Warning of a Shock Needed for $40 Trillion U.S. Debt

The total public debt of the United States has surpassed $40 trillion for the first time, raising warnings about the fiscal path. As the cost of servicing debt increases in a high-interest environment, market interpretations regarding the trust in the dollar and the roles of Bitcoin (BTC) and gold are diverging.

Kenneth Rogoff, an economist at Harvard University, argued in a Guardian op-ed on the 26th that the long-term fiscal path of the U.S. is unsustainable and that a "shock" like market pressure is needed for political action. He viewed long-term bond buybacks as a temporary measure rather than a fundamental solution to the problem.

According to the U.S. Treasury's daily tally, the total public debt reached $40.047 trillion (approximately 5 quadrillion 5065 trillion won) on the 19th. This figure includes $32.266 trillion (approximately 4 quadrillion 4366 trillion won) held by the public and $7.782 trillion (approximately 1 quadrillion 700 trillion won) held internally by the government.

Total public debt is an indicator that reflects all the debt issued by the U.S. government. It differs in scope from the "publicly held debt" primarily used by the Congressional Budget Office (CBO) to explain fiscal sustainability. Mixing these two indicators can exaggerate or downplay the debt ratio and fiscal burden.

The CBO projected in its February budget and economic outlook that the fiscal deficit for the 2026 fiscal year would be $1.9 trillion (approximately 2613 trillion won), or 5.8% of GDP. It also estimated that net interest costs would exceed $1 trillion (approximately 1375 trillion won) in 2026, up from $970 billion (approximately 1334 trillion won) in 2025. The publicly held debt is projected to rise from 101% of GDP in 2026 to 120% in 2036.

The key to the fiscal burden is not only the total amount of debt but also interest rates. Even if debt increases, low interest rates mean that the interest burden grows slowly; however, in a high long-term interest rate environment, refinancing costs can rise rapidly. Rogoff's warning is aligned with this point.

On the 19th, the Treasury announced it would increase the size of its buyback for long-term nominal bonds to a maximum of $2 billion (approximately 27.5 trillion won) per transaction, up from a minimum of $4 billion (approximately 55 trillion won). The applicable period is from September 9 to November 4. The Treasury cited steady demand from market participants in the long term as the background for this decision.

Buybacks are a way for the government to repurchase bonds already issued in the market. They are typically used to bolster market liquidity and reduce trading burdens in specific maturity ranges. However, this does not reduce the fiscal deficit itself or change the debt trajectory.

The interest burden remains. On the 27th, the Treasury's daily yield curve showed that the yield on 10-year bonds was 4.67%, and 30-year bonds were at 5.19%. The Wall Street Journal reported that on the same day, the yield on 7-year Treasury bond auctions reached 4.512%, the highest level since December 2024.

In the bond market, long-term interest rates simultaneously influence government borrowing costs and asset price discount rates. If long-term interest rates remain high, it can signal confirmed demand for government bonds, but it can also act as a burden on risk assets such as stocks and cryptocurrencies. This is why it is difficult to conclude that fiscal instability will directly lead to a rally in risk assets.

In the crypto market, this issue has been interpreted as concerns over dollar weakness and currency value dilution. Barron's reported on the 28th that BTC rose to $80,326.81 (approximately 1.1182 million won) during the day before falling to $79,741 (approximately 1.0964 million won), noting that demand for BTC as an alternative investment surged following the Treasury's announcement of the expanded long-term bond buyback. The same outlet reported that gold also received support amid concerns over U.S. fiscal issues and demand for a weaker dollar.

Both gold and BTC are often linked in discussions about alternative assets emphasizing scarcity. However, gold has a strong traditional safe-haven asset character, while BTC carries a high volatility risk asset nature. Even with the same fiscal instability factors, the reactions of these two assets can vary depending on interest rates, the dollar, and liquidity flows.

Market interpretations have not converged into a single view. Anthony Scaramucci, founder of SkyBridge Capital, acknowledged the U.S. debt and inflation issues while placing BTC in the solution category. Peter Schiff expressed a preference for gold even after the Treasury's buyback announcement. Both views represent individual market judgments.

For domestic investors, this debate is not merely a simple article about U.S. fiscal matters. The trends in U.S. long-term interest rates and the dollar affect the won exchange rate, valuations of overseas stocks, gold prices, and liquidity in risk assets, including BTC. Our previous reports indicated that the total public debt of the U.S. surpassing $40 trillion has revived Dalio's three-year warning.

This matter aligns with our previous reporting that the expansion of U.S. debt is not directly linked to the rise in BTC prices. While weakening trust in the dollar can enhance the logic of alternative assets, high interest rates can impose burdens on liquidity in risk assets. Rogoff's article is an opinion column rather than a policy announcement, and the Treasury's expanded long-term bond buyback is set to take effect from September 9.

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