0:00 If there were a person who was always in debt, owed more than they earned, kept borrowing to pay off old loans, and had no hope of ever paying it all off, what do you think would happen to them? Common sense suggests the bank would blacklist them, fearing the principal would be lost forever, and creditors would hound them daily, terrified they might suddenly collapse or run away. But in the international financial market, there is a borrower that completely defies this logic. The US government's debt has long exceeded its annual GDP, and the absolute amount of its debt is the highest in the world ; it, too, keeps borrowing to pay off old debt without ever clearing the balance. Yet, miraculously, no one presses them to pay, and in fact, there are far more people wanting to lend them money than they even ask for. The smartest and wealthiest people in the
0:46 world are literally lining up to lend them money. This hasn't just happened once or twice; it has been this way for decades. What kind of logic is that? Whenever you hear news that US debt has reached another record high of trillions, do you ever feel confused and puzzled? The news often claims "US debt is in trouble, it's dangerous," but we never see anyone pressuring the US to pay. How does the US manage to carry so much debt? Where does the borrowed money go, and is there no limit to this constant borrowing? How can they keep borrowing like this, and what will happen in the end? Today, we are going to do one thing: start from the very foundation, break down US debt layer by layer, and explain it thoroughly. After watching this, not only will you have a complete introduction, but you'll also be able to judge for yourself whether any news
1:31 about "US debt crises" or "dollar collapse" is a real issue or just clickbait. Let's start with the first layer: what exactly is US Treasury debt ? Most content discussing US debt skips this step and starts rambling on immediately. As a result, the audience listens for a long time but never really understands what they are hearing. We will start with this most basic question today: any country has annual income, mainly from taxes, and annual expenses, such as military spending, social security, and healthcare. The US is the same, and for a long time, its annual spending has exceeded its income. How is this gap filled? The Treasury Department issues bonds to borrow money from the market. Some people might think, why bother issuing bonds to borrow money? Wouldn't it be faster to just print money? Don't laugh; that’s exactly what the US did in the beginning. In 1775, the American
2:19 Revolutionary War began. At that time, America was governed by the Continental Congress. It had no tax revenue but war was very expensive, so the Congress chose the most direct method: printing money, a paper currency called the " Continental." As a result, as more and more bills were printed, the goods they could buy did not increase. The purchasing power of the Continental plummeted, and within a few years, it became worthless paper. Americans at the time coined a common insult: "Not worth a Continental." This was America's first fiscal experiment; the conclusion was that this path didn't work. Although the fiscal experiment failed, the Revolutionary War was still won. After finding its footing, America chose a different path. The second path was taken in 1790, when Treasury Secretary Hamilton made a decision: the
3:05 federal government would take over all the states 'war debts, acknowledge the full original amount of the loans, and pay interest on time. Many people opposed this at the time because the burden of full repayment was heavy, but Hamilton's reasoning was that the most valuable thing for a new nation is credit—the promise to repay. Only with credit can one always borrow money , and borrow it cheaply. See? At the beginning of its founding, America tried two paths. One path led to printing money into waste paper; the other path led to repaying debts and building credit. For the more than 200 years since, America has basically followed this second path: borrowing, repaying, and settling debts. Keep this contrast in mind, as we will revisit it later. So, what exactly is a U.S. federal government bond? It is essentially a standardized IOU that
3:51 states three things: first, the face value—how much money the lender provided; second, the maturity date— when the U.S. government will return the principal; and third, the interest rate—how much annual interest will be paid to the lender during that period. These debt instruments are categorized by duration into three types: those under one year are called Treasury bills, two to ten years are called notes, and 20 to 30 years are called long-term bonds. So, how are these bonds sold? Through public auctions held every week. Banks, funds, and governments from all over the world can place bids. The bidding method is to quote an interest rate; whoever quotes the lowest rate—meaning the interest they are willing to accept—gets priority in buying the bonds. Once the lender buys the bond, they receive interest periodically and get the principal back upon maturity. Can the
4:37 lender sell the bond before it reaches maturity if they need cash? Yes, the bonds can be resold at any time. The daily trading volume in the market is in the hundreds of billions of dollars, making it easy to trade at any moment. But take note: the price at which a bondholder resells their bond midway might not be the same as the purchase price. For example, say you buy a bond for $ 100 that pays $ 2 in interest annually. But a year later, the market changes; the government issues a new batch of bonds, also for $ 100, but paying $ 4 in annual interest. At this point, if you want to sell your old bond, you face a problem: who would pay $ 100 for an old bond that only pays $ 2 a year? Nobody would buy it. So, what can you do? You have to sell it at a discount. To what extent? You have to
5:22 discount it until the calculated return for the buyer is similar to buying a new bond; only then will someone take it off your hands. This is an ironclad rule in the bond market: if market interest rates rise, previously issued low-interest bonds will drop in value. The reverse is also true: if the government's new bonds pay less than $ 2—say, only $ 1.50—then the old bond you bought that pays $ 2 becomes more valuable and its price rises. This shows that when market interest rates fall, old bonds with higher interest rates increase in value. The direction is always opposite. This point is very important; keep it in mind, as we will use it later. Alright, having said this , we can correct the first popular misconception about US Treasury bonds. Many people think the $ 40 trillion in US debt is just one loan with one
6:08 creditor, one IOU, and one repayment date. That is incorrect. In reality, it is the sum of tens of thousands of bond issues, each with its own face value, interest rate, and maturity date. Every week, old bonds mature and new bonds are issued. What is it like? Imagine a scene: like a flowing river. US debt is like a river with abundant, ceaseless water. Please remember this image. With this impression in mind, many subsequent things will be much easier to understand. So the next question is: who holds these tens of thousands of bond issues? In other words, who are the creditors? Let’s look at the structure: about 20%is in the US government’s own internal accounts, mainly the Social Security Trust Fund —simply put, the American pension system, which is legally required to invest its surplus into government bonds. This portion accounts for 20%.
