trends.

From 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 yet impacting 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 mitigated the threat of a debt peak through the Industrial Revolution. The current path of the United States resembles the former—its debt-to-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 critically, as policies shift in major creditor countries like Japan, yields in the global bond market 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 bonds was approximately 4.05%, the yield on Japan's 30-year government bonds reached 3.26%, and the yield on Eurozone 10-year bonds was about 3.16%. These figures are not isolated but rather a reflection of the global debt total surpassing $324 trillion. This article aims to systematically analyze and reveal the multidimensional aspects of this crisis, and to provide insights for addressing it.

The historical evolution of U.S. debt can be traced back to the early days of the nation in 1789, when the debt was only $54 million, primarily arising 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 United States issued a massive amount of war bonds to support the Allies and domestic production, resulting in a total public debt of $258.9 billion by 1945, which accounted for 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 dollars, and the debt-to-GDP ratio dropped below 35%, reflecting the vitality of the United States as the global economic engine. Starting from the 1970s, debt growth entered an accelerated phase. This shift was closely related to the protracted Vietnam War, uncontrollable inflation, and the expansion of the social welfare system.

In 1970, public debt was $370 billion; by 1980, it had ballooned to $907 billion, and the debt/GDP ratio rebounded to 32%. The Reagan administration's "supply-side" reforms stimulated economic growth, but the surge in military spending and tax cuts further exacerbated 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 quickly disrupted.

In the early 21st century, the "9/11" terrorist attacks marked a new phase of debt expansion. The expenditures on the war on terror and the conflicts in Afghanistan and Iraq surged, pushing debt from $5.7 trillion in 2000 to $10 trillion in 2008. The global financial crisis of 2008 became a turning point: the subprime mortgage collapse triggered a credit freeze, and the Federal Reserve and Congress launched 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. During Trump's term, the 2017 tax reform (the Tax Cuts and Jobs Act) reduced federal revenue by about $1.5 trillion, while expenditures related to the response to the COVID-19 pandemic further exacerbated the burden, causing debt to exceed $27 trillion by the end of 2020. The Biden administration has continued the expansionary fiscal policy, with the infrastructure bill and the "Build Back Better" plan driving up spending, 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. Department of the Treasury, as of September 2025, the total public debt is approximately $37.4 trillion, of which $30.1 trillion is held by the public and $7.3 trillion is intra-governmental debt.

This figure represents an increase of approximately $1.9 trillion compared to the $35.5 trillion at the end of 2024, with an average monthly addition of about $160 billion. The enormity of the debt can be metaphorically understood through a time scale: one hundred million seconds equals 3.17 years, going back to 2022; however, one trillion seconds would take 31,700 years, far exceeding the history of human civilization. This exponential leap is a result of the cumulative effects of war, economic recession, and social change.

Historically, debt traps often lead to currency devaluation and social unrest, such as the devaluation of Roman Empire silver coins or the financial collapse before the French Revolution. The current path of the United States is similar, necessitating vigilance regarding its sustainability threshold. Debt growth is not linear but a product of policy cycles. The post-war period dominated by Keynesianism emphasized deficit spending to stimulate demand but overlooked long-term supply-side constraints.

The globalization dividend during the Reagan-Clinton era briefly alleviated pressure, but after 2008, it exposed the vulnerabilities of financialization. The pandemic accelerated this process: from 2020 to 2022, the debt-to-GDP ratio once reached 132.8%. 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.

The latest data and indicators on current debt as of September 2025 show 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 (approximately $756 billion).

The debt-to-GDP ratio has reached 124%, an increase from 123% in 2024, far exceeding the IMF threshold. The historical warning significance of this ratio is profound: when it surpasses 100%, the average economic growth rate declines by one-third, as David Hume stated, crossing the "Rubicon" will suppress productivity and innovation. Household debt also remains a constant alarm bell.

Data from the Federal Reserve shows that in the second quarter of 2025, the total household debt reached $20.1 trillion, with a debt-to-income ratio of about 97%. Mortgages account for over 60% (approximately $12 trillion), student loans are $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 rise in interest rates could trigger a wave of defaults. Total corporate debt is about $19 trillion, with leverage at a historic high, and the debt-to-GDP ratio for non-financial corporations reached 95%, higher than the peak in 2008. The interest burden of government debt has become a "ticking time bomb."

