USA: Trump's sharp rise in debt makes global financial sector nervous

Munich/Washington. The rapidly rising US national debt is increasingly worrying international capital markets. Many financial firms and economists are expressing growing distrust of the United States' fiscal policy. These include the US investment bank Goldman Sachs, the Deutsche Bank-owned asset manager DWS, the Italian bank Unicredit, and the German federal development bank KfW.

While no one currently expects a major US sovereign debt crisis to loom in the near future—some financial companies like Munich Re still view the US as a safe haven for investors—observers are increasingly considering a major crisis within just a few years to be possible.

"The US still has room for adjustment, but the margin for error is shrinking," warns Christian Scherrmann, the US economist at DWS. "Delays increase the risk of a non-linear financial crisis in which market confidence suddenly disappears." "Non-linear" is a fancy term for the fact that major crises have always struck at unforeseen times.

DWS is one of the largest asset managers.

Source: Arne Dedert/dpa

Within just over ten years, the US debt has doubled – from $18.2 trillion in 2015 to $36.6 trillion today, according to the US Treasury Department website. The US Congressional Budget Office estimates that the "One Big Beautiful Bill," recently passed by US President Donald Trump, could increase the debt by another $3 trillion by 2034.

Accordingly, the interest burden is growing. This year, the US government is expected to shell out $794 billion to its creditors. In the not-too-distant future, interest payments could exceed the $1 trillion mark annually. "There is little doubt that as a consequence of the law, the US debt mountain will continue to grow rapidly," says KfW Chief Economist Dirk Schumacher.

The US investment bank Goldman Sachs – a major power in the global financial industry – does not believe that the "Big Beautiful Bill" will dramatically increase US national debt. However, the US budget deficit, currently at five to six percent, is already so high that the institute's experts are concerned. The United States' longer-term fiscal outlook is in an "unsustainable position," warned in-house economist Alec Phillips in a recent publication.

US President Donald Trump has significantly increased government spending.

Source: Julia Demaree Nikhinson/AP/dpa

Prominent economist Kenneth Rogoff, former head of the International Monetary Fund, expects a debt-driven US inflation crisis with an inflation rate of 20 to 25 percent in the next five to seven years, as the scholar predicted in a recently published book (“Our Dollar, Your Problem”) and several interviews.

In a newsletter, the major Italian bank Unicredit publicly pondered the possible "subtle" forms that US defaults could take. It also ruled out a traditional US default. However, the message was accompanied by a note that the United States had already reduced its debt burden eight times since its founding using "unorthodox means." "Given the size of the US Treasury bond market, even small and short-term episodes could have massive global financial repercussions," wrote Edoardo Campanella, head of the Unicredit think tank "Investment Institute."

The president pushed his controversial budget and tax package through the U.S. Senate with the narrowest of margins. It is expected to increase the U.S. debt by $3.3 trillion and deprive 11 million Americans of their health insurance.

DWS fund manager Thomas Schüßler, well-known in the German financial scene, laments dwindling confidence in the United States. He points to three factors: the high interest rate on long-term US government bonds, currently around 4.3 percent, the devaluation of the dollar in recent months, and the sharp rise in the price of gold – the latter a traditional indicator that investors are seeking a safe haven. Schüßler calls these three factors combined "the ultimate sign of distrust in American monetary policy."

The chairman of the US Federal Reserve, Jerome Powell, is arguing with Trump about US monetary policy.

Source: Manuel Balce Ceneta/AP/dpa

While DWS does not expect yields on ten-year US Treasuries to rise sharply over the next twelve years, bond expert Oliver Eichmann does not rule out the possibility that nervous investors will avoid US securities: "A larger movement out of US Treasuries into other bond markets, I would say, is a greater risk."

Optimists are currently in the minority, but not extinct. Reinsurer Munich Re, traditionally considered a cautious company in the financial industry, appears comparatively unconcerned. "The risk of holding US government bonds lies in the ability and willingness of the US Treasury to repay the debt," says Nicholas Gartside, Chief Investment Officer of the Munich-based DAX-listed group. "These two factors are absolutely beyond question. US debt remains a safe haven."

The top manager does not attribute the current dollar weakness to the rise in US debt: "Other factors such as the interest rate differential with other countries and relative growth expectations are much more important. For example, since the beginning of 2025, growth expectations for the US have been lower and for the Eurozone higher."

Beyond the financial sector, some thinkers are already taking a broader view. Among them is Niall Ferguson, a historian at Harvard University. The professor is an expert on the history of money and, in a recent discussion at Goldman Sachs, proposed a "Ferguson Law": major powers that have to spend more money on interest payments than on their military are doomed to decline.

This year's US military budget totals $956 billion, which could soon be surpassed by interest payments. "History is replete with examples of superpowers spending more on debt service than on defense, and as a result, they were neither super nor powerful," Ferguson warned.

RND/dpa