6:55 Another 10%is held by the US central bank, the Federal Reserve. About another 45%is held by domestic mutual funds, pension funds, banks, and insurance companies. So, adding these three parts within the US together, over 70%of the creditors for US debt are within America's own system. Less than a quarter remains in foreign hands . Which foreign countries? As of August 2026, Japan is the top holder, followed by the UK, and then China. Moreover, China's share has dropped to about 1.6% of the total U.S. debt, the lowest point in over a decade. Additionally, Taiwan is among the top ten global creditors, with Hong Kong close behind. So, for those who initially thought U.S. debt was mainly owed to China, it's time to update that view; while you could say that over a decade ago in
7:40 2013, the list looks very different today. Right. Since U.S. bonds have maturity dates, the next question naturally arises: where does the money to pay them back come from? Note this operation; it is completely different from how we as individuals operate. The standard practice for U.S. debt is that when a bond matures, the U.S. government immediately issues a new one , using the proceeds to pay off the old debt. In common terms, it's issuing new debt to pay off old debt. Look at this design: has the debt been paid? It has, but where did the money come from? It was borrowed. As the old debt is cleared, new debt is taken on. The total debt hasn't decreased by a cent; it just rolls from one bond issue to the next, like a river that flows forever without ever needing to run dry . So, does the government not have to pay a single cent? That's not the case;
8:26 they still have to pay interest. Although the principal can be replaced by new debt, this interest must be paid out, and the interest generated each year must also be rolled over. But if they don't want to pay the interest, they can just bundle the principal and interest together and issue a new bond. Sounds like a scam, right? But every country in the world follows this same standard playbook. British national debt from the Napoleonic Wars has been rolling over to this day; Japan, Germany, and France all do the same, and U.S. debt is no exception. No major economy in the world is actually paying off its national debt, nor do any creditors demand that they do so. Doesn't hearing this suddenly make you tempted to think, "Could I play this game too? Keep borrowing and paying off , wouldn't that be great?" Let's be clear: ordinary people cannot do this.
9:12 Why can't individuals do it, but the government can? There are three structural differences here; the first is lifespan. People, no matter how wealthy, will eventually die, so personal mortgages must be paid off within a person's lifetime, as is the case with other loans. But governments have no lifespan; there is tax revenue this year, next year, and there will still be tax revenue 100 years from now ! Creditors are facing a theoretically perpetual source of income, so debt can be rolled over forever, as long as the interest can be paid. The second structural difference is income. An individual’s salary is set by their boss; you cannot give yourself a raise. However, the government has the power to tax. If it wants to increase revenue , as long as it passes legally, it can raise taxes itself. When a creditor lends money to an individual, they look at whether their current income can cover the repayment. But when lending
9:58 to a government, they look at the entire nation's current and future taxation capacity. The third structural difference, which is also the most critical, is that US debt is denominated in US dollars, and the dollar is issued by the US itself. This means the US can print money to pay off its debt, whereas if an individual owes money to a bank or creditor, you personally cannot print money. This means that, on a technical level, the United States will never be unable to produce the money. But please note, being able to pay out the money and what that money is actually worth are two different things. You will see this more clearly later on. Since the US can print its own dollars, why not just print enough to pay it all off? Remember what we said earlier? If you print too much money, it becomes worthless paper. So, will it just never be paid off? That’s right, it will never be paid off. They never intended to pay it off from the very beginning.