In the fiscal year 2025, interest payments are expected to reach $1.2 trillion, accounting for over 15% of the federal budget, doubling from $300 billion in 2020. This surge is due to the Federal Reserve's benchmark interest rate remaining around 4.5% and the 10-year Treasury yield rising to 4.05%. Combined with rigid expenditures such as Social Security (approximately $1.4 trillion), Medicare ($1.2 trillion), and defense ($900 billion), these items now account for 75% of the budget, a significant increase from 65% in 2016. Tax revenues struggle to keep up:

In 2024, federal tax revenue is projected to be $4.9 trillion, with a deficit of $1.8 trillion; the deficit for 2025 is expected to be $1.9 trillion. The IMF predicts that without reforms, the debt/GDP ratio will reach 140% by 2030, with interest payments accounting for 20% of the budget. These figures reveal a structural imbalance: sluggish productivity growth (with a labor force participation rate of only 62.5%), an aging population (with those aged 65 and older making up 20%), and global competition (such as U.S.-China trade frictions) collectively amplify risks. The debts of households, businesses, and the government mirror each other, forming a "debt trinity" where the failure of any one link could trigger a systemic collapse.

Recent debt-related crisis events have transformed the abstract debt crisis into reality through specific incidents. The repo market crisis in September 2019 was a precursor: overnight repo rates skyrocketed to 10% due to insufficient bank reserves and excessive supply 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 Index dropping 20% in 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 UK pension crisis in 2022 affected the world: Liz Truss's government's tax cut plan pushed up UK bond yields, triggering a chain reaction of pension funds selling off US Treasuries. US inflation reached 9%, and the Federal Reserve's interest rate hikes led to a 20% drop in bond prices. In 2023, five banks, including Silicon Valley Bank (SVB), collapsed, with total losses exceeding $500 billion, mainly due to paper losses from holding long-term government bonds.

The "Trump Two-Step" incident in April 2025 is more alarming: The Trump administration announced an upgrade in tariffs on "Liberation Day," imposing a 60% tariff on China, but the following day, the bond auction was cold, 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 escalates further in January 2025: the ceiling is set at $36.1 trillion, and the Treasury exhausts "extraordinary measures" on January 23, forcing Congress to legislate urgently. These events are not isolated but are signals from a debt-dominated credit market: a combination of oversupply, weak demand, and policy uncertainty, heralding a greater storm.

The repeated battles over the debt ceiling have been adjusted 78 times since 1960, each time creating market volatility. In August 2025, the ceiling is expected to hit its limit again, and if Congress delays, it may trigger the first default and a credit rating downgrade (Moody's has already lowered it from Aaa to Aa1).

These crises reveal that debt issues appear before the stock market, and the bond market is the "nervous center" of the economy. The bond market is a mechanism linked globally and acts as an amplifier for debt crises, with a scale exceeding $50 trillion, making it the largest credit system in the world. U.S. Treasury bonds serve as a "risk-free" benchmark, and their dynamics directly transmit globally.

In September 2025, global bond yields rose contrary to expectations: despite the Federal Reserve's anticipated rate cut of 25 basis points to 4.25% during its meeting on September 17, the 10-year yield still reached 4.05%. This phenomenon spans multiple countries: 10-year yields were 3.2% in France, 3.1% in Canada, and 3.4% in the UK, reflecting expanding 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 stands at $324 trillion, with public debt exceeding $100 trillion.

Japan's policy shift is a key driver. The Bank of Japan's exit from yield curve control has led to a 30-year yield rising to 3.26%, a high not seen since the 1990s. Driven by aging (pension pressures) and the resurgence of inflation, Japanese investors are turning domestically and reducing their holdings of U.S. Treasuries (holding $1.147 trillion). The Japan-U.S. yield spread has narrowed (4.05% vs 3.26%), hedging costs have risen, and capital repatriation has accelerated. This linkage poses a challenge to America's "exorbitant privilege."

The reserve status of the US dollar relies on the demand for US Treasuries, but the sanctions against Russia in 2022 accelerated the de-dollarization: BRICS expanded to 10 countries, and non-dollar trade accounted for 30%. In 2025, trillions of dollars in debt will mature, and Japan's reduction in holdings will trigger a funding crisis, leading to further increases in yields. The transmission effects are evident: mortgage rates rise to 7%, cooling the real estate market; corporate credit tightens, leading to a drop in investment; consumption slows down, with the unemployment rate reaching 4.3% in August. Inflation accelerated to 2.9% in August. The Federal Reserve is in a dilemma: cutting interest rates to stimulate employment risks inflation; maintaining stability exacerbates recession.

