WASHINGTON — The United States is confronting an unprecedented fiscal milestone as interest payments on its national debt surge past the $1 trillion threshold in 2026, creating global economic ramifications that particularly affect major Asian holders of US Treasuries.
According to the nonpartisan Committee for a Responsible Federal Budget, this staggering interest payment level has become the ‘new norm’ as America’s national debt approaches $39 trillion. The situation represents a dramatic escalation from just five years prior, when net interest payments stood at $345 billion in fiscal year 2020, reaching $970 billion by 2025.
The Congressional Budget Office projects these payments could exceed $1.5 trillion by 2030 and surpass $2.2 trillion by 2035, creating what hedge fund manager Ray Dalio characterizes as a potential ‘debt death spiral’ with grave implications for global financial stability.
This fiscal reality places particular pressure on Japan and China, Washington’s largest foreign creditors holding $1.2 trillion and $689 billion in US Treasuries respectively. The Trump administration’s increased debt issuance to cover growing deficits means Washington will increasingly look to Asian markets to absorb Treasury offerings.
However, economic analysts question why Tokyo and Beijing would increase exposure to US debt amid such uncertainty. While both nations require substantial dollar reserves as major trading economies, Washington’s current fiscal trajectory and political volatility create significant disincentives.
The situation creates complex policy dilemmas for Japanese Prime Minister Sanae Takaichi, whose ‘Sanaenomics’ strategy depends on a weaker yen maintained through the Bank of Japan’s ultra-low interest rates. This approach could clash with President Trump’s apparent desire for a weaker dollar, creating potential currency policy conflicts.
Meanwhile, China’s Xi Jinping sees an opportunity to accelerate yuan internationalization efforts. According to Cornell University’s Eswar Prasad, while China has nominally opened its markets, it must still build stronger international capital markets frameworks and establish central bank independence to build investor trust.
Financial institutions are adjusting their outlooks accordingly. Deutsche Bank projects the trade-weighted dollar will decline by approximately 10% through 2026, potentially ending what analysts describe as an ‘unusually long dollar bull cycle.’ Goldman Sachs strategists additionally warn that concerns about Federal Reserve independence under Trump’s pressure campaigns could create additional market volatility.
The coming year may represent a significant inflection point in global currency dynamics as US debt concerns intensify and Asian creditors reconsider their strategic positions in Treasury markets.