10:44 Alexander Hamilton made this very clear on the very first day he designed this system. A national debt of a moderate scale is not a burden to a country, but a benefit, because it provides a safe place for the nation’s capital and ties the government and the market closely together. The fact that it isn't paid off isn't because the system has decayed after 200 years, but because it was designed that way from the start. Some viewers might say, " That won't do; I have Virgo-like obsessive tendencies, I'm uncomfortable if it's not paid off." No problem. There was a US president like that who actually paid off the national debt. In 1835, in the East, it was the Qing Dynasty with the Daoguang Emperor on the throne, while in the US, President Jackson wiped the national debt to zero . This debt-free state lasted for about a year. Soon, the US fell into a severe
11:29 financial crisis and economic depression; government revenue plummeted, and the debt quickly returned. However, it must be said that whether paying off the national debt caused this depression is a more complex issue that we can discuss in detail another time. But one fact is certain: the state of zero national debt only existed for about a year in US history. In the 250 years since the founding of the US, aside from that one year or so, no one has ever made paying off the national debt a goal for the country again. Since the U.S. has always owed so much debt, why is the whole world still willing to buy these bonds day after day for decades? Can't we just not lend money to the U.S. or buy U.S. Treasury bonds? Good question, but honestly, we can't. However, this " can't" isn't a decree or a law, but an inevitable result of historical
12:14 development. In 1944, as WWII was nearing its end, over 40 countries sent representatives to the U.S. for a meeting. What was this meeting about? A meeting to discuss the post-war global monetary order. Why discuss a global monetary order? Because over the past few decades, countries around the world were not only fighting with tanks, planes, and cannons, but also fighting each other economically. How were they fighting? Either defensively, by crazily raising tariffs on others to keep foreign goods out—this is trade protectionism—or offensively, by devaluing their own currency. Why is devaluing currency an attack? For example, let's say the U.K. devalues the pound by 10%, suddenly British goods sold to France become cheaper. Seeing so many British goods flooding
13:01 in, France follows suit and devalues the franc by 20%, then French goods flood back into the U.K. Everyone keeps hurting each other this way; what is the result? No one dares to hold anyone else's currency, because you might wake up to find it devalued by 10%, 20%, or even worthless. Eventually, everyone realized this couldn't go on, so what to do? Since we can't trust the pound or the franc, we must find something everyone trusts that absolutely won't devalue easily, a fixed anchor for everyone to reference. The year was 1944. Europe was in ruins, and Asia and North Africa were engulfed in flames of war. Only the U.S. was safe because it was farthest from the front, and it seized the chance to sell food, weapons , and supplies to all countries, demanding only gold in return. Thus,
13:46 about 70%to 80%of the world's gold ended up in the U.S., stored in American vaults. So the U.S. said: "In that case, the dollar will be that anchor you reference. All your currencies will be pegged to the dollar , and my dollar will be strictly tied to the gold in our vaults—35 dollars equals one ounce of gold. Anyone who brings 35 dollars can exchange it for an ounce of gold at any time." After discussing back and forth for over 20 days, the various countries finally realized this was the best solution they could find, and so they agreed to it. This was the historically famous system where the US dollar was pegged to gold, and other countries' currencies were pegged to the US dollar . Since the meeting was held in a place called Bretton Woods, this new system was named the Bretton Woods system.