The collapse of yen arbitrage trading in August 2024 serves as a cautionary tale: low-interest yen leveraged investments in U.S. Treasuries, the BOJ's shift leading to yen appreciation, tens of trillions in positions being liquidated, a surge in U.S. Treasury yields, and a 10% drop in the stock market. In 2025, risks will magnify, as rising global yields signal a "break of illusion"—central bank credibility shaken, the debt illusion collapsing. Gold stands out: September price at $3689 per ounce, up 10.72% for the month, and up 43.35% for the year. Central banks net purchased over 1000 tons to hedge against depreciation. In the 1970s stagflation, gold prices rose 2300%; today's scale is larger, predicting $3800 by the end of 2025.

The interconnection of the bond market highlights its global nature: the U.S. debt crisis acts like a domino effect, undermining capital flows and currency stability. The intertwining of geopolitics and debt erodes diplomatic flexibility due to high debt levels. When debt/GDP exceeds 120%, policy is constrained by creditor nations. China holds $756 billion in U.S. debt, and the U.S.-China trade war exacerbates fiscal pressure. Trump's "Liberation Day" tariffs aim to revitalize manufacturing but result in higher deficits.

The events of 2025 indicate that the bond market can reverse geopolitical ambitions. The gradual process of de-dollarization: after the collapse of Bretton Woods, the dollar was sustained by petrodollars, but in the 2020s, Saudi Arabia began accepting the Renminbi, and BRICS promoted non-dollar settlements. By 2024, the share will be 30%, with central bank gold reserves increasing from 30,000 tons to 40,000 tons, while China surpasses 2,000 tons. Debt impacts national defense: the 2025 budget is $900 billion, with interest squeezing available space. High-debt empires often resort to war, as seen with Rome plundering 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 a "soft spot," limiting the U.S. "printing money" privilege and giving rise to a multipolar currency system. The dilemma of solutions to resolve debt requires multiple strategies, yet options are limited. First, growth-driven: revive manufacturing and boost GDP.

Trump's DOGE plan aims to cut bureaucrats, expecting to save $250 billion, but productivity bottlenecks are hard to break. A 25 basis point rate cut saves $25 billion in interest, but the effect is limited. Secondly, spending control: rigid expenditures account for 75%, and the political cost of tightening is high. The Austrian School advocates "creative destruction", but politicians fear the ballots. Inflation strategy: negative real interest rates dilute debt, with inflation projected at 5%-7% from 2022 to 2025, but the real rate is higher, and the Federal Reserve model ignores tail risks. Third, a default reset is rare; Argentina's Milei reforms (inflation reduced from 200% to 20%) offer a reference, but it's hard for the G7 to replicate.

Tariff increases or military expansion may lead to increased debt. Grantham pointed out that investors have a short-term mindset and lack courage. Economists are limited: model optimization ignores complexity, and Hayek's warning about "knowledge limitations" applies. Politicians prioritize power, and former Federal Reserve official Hoenig criticized naivety. There is a need for "honest brokers" like Milei to push for reforms. Global trends and future outlook: the debt crisis accelerates change: gradual de-dollarization, BRICS currency basket, and a 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, and increased risks of turmoil.

Civil liberties are in decline, such as the Patriot Act. There may be a market crash or government intervention, but history, like the New Deal of 1929, shows that it can emerge stronger afterward. Investors are diversifying: gold and physical assets. Outlook: CBO predicts debt/GDP at 118% by 2035, with interest at 15.6%. Through reforms, the U.S. can reverse this, but bipartisan consensus is needed.

Global coordination is needed to promote sustainable debt management. The conclusion from the US debt crisis to the global debt crisis is a product of policy mistakes and systemic imbalances. With $37.4 trillion in debt, a 124% ratio, and a 4.05% yield, intertwined with 2.9% inflation and 4.3% unemployment, it signals stagflation.

Japan shifts to amplifying vulnerabilities, bond market warns of currency reset. Transformation requires courage, investors remain wary of gray swans. In the long run, constructive destruction may reshape sustainable systems and avoid the twilight of empires.