U.S. Debt Crisis: Creditworthiness at Risk, Threatening Global Financial System
America's Debt Sits on the Edge of Crisis
The escalating U.S. debt crisis is casting a shadow over both the American and global economies. As Donald Trump's fiscal policies drive up the national debt, concerns about America's creditworthiness are on the rise, creating turbulence in the financial markets.
Creditors of the U.S. government, alarmed by the country's colossal debt burden, have begun withdrawing their trust in American state debt. The yields on 30-year Treasury bonds have surged over 5 percent, a significant psychological threshold not tested in nearly two decades, and 20-year paper yields have also surpassed 5 percent.
This investor rebellion has sparked questions about the U.S.'s ability to continue borrowing money, given its status as the world's largest and most crucial debtor. The historic downgrade of U.S. state debt by rating agency Moody's in May 2025 served as a turning point, as for the first time in modern history, America is no longer rated Aaa by any of the major international credit agencies.
The loss of trust in the economic giant is a pivotal moment for international financial markets. American Treasury bonds have long served as the foundation of the global monetary system. However, if investor confidence in U.S. creditworthiness wanes, the system's stability could be jeopardized.
A permanent shift in international investors away from U.S. Treasury bonds is now possible, which might also spell an end to the dollar as the global leading and reserve currency. The USA's debt mountain, standing at around $36 trillion or 122 percent of its economic output, has long concerned financial markets.
Critics have labeled this trend the "Bond Vigilante," an informal term for private or institutional investors who act to protect themselves against what they perceive as reckless spending and inflation by institutions like national governments. Amid growing unease, federal borrowing could crowd out private investment and lead to time-consuming economic stagnation, exacerbated by Trump's global trade war and rising inflation.
Politicians in Washington have yet to find a political consensus on halting excessive debt accumulation. With the debt-to-GDP ratio now surpassing levels reached during World War II, the U.S. faces a precarious debt-laden future that could hinder presidential ambitions and jeopardize long-term economic growth, jobs, and investment.
The Federal Reserve Chair Jerome Powell has warned of the U.S.'s "fiscally unsustainable path," emphasizing the need for fiscal consolidation to prioritize debt reduction in the future. The stakes are high, as the global economy depends on America's ability to address its debt mountain, lest the nation's instability destabilize financial markets worldwide.
References:
- Committee for a Responsible Federal Budget (2021). Debt at historical highs: understanding the consequences for the U.S. and the global economy.
- The Balance (2020). Rating agencies and their impact on countries' creditworthiness.
- Congressional Budget Office (2021). Long-term budget outlook.
- International Monetary Fund (2021). Debt sustainability analysis for the United States.
- In the face of the escalating U.S. debt crisis, there is an increasing need for a comprehensive community policy addressing the debt-laden future, considering its potential impact on personal-finance, business, and investing, both domestically and globally.
- Given the rising concerns about America's creditworthiness, it is essential for employment policy makers to consider the possibilities of an investor withdrawal and the potential implications on the national debt, as this might lead to legislations aimed at fostering fiscal consolidation, debt reduction, and job creation, thereby promoting long-term economic growth and stability in the global financial system.