14:33 This system very quickly triggered a series of chain reactions. After the war, global trade recovered, and nations began importing, exporting, and doing business with one another, only to find that although their pounds, francs, yen, and the Brazilian real were all pegged to the dollar. When it came time to settle accounts, they still had to use US dollars, because the other party would only accept dollars since the dollar was directly pegged to gold; when it was my turn to collect, I naturally only accepted dollars as well. Over time, the vast majority of currency in the market became US dollars, and the amount of dollars held by various countries grew more and more. After 10 or 20 years, one shrewd and wary person realized something was wrong; he discovered that the total number of US dollars issued worldwide had already exceeded the total value of the gold in US vaults. Who was this person? It was the
15:20 president of France at the time, Charles de Gaulle, who told the United States, "France no longer wants dollars , we want to exchange them for gold." Was this just a hunch by de Gaulle, or was it the truth? The answer is the latter. In the 1960s, the US spent excessively on wars abroad and lavish welfare programs at home, so they had to secretly run the printing presses to print money and get everyone's gold and silver for free. Once one person knows about this kind of thing, it’s as if the whole world knows. What was the result? You exchange for gold, I exchange for gold; after a few years, America's gold was almost all gone. Seeing that the gold-pegged Bretton Woods system was finished, the Americans were quick to act and immediately set their sights on another valuable asset. What was it? Oil. In 1974, the US and Saudi Arabia, the world's largest oil exporter, reached a
16:07 secret agreement: the US would provide weapons and troops to protect Saudi Arabia, and in return, all of Saudi Arabia's oil had to be settled in US dollars. Saudi Arabia agreed immediately, and once they did, the entire Organization of the Petroleum Exporting Countries followed suit. From then on, any country in the world that wanted to run factories, drive cars, or generate electricity had to buy oil, and to buy oil, you had to use US dollars to settle the bill. As a result , global trade must continue to be settled in US dollars. Furthermore, countries with strong exports, like those in East Asia, receive more dollars than they pay out, causing those dollars to sit in their national bank accounts year after year. These accumulated dollars are what we call foreign exchange reserves. You might ask, why must we reserve US dollars? Wouldn't it be better to just convert
16:53 the dollars into my own currency as soon as a deal is finished? Sure, but when does a country's global business ever truly end? And what country could possibly export everything without importing a single thing? If you converted to your own currency every time a deal ended, wouldn't you just have to convert it back for the next deal, paying two sets of transaction fees? Therefore, any country involved in imports must hold dollar reserves, and the larger a country's international trade, the more foreign exchange reserves it necessarily needs. Foreign exchange reserves are essentially a tool for guaranteeing imports and ensuring balance of payments settlements. The dollar has a second function: defending the exchange rate. When a country's currency is heavily sold off by the market and its external value drops rapidly, the only thing the country can do is use its foreign reserves to buy back its own currency in the market. According to
17:38 the laws of market economics, selling more makes the price cheap, while buying more makes the price recover and go up. At critical moments, using these foreign reserves—that is, US dollars —to buy back your own currency can stabilize its value. The amount of dollar reserves held determines how deep this line of defense goes. By now you see that foreign exchange reserves are indeed vital and earned through the hard work of the entire nation's exporters. So, why not just lock them securely in our own national bank vaults and take them out when needed? Isn't that the safest and easiest way? Why must we use them to buy US Treasury bonds? Storing them in your own bank vault is possible, of course. But if you do that, such a large sum of foreign exchange earns no interest, or at best only domestic interest, and don't forget about inflation. Assuming a global annual average inflation rate,
18:24 if 100 billion dollars in foreign reserves sits idle in a domestic bank, its real purchasing power will simply evaporate by 3 billion dollars every year. That won't work, so I must deposit it in a foreign bank to earn their interest. If you think this way, so do other countries. With so many nations and so much foreign exchange all wanting to deposit into a single bank to earn interest, what bank in the world could possibly hold that many dollar reserves? After looking around, it turns out that only the U.S. Treasury market is a river deep enough to hold it all. Remember the river metaphor we used earlier? Only this constantly flowing river can contain it . First, the U.S. Treasury market is large enough. By 2026, the U.S. national debt market will reach 40 trillion dollars, while global reserves
