High debt levels are shaking confidence in the US: How savers and investors can protect their assets

James Carville, once an advisor to President Bill Clinton, summed it up in the 1990s: "I used to want to be reborn as a president, a pope, or a baseball star. But now I'd rather be born as a bond market. It can intimidate anyone."

To this day, the bond market has lost none of its power. Former Prime Minister Liz Truss learned this the hard way in 2022: Her tax cut plans caused the prices of British government bonds to plummet, the Bank of England had to intervene, and Truss was soon history.

In April of this year, even Donald Trump came under pressure. After his announcement of drastic tariff increases, investors dumped US Treasury bonds en masse. Yields rose—a warning shot from the markets. Less than two days later, Trump relented: the tariffs were postponed for 90 days. The president had understood who was really calling the shots. Not him, but the Treasury market.

This reaction revealed the US president's weak point: the bond market. Bonds are debt—and thus the weak point of any highly indebted government. In 2024, the US balance of payments deficit was $1,130 billion, and the budget deficit was as high as $1,833 billion. Experts say these deficits are unlikely to disappear even with government cuts and new revenue from tariffs. They would have to be financed through new debt.

The Institute of International Finance (IIF), a global association of financial institutions, also warns of this in its latest debt monitor. If Donald Trump extends the 2017 tax cuts, the debt ratio could rise from today's 100 percent to almost 130 percent of GDP by 2034. The result: an even greater flood of US government bonds. But whether the markets will swallow them—and at what price—is questionable.

Trump's policies are considered risky – especially because of the constant snubs of long-standing partners. Around a quarter of US debt is held by foreigners, half of it by state-owned entities. For them to continue buying American bonds, the US must be seen as a reliable partner. Otherwise, it will become more difficult to place their debt on the market in the future. And more expensive: Investors would demand higher returns.

If this were the case, the American government would have to pay higher interest on its debt – but not only it. Since US Treasury bonds serve as a kind of backbone of the global financial system, American companies would also have to pay more for borrowed capital. And private households would have to bear higher mortgage interest rates for their homes.

Financial market experts consider this development extremely dangerous. US Treasury bonds have previously served as a kind of safe haven in the financial markets. This has always been evident in times of crisis, when investors sought refuge in these securities. If US Treasury bonds were to disappear as a virtually risk-free investment and store of value, this would leave a huge vacuum in the financial markets.

"The United States is increasingly evolving from a guarantor of stability to a source of global uncertainty," says Christof Reichmuth, unlimited partner of Bank Reichmuth in Lucerne. He criticizes the "hectic activism" of the US government, which is expressed, among other things, in erratic punitive tariff announcements and geopolitical maneuvering. After 100 days under President Trump, the once irresistible pull of the US economy has evaporated.

Reichmuth is also shocked by the appointment of Stephen Miran as Trump's economic advisor. He has persuaded the US government to consider ideas such as a devaluation of the dollar or even a forced conversion of short-term US Treasury bills into 100-year government bonds—whether these bonds would ever be repaid is another matter.

Trump's advisor Miran has also already proposed introducing a fee on dollar reserves held by central banks. "Such speculation massively damages confidence in the US as a debtor and scares off investors," says Reichmuth. The US financial market is likely to suffer from the ongoing uncertainty.

Developments in the US are just as relevant for Swiss and other European savers and investors as they are for American investors, as they involve fundamental constants of the financial system. Debt purchases by the US Federal Reserve or a renewed financial and debt crisis cannot be ruled out.

Against this backdrop, Reichmuth advises investors to invest in tangible assets. These include real estate, gold, and stocks. While there are excellent companies on the US stock market, the market is highly valued. Currently, the European stock market appears more attractive than the American one. Reichmuth recommends investing in high-dividend companies that could benefit from fiscal stimulus. While European government bonds pose lower risks than US government bonds, he also finds them unattractive.

Thomas Stucki, head of investments at St. Gallen Cantonal Bank (SGKB), meanwhile, recommends investing in Swiss stocks that are less exposed to the economy and offer good dividend payments. In his view, the precious metal gold serves as a safe haven. "However, the question remains whether gold is still attractive at the current price level," he says. On Friday, one troy ounce of gold (31.1 grams) cost $3,336; within a year, the price has risen by more than 40 percent.

Gold is a given for Reichmuth, despite the sharp price increase. "One risk, however, is the fact that the US president sits on large gold reserves, and it's unclear how he will handle them."