jakiro
Introduction: America’s dilemma amid global economic uncertainty
In 2025, the U.S. economy is at a critical turning point.The escalating trade war, geopolitical tensions and domestic fiscal pressures are intertwined, affecting not only the United States but also global supply chains and financial markets.According to the latest forecast of the International Monetary Fund (IMF), global economic growth will slow to 3.2% in 2025, with the contribution of the United States facing downward risks.The core problem is the exponential expansion of the U.S. national debt: as of November 2025, total public debt has exceeded $38 trillion, an increase of more than six times from about $6 trillion in 2000.This debt burden has evolved from a structural problem into a systemic crisis, with interest payments becoming the largest single expense in the federal budget, surpassing defense and health care spending.At the same time, the Trump administration’s tariff policies and immigration restrictions have exacerbated inflationary pressures, with the consumer confidence index falling to a low of 88.7 in November and retail sales growth slowing to 0.2%.This article will analyze the interactive mechanism of these factors based on the latest data, and explore possible policy paths in 2026 and their global impact.
The debt snowball effect and the fiscal sustainability crisis
The growth in the U.S. national debt is not a sudden event but the cumulative result of long-term fiscal imbalances.From the 2008 financial crisis to the 2020 epidemic relief, the federal deficit has expanded by approximately $20 trillion.In 2025, the debt/GDP ratio will be close to 130%, much higher than the peak after World War II.Congressional Budget Office (CBO) data shows that interest payments in fiscal year 2025 are expected to reach $1.05 trillion, accounting for more than 15% of federal spending, exceeding the defense budget of approximately $950 billion for the first time.This “interest trap” stems from the Fed’s interest rate hike cycle in 2022: the average debt interest rate has risen to 3.39%, making the existing debt burden even worse.
Debt dynamics can be explained by a simple model: assuming debt stock D, interest rate r, and primary deficit p (excluding interest), then the next period’s debt D_{t+1} = D_t (1 + r) + p_t.In 2025, r is about 3.39% and p_t exceeds $2 trillion, resulting in debt compounding at about 5% per year.Without reforms, interest payments may account for 6% of GDP by 2030, exceeding social security expenditures.On the
From a global perspective, this crisis is not isolated.Foreign creditors such as Japan and China hold about $8 trillion in U.S. Treasuries, and any default or debt restructuring (such as debt forgiveness) would trigger a bond market crash similar to the debt crisis that followed the Great Depression in 1929.Critics believe that the Trump administration’s debt ceiling increase to $43 trillion is merely a “kick the can” strategy that alleviates default risks in the short term but exacerbates long-term distrust.Market data shows that the 10-year Treasury bond yield has risen to 4.09%, reflecting investors’ concerns about fiscal sustainability.
Inflation transmission caused by trade wars and tariffs
Trump’s second-term trade policies were the catalyst for the debt crisis.Since April 2025, tariffs on China, the EU and Mexico have been raised to an average of 25% in an attempt to revive the manufacturing industry, but the actual effect is counterproductive.The Producer Price Index (PPI) showed that the annual wholesale inflation rate rose to 2.7% in September 2025, and the core PPI was 2.6%, mainly driven by energy and imported commodity prices.The Consumer Price Index (CPI) rose to 3.0% over the same period, 50% higher than April’s 2.0%, partly due to tariff transmission: each household spent an average of US$1,300 more.
The economic mechanism of tariffs is similar to a supply-side shock: rising import costs push up producer prices, which are ultimately passed on to consumers.The CBO model estimates that a general tariff of 10-20% will reduce GDP growth by 0.23% in 2025 and 0.62% in 2026.X user @TicTocTick warned that inflation will be significantly higher than expected by autumn 2025, with gold prices rising while other assets are under pressure.In addition, immigration restrictions reduce labor supply by 1%, further pushing up wages and prices, forming a “wage-price spiral.”
International commentary shows that this policy exacerbates global fragmentation.As China’s largest trading partner, its retaliatory tariffs have caused a 15% drop in U.S. agricultural exports, and the cost of reshoring manufacturing has reached hundreds of millions of dollars per factory.European Central Bank President Christine Lagarde warned that the trade war could increase euro zone inflation by 0.5% and drag down global growth by 0.8%.Although AI investment has cushioned some of the impact in the short term, in the long term, supply chain restructuring will amplify uncertainty.