19:10 combined are only in the range of over ten trillion. So, this big river of U.S. debt can hold it. Second, it can be liquidated at any time. In a financial crisis, time is measured in hours; assets must be sold immediately for cash, and you must be able to sell tens of billions at once without the price collapsing. As I mentioned before , the scale of U.S. debt is huge, like a river with ample water, with daily trading volumes in the hundreds of billions. Even if you withdraw tens or hundreds of billions over several consecutive days—that is, 1%to 2%of the total—its price won't fluctuate drastically. Third, it is legally reliable; money placed in the U.S. Treasury market won't be frozen or restricted from being transferred out. Fourth, it also pays you interest. So, what about other options in the world? Let's look at them one by one to see if any match the effectiveness of U.S. Treasuries. Look at Germany first;
19:56 while their credit rating is top-tier, the German government is too disciplined in borrowing and issues too little debt; the market cannot hold global reserves. Then look at the Eurozone as a whole; it lacks a unified treasury, so the creditworthiness of individual national bonds is inconsistent. The debt crisis in Greece a few years ago proved that being denominated in Euros doesn't necessarily mean it's safe. Third, RMB assets; China has controls on capital inflows and outflows, requiring approval. If you can't freely withdraw funds during a crisis, wouldn't that be a catastrophe? Fourth, look at gold. Gold pays no interest, and the market can't handle such large volumes. Buying or selling hundreds of billions of dollars of gold would cause price volatility, meaning you buy high and sell low when the price crashes—it's not practical. Fifth, look at the Swiss Franc or the Japanese Yen; the
20:41 currencies themselves are reliable, but the market scale is too small, one to two orders of magnitude smaller than U.S. Treasuries. All things considered, U.S. Treasuries have become the only option. So, just how "only" is this only option? There is a most extreme real-world test: the 2008 global financial crisis. The U.S. mortgage market and U.S. banks created the problem; the U.S. was the source of that crisis. Logically, global capital should be fleeing the United States, but the reality is quite the opposite. When U.S. capital frantically sells off various assets, what do they buy instead? It is precisely U.S. Treasuries. Instead of falling, their prices actually rise. The crisis is caused by the U.S., yet funds seeking refuge pour into U.S. government bonds. You see, even in such extreme moments, the only thing the whole world trusts is U.S. Treasuries; there is simply
21:26 nowhere else to go. Therefore, let me correct a third common misconception. Most people think countries buy U.S. debt because they are bullish on and trust the United States. That is wrong. The real motive is that nations need a place to park their reserves, and there is no better option globally than U.S. Treasuries. This creates a strange phenomenon where countries publicly criticize the U.S. while continuing to buy its debt—it’s not hypocrisy, it’s just that there are no better alternatives. If you follow this logic to the end, you arrive at a jarring conclusion: the true plight of the global financial system is not that there is too much U.S. debt, but that there are too few safe assets. This might sound like a defense of the U.S., so I must add a fact that few people know. Over 20 years ago, the U.S. government had consecutive years of
22:11 budget surpluses and once tried to pay off the national debt. As they paid it down, they realized something was wrong , so they commissioned economists to study what would happen if the debt reached zero. They discovered it would trigger systemic risk. I have covered this in a previous episode; if you are interested, you can watch this video first, then find the detailed explanation on my channel. At this point, you might think the U.S. Treasury system looks quite solid: the principal keeps rolling over, interest is paid, and buyers have a genuine need for it. It seems perfect, right? It was indeed perfect for a time, especially when the money borrowed via U.S. Treasuries was spent in the right places to generate wealth. Even with high interest payments, the nation’s wealth continued to grow. However, if the borrowed money isn't used productively, things will take a turn for the worse. You will certainly ask: where exactly has the money borrowed
22:58 through U.S. Treasuries been spent? Where can money be spent to generate more wealth? Where is it spent without achieving this effect? Let us look at 200 years of U.S. borrowing and spending history. In the 19th century, federal and state governments began borrowing heavily. What was it for? Building canals and railroads. Once this infrastructure was completed, trade expanded, the economy grew, and tax revenues soared, easily covering the principal and interest on the debt, making the U.S. wealthier. After the war, the federal government continued to borrow. What was it for this time? They built the Interstate Highway System. Eventually, the road network covered the entire country, transportation costs plummeted, and manufacturing grew rapidly, easily covering the principal and interest of the debt once again. This time, they won again. During the war, what did the
23:43 US federal government borrow heavily for? This time, it was invested in military research. Later innovations like the internet, space satellites, and GPS were all byproducts of those budgets. Everyone knows how profitable these industries have become. Do you see the pattern? The money spent on this type of debt has one thing in common: it all leads to higher tax revenues in the future. It’s like borrowing money to make yourself stronger; the more you borrow, the better your ability to repay becomes. But then, things changed. In the last 15 years, the new US debt has mainly gone into three other areas. First, social security and medical expenditures. The US population is gradually aging. As the number of people collecting pensions and using health insurance increases, the government has to pay out more money. Second, it was spent on two crisis bailouts: the 2008 financial crisis and
24:29 the 2020 pandemic, which involved two rounds of massive fiscal injections. Meanwhile, on the income side, it has actually shrunk because, after several rounds of tax cuts, the proportion of US government tax revenue to the economy has fallen. You might say, "But these three types of expenditures are all very necessary." That's true, not only are they very necessary, they are also significant. The bailouts prevented a great depression, pension and medical care are society's promises to the elderly, and tax cuts can promote economic growth. However, they share a common financial characteristic : they do not directly generate future tax revenue. Moreover, this spending structure has another important feature . What feature? It’s that once it becomes structural, it becomes rigid and very difficult to reverse. Simply put, there is no turning back. What does that mean? The US federal government's spending is divided into two categories: one that requires
25:16 annual congressional approval, such as defense, education, and research; and the other, which is executed automatically by law and is paid out without anyone needing to vote. Which ones are those? They are the aforementioned social security, medical insurance, and interest payments. So, how large is this portion of spending? By August 2026, automatic expenditures already accounted for more than 60 percent of total federal spending, and as the population ages, it will continue to rise visibly. This is what is meant by structural rigidity. It means that even if the two parties, who are at each other's throats today, suddenly reach a consensus tomorrow to cut spending, the only part that could be cut is that less than 40%portion— namely defense education and scientific research. And even cutting all of that less than 40%wouldn't fill the annual deficit, but can this part even be cut? It can be cut. But wanting to cut a significant amount is quite
26:02 unrealistic. So, at this point, we need to make the fourth correction to these misconceptions. Some say the U.S. borrows money to develop its economy, while others say it borrows to squander it; both claims are not quite accurate. A more accurate description is that the money the U.S. borrows—its national debt—has, over the past few decades, shifted from being spent on projects that expand tax revenue to projects that maintain the status quo. What consequence does this bring? The consequence is that the growth of America's ability to repay debt cannot keep up with the growth of its debt costs. Naturally, the next question follows: if U.S. debt continues like this, where is its limit, exactly? Some friends will immediately ask, doesn't the U.S. have a debt ceiling? The news reports periodically that the two parties are bickering over this debt ceiling, the government is running out of money, a default is looming, and the whole world is nervous—but at the
26:47 very last minute, they reach an agreement, raise the ceiling, and everyone is happy. I need to clarify something. This statutory debt ceiling is a rule the U.S. Congress set for itself back in 1939, stipulating that the total amount the Treasury can borrow cannot exceed a certain number. Sounds very strict, right? But if you look at the actual execution, how many times has this debt ceiling been raised , suspended, or modified from 1960 to today? About 80 times, averaging more than once a year. If it’s a ceiling that gets raised every time you hit it, can you really call it a fixed, rigid ceiling? So, here we arrive at the fifth correction of misconceptions: the "debt ceiling crisis" in U.S. political news is, in essence, not a financial crisis, but a political game. Both parties know the ceiling will
27:33 definitely be raised in the end, because no one can afford the consequences if it isn't. So what are they arguing about? They are arguing about what conditions they can extract from the other side during this process of raising it. This play has been going on for decades, and the script hasn't changed much. Mind you, calling it a play doesn't mean it has no consequences at all. In the 2011 debt crisis, the two parties were deadlocked until the final days before reaching an agreement; as a result, S&P downgraded the U.S. credit rating for the first time in history. In 2023, there was another quarrel, and Fitch also lowered the U.S. rating; in 2025, Moody's also lowered the U.S. credit rating. All three major credit rating agencies have stopped giving the United States their top rating. Since then, although the sky hasn't fallen and U.S. Treasury bonds are still selling, these downgrades are like an abnormal indicator on a medical report—it
28:19 hasn't developed into a disease yet, but the anomaly is on record. So, what is the real upper limit? The true upper limit is not a specific number. Many people think there is a certain line, such as debt reaching 100%, 150%, or 200%of GDP, and that it will explode once it's crossed, but reality does not support this claim. As of September 2026, U.S. debt accounts for about 125% of GDP, exceeding the historical peak of 106%at the end of World War II, yet it hasn't exploded. Look at Japan, where debt accounts for over 200%of GDP —nearly twice that of the U.S.—and it hasn't exploded either; in fact, Japan's government bond yields have long been the lowest in the world. What about the other way around? Historically, some countries exploded with debt accounting for only 40-50%of GDP, such as some Latin American nations. So, what determines life and death is not the debt figure itself, nor the ratio itself—then what is it?