Fed Policy Shift and Liquidity Injection
In response to debt and inflationary pressures, the Federal Reserve has shown signs of easing.In October 2025, the Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate to 3.75%-4.00%, and the interest rate on reserve balances to 3.90%.More importantly, quantitative tightening (QT) will end on December 1, and the Fed will stop reducing its asset size by US$95 billion every month and instead maintain the balance sheet at US$6.85 trillion.This shift is equivalent to injecting approximately US$2.5 trillion in liquidity into the market, similar to the scale of QE during the 2020 epidemic.
The background of the end of QT is the adequacy of bank reserves: the use of reverse repurchase facilities (ON RRP) fell to the lowest since 2021, and the pressure on the short-term financing market increased.Fed Chairman Powell acknowledged in the minutes of the October meeting that QT had achieved its goals, but further tightening could disrupt markets.In the discussion on the
Personnel changes further strengthened easing expectations.Trump has appointed Stephen Miran as a Fed governor and plans to nominate Kevin Hassett as Fed chairman in early 2026.As a representative of the “doves”, Hassett has publicly supported significant interest rate cuts to stimulate growth.Bond investors worry that the move will weaken the Fed’s independence, causing short-term interest rates to fall below 1%, but long-term yields may rise to 5% due to inflation expectations.Treasury Secretary Scott Bessent coordinated the issuance of short-term government bonds in order to lower financing costs, but this increased refinancing risks: short-term bonds require frequent rollovers when they mature, and if confidence collapses, it will trigger a monetization crisis.
Consumer and asset markets: divergence amid low confidence
The twin squeezes of inflation and debt have eroded consumer confidence.In November 2025, the Conference Board consumer confidence index plummeted 6.8 points to 88.7, the lowest in seven months, and the expectations index fell to 63.2, below the recession threshold of 80.Retail sales increased by only 0.2% in September, and actually fell by 0.1% after adjusting for inflation. Sales of clothing and electronic products fell by 0.7% and 0.5% respectively.X user @SeeingEyeBat emphasized that the student loan crisis is similar to the subprime mortgage crisis in 2008 and will amplify weak consumption.
The asset market is divided.Money market fund assets reached a new high of 8 trillion U.S. dollars, with a yield of 3.5% to attract safe haven funds. However, an interest rate cut in 2026 will trigger capital outflows and push up the stock market and cryptocurrency.@Nicosso_ analysis shows that immigration restrictions and tariffs will shrink GDP by 4-6%, but AI investment may provide a buffer.Gold and industrial metals benefit from an inflation hedge, while real estate faces pressure from higher house prices and interest rates.
Rising wealth inequality: The United States already ranks among the top ten in the world, and tariffs and asset bubbles will further hollow out the middle class.The CBO predicts that by 2030, real incomes for low-income groups will decline by 2%, while high-income earners benefit from tax breaks.
Outlook 2026 and Assessment of Policy Options
Looking forward to 2026, the U.S. economy faces “three difficulties”: debt, inflation and growth.Consensus forecasts GDP growth of 1.4%, but tariffs will push inflation above 3.5%.If the Federal Reserve cuts interest rates significantly, it will stimulate growth in the short term, but it may trigger a new round of asset bubbles and a 10% devaluation of the US dollar.In the discussion on
Policy options are limited: Debt forgiveness is not feasible and will destroy the bond market; whimsical solutions such as platinum coins are even less realistic.The only path is gradual easing: under Hassett, the Fed may raise its inflation target to 3% and allow for a “new normal.”Global impacts include capital outflows from emerging markets and supply chain reshaping, with China and the EU likely to accelerate de-dollarization.
Conclusion: The difficult road to sustainable growth
The U.S. economy is in a debt-inflation vicious cycle, and the data for 2025 has sounded the alarm.Treasury Secretary Bessent’s short-term bond strategy and the Fed’s QT end provide respite, but the root cause requires structural reforms: cutting non-essential spending, optimizing taxation and restarting immigration to expand the labor force.International cooperation, such as debt restructuring under the G20 framework, is also indispensable.Investors should focus on short-term Treasuries and inflation-hedge assets, while policymakers must balance short-term stimulus with long-term stability.Otherwise, as X user @TheEUInvestor said, 2026 may become a “volatility frenzy”.Only by moving forward prudently can we avoid the fate of “debt slaves” and achieve sustainable prosperity.