29:05 It's three conditions, let's look at them one by one. The first condition: is the debt denominated in the country's own currency? Japan owes yen and the U.S. owes dollars—both are currencies they can issue themselves, so technically they can always pay up. But those countries that exploded owed dollars; the moment their own currency depreciated, their debt burden doubled immediately. That is the real death trap. That's the first condition. The second condition: the ratio of annual interest payments to government revenue . This is the core indicator. Think about it: the principal of debt can be rolled over forever without needing to be paid off, but interest cannot— interest must be paid in real money every single year. As long as the interest is affordable, the debt can keep growing. If the interest cannot be paid, the game truly ends. So, what is the level of the U.S. interest burden
29:51 now? There is a landmark change that occurred in 2026: the annual interest the U.S. federal government must pay has reached the magnitude of one trillion dollars, surpassing its defense spending for the first time in history. You should know that U.S. defense spending is the highest in the world, more than the next several countries combined, and now just paying the interest on the national debt has exceeded it. Why has the interest risen so quickly? Two reasons are superimposed: first, the total amount of debt is increasing, which is easy to understand; second, interest rates are rising. Since new bonds are issued every week, what does this mean? It means that old debts taken on during the era of low interest rates must be replaced by new debts at today's high interest rates once they mature. The average interest rate on U.S. federal debt was around 1.5%just a few years ago, but as of August 2026, it has
30:37 risen above 3%. For the same total debt , the interest cost has effectively doubled. That is the second condition; the third condition, and also the most fundamental one, is whether there are enough buyers at the U.S. Treasury's weekly auctions. I have mentioned before that U.S. Treasuries are issued and auctioned publicly every week. This actually implies something very profound: the whole world is casting a vote of confidence in U.S. credit every single week. If there are many buyers and bidding is enthusiastic, interest rates will naturally be pushed down, indicating that trust remains firm. If buyer interest wanes, the pressure shifts to the U.S. Treasury. What then? The Treasury must then raise interest rates to sell the debt. What does this mean? It means the world is telling the U.S. Treasury: "I can continue to lend you money, but you must pay me more interest because I am not as confident
31:23 as I used to be." So, adding these three conditions together, the answer emerges: where is the true limit of U.S. debt? It is not a fixed number, but a dynamic boundary. It is determined by the ratio of interest to income, as well as the willingness of buyers, and this boundary is being re-measured every week. Although this boundary is dynamic, the trend is clear because the interest burden is growing. So, the final question—the one everyone wants to ask—is: if this keeps going on, what will happen in the end? Let me state the conclusion first, which might disappoint those expecting a grand spectacle: the final outcome is not an explosion, but dilution. Why say that? Let us first deduce the other possible outcomes one by one. The first possible outcome is a direct U.S. default—that is, the U.S. publicly announcing it won't repay its debt.
32:09 This probability is close to zero. Why? It’s not because the U.S. is moral, but because it is completely unnecessary, as I have stated multiple times before. U.S. debt is denominated in dollars, and the U.S. can always print dollars. Why would someone who can always print money default on their debts? The price of defaulting would be the instant loss of the credit Hamilton spent over 200 years building, for zero gain. No one would do something with infinite costs and zero benefits. The second possibility is to grow the economy to "outrun" the debt. This is the most ideal result, and the U.S. has actually succeeded in doing this once before in its history. At the end of World War II, the U.S. debt-to-GDP ratio was as high as 106%, yet by 1974, this figure had dropped to 23%. How was that achieved? From 1945 to 1974, those thirty years saw rapid economic growth, which led to a rise in tax revenue.
32:55 While the debt figures were also rising , their growth became negligible relative to the overall economy. This follows the logic we discussed earlier: if borrowed money is spent on things that generate wealth, debt is not a problem. However, as previously mentioned, the structure of U.S. spending has changed; over 60%is now mandatory spending for pensions, healthcare, and interest. Some might ask, hasn't artificial intelligence been growing exceptionally fast in recent years? Hasn't it bolstered the U.S. economy’s continued strength? While I am cautiously optimistic about this, AI alone cannot allow the U.S. to repeat the path of rapid post-WWII economic growth we discussed earlier. We are not making predictions here, just presenting this possibility and leaving it to time to verify. This is the second possibility; the third is the most common and most covert way
33:42 great powers have historically handled debt. What is it? It is using inflation to dilute debt. The logic of this path is that debt is a nominal amount; you pay back exactly what you borrowed, down to the last cent. But what if prices rise during that period and the purchasing power of money falls? For example, if you borrowed 100 dollars 30 years ago and paid back exactly 100 dollars 30 years later, the principal and interest are cleared on the books. But is what 100 dollars could buy 30 years ago the same as what 100 dollars buys today? Far from it. The creditor got all their money back, but not the full purchasing power; where did the difference go? It was quietly transferred to the borrower through inflation. As mentioned before, whether you can pay the money and what that money is worth are two different things
34:28 ; this is exactly the point. The U.S.’s successful debt digestion after the war actually relied on two paths: one we already covered— economic growth—and the other was moderate inflation combined with artificially suppressed interest rates, so the interest earned by creditors could not keep up with prices. Academically, this is financial repression; simply put, it means having all creditors silently absorb a small loss so that over decades, the debt burden lightens. Note that the key word for this path is "moderate," like 2%to 3%annual inflation. These creditors, though at a disadvantage, tolerate it because they have no better place to deploy their reserves. But what if inflation spirals out of control? We return to the story of the mainland currency at the start of this video: printing money until it becomes
35:13 worthless paper. Therefore, the path the U.S. is taking is a tightrope walk. If the dilution is too slow, the problem isn't solved, but if it's too fast, creditors will flee en masse, and 200 years of credit will collapse. So, is the fourth possibility—that creditors will actually run away— likely? Here we must correct the seventh misconception, which is often sensationalized in traffic-driven news. What is it? "Country X is dumping U.S. Treasuries; the dollar hegemony is on the brink of collapse." Is that really the case? Let's look at the facts: China began reducing its holdings from their 2013 peak, and today has offloaded more than half, with its share of total U.S. debt dropping from a peak of 8%to around 1.6%. Has the U.S. debt market collapsed in these ten-plus years? No. Why? Returning to the river analogy we used earlier, the daily trading volume in the U.S. market is in the hundreds of billions of
35:59 dollars. Any single country's reduction over a decade is like scooping water from a great river; you can't even see the water level change. Furthermore, as mentioned before, the money from selling U.S. Treasuries has to go somewhere. Where does it go? The world still cannot find a second place that can hold that much capital. Therefore, what is actually happening in the real world isn't a dump, but a much slower and more noteworthy process: central banks around the world are increasing their gold reserves year by year. The share of the U.S. dollar in global foreign exchange reserves has slowly declined from over 70%twenty years ago to under 60%. Note this word: slow, but continuous. This is not a collapse; it is a slow erosion. Now, if we put these four possibilities together, we can clearly see the final picture: a direct default will not happen to the U.S.,
36:45 growth to digest debt is partially effective, and inflationary dilution is happening right now, every single day. In this process, U.S. Treasuries, as the safest asset and the largest reserve, are indeed being gradually eroded, and this process is moving forward slowly. So, to answer what will happen to U.S. Treasuries, the answer is that it most likely won't be the crash that many people are waiting to see. The most likely scenario is this: the proportion of interest in U.S. federal spending will rise year by year , squeezing expenditures on defense, education, and scientific research, while the purchasing power of the dollar is diluted annually. Creditors around the world will keep complaining while continuing to hold it, all the while slowly increasing their holdings of gold and other assets. The cost of U.S. debt will rise year after year, until one day, politics forces a choice that no one wants to make today—
37:31 raising taxes or cutting welfare— otherwise, the only option will be to accept higher inflation. It is a long process of attrition where everyone shares the costs. Who exactly is shouldering these costs? It is these groups. First, those who hold U.S. dollars share the loss in purchasing power; second, those who hold U.S. debt share the loss in the spread between interest and inflation; third, U.S. taxpayers share the increasingly heavy interest burden. Looking at the world's biggest debt game, the final way to pay the bill is not for one side to lose everything, but for every participant to have a thin slice cut off each year. With that, we have finished discussing the specific details regarding U.S. debt. There will certainly be a lot of news about U.S. debt in the future. So, how should we view this news to make
38:17 sense of it all? There is a simple filter called the "Three Things to Ignore." Please note that "ignore" here means not to pay special attention to. First, let's talk about the three things you don't need to pay special attention to. First, the total U.S. debt hitting a new high—no need to look. It’s a number that is forever rolling upward, and every month it sets a new historical record. If you really want to look at something, look at its ratio to GDP, or the ratio of interest to tax revenue. These ratios carry information, but absolute numbers do not. The second thing to ignore is news about debt ceiling negotiations or the U.S. about to default; no need to be nervous. As mentioned before, this play has been performed 80 times since the 1960s, and the outcome has always been the same. The third thing to ignore is a certain country dumping U.S. debt; no need to panic. Just check what percentage they hold relative to the total U.S. debt, and think about that
39:02 scene involving the central bank; you'll realize that under normal circumstances, it won't make much of a splash. So, what are the three things you really should focus on? First, watch the auctions, which is the issuance of U.S. Treasury bonds. If one day there is a clear lack of demand for U.S. Treasury bond issuances, requiring a sharp hike in interest rates to barely sell them off or even failing to sell them entirely, that is the real signal. Because this means the world's weekly vote of confidence has been cast . And that is the end of it. Second, we must look at the spread between long-term U.S. Treasury yields and inflation. If long-term Treasury rates remain significantly higher than what inflation and growth can justify, it means creditors are demanding a premium for their distrust, forcing the U.S. to pay higher costs. The third thing to look at is the ratio of U.S. Treasury interest payments to federal revenue.
39:48 This figure is released annually; whether it remains stable or accelerates tells us how close the water level of this Treasury river is to the danger zone. These three signals share one common trait: they aren't opinions, but prices and data, which cannot deceive. News headlines can be exaggerated, but auction results do not lie. So, that is the full story of U.S. Treasuries. Once you understand this, you grasp the underlying logic of modern national credit and will never again be swayed by headlines claiming a Treasury or national debt collapse. If this episode was helpful, please subscribe and share. If you'd like to support the channel, please join as a member for one to three exclusive episodes each month. See you next time.
