The $9 trillion wall by 2026
Meanwhile, there’s a chart that should scare every investor, policymaker, and citizen in the world. It reveals the single biggest threat to the global financial system — a threat so massive and so immediate that it makes the 2008 crisis look like a minor blip. This is the “wall of maturities” of the US Treasury debt and it is a fiscal time bomb set to explode in 2026 and if it is not paid off with some of the tariff revenue – as Trump claims – … get ready for unprecedented turmoil. This is over $9 trillion of US government debt maturing in 2026…. Not 2030. Not 2040. But 2026! And every dollar of this debt, issued in a near-zero interest rate environment, now has to be refinanced in a 3.5–4% interest rate environment. This is not a long-term fiscal challenge. It is a sudden, structural crisis that will hit the global financial system with the force of an iron bar used to demolish buildings. This year will see the world’s largest economy reach a controversial milestone: paying $1 trillion in interest on the U.S.’s runaway national debt. The independent Committee for a Responsible Federal Budget has described it as the “new normal,” as the national debt approaches $39 trillion (up from about $38.5 trillion at the end of 2025).
The Power of Asian Investors
As Donald Trump’s White House ramps up debt issuance to cover this ballooning deficit, it will inevitably turn to Asia. The region is home to some of the largest holders of U.S. government bonds. The two largest are Japan (nearly $1.2 trillion) and China ($689 billion). The question, though, is why officials in Tokyo and Beijing, with their brakes on, would be so reckless as to increase their exposure to the U.S. economy at such a precarious time. Tradition is one reason. As major trading economies, Japan and China need substantial dollar reserves. But given Washington’s fiscal path, there are reasons to believe that Japanese Prime Minister Sanae Takaichi and Chinese leader Xi Jinping will be hesitant to continue accumulating US bonds.Unpredictable Turbulence and Leverage on Trump
Signs in this direction could cause unpredictable turbulence in global markets. Asia’s dollar reserves are often discussed in conspiratorial terms. When Takeshi Yamaguchi, chief Japan economist at Morgan Stanley MUFG, wonders whether Japan could “use U.S. bonds as a bargaining chip,” it’s hard not to recall former Finance Minister Katsunobu Kato, who said last May that “everything that can be a bargaining chip should be on the table” regarding Japan’s U.S. holdings. Such rhetoric harks back to 1997, when then-Japanese Prime Minister Ryutaro Hashimoto told an audience in New York that “several times in the past we have been tempted to sell large amounts of U.S. bonds” to send a message. One such episode coincided with the heated auto industry negotiations a few years earlier. So far, Takaichi has been remarkably accommodating to Trump, avoiding challenging the unpredictable American leader. But Trump’s desire for a weaker dollar could clash with his “Sanaenomics” strategy to revive wage growth in Japan. That requires a weaker yen and the Bank of Japan to maintain its ultra-low interest rate regime. Those conditions would be impossible if Trump aggressively pursued a weaker dollar. Still, there are good reasons for Washington’s top bankers in Asia to be concerned about its fiscal path. The U.S. public debt is expected to reach 100% of GDP by the end of fiscal year 2025. As that milestone approaches, interest on the debt is rising rapidly. Just five years ago, in 2020, net interest payments were $345 billion. By 2025, it will be $970 billion — nearly three times that amount. The official Congressional Budget Office (CBO) notes that net interest payments on the national debt have topped $1 trillion for the first time. The Committee for a Responsible Federal Budget projects that interest payments will top $1.5 trillion in 2032 and $1.8 trillion in 2035. Trump’s fiscal plans so far have been heavily tax-cut oriented.
The Worsening Fiscal Position
The One Big Beautiful Bill Act, passed by the Republican Party in 2025, made previous tax cuts permanent without matching spending cuts. That leads the CBO to estimate that interest payments could reach $1.5 trillion in 2030, surpass $2 trillion in 2034, and close out the decade at $2.2 trillion in 2035. One problem is that Trump 2.0’s efforts to reduce government spending have been more rhetoric than substance. The Department of Government Efficiency (DOGE), which Trump put in charge of Tesla billionaire Elon Musk, has saved taxpayers little money. Trump’s tariffs, meanwhile, have probably done more damage to GDP than they revenue they generated. There is a strong possibility that the Supreme Court will rule them unconstitutional, as the U.S. Constitution states that only Congress has the power to impose import taxes. It must reduce the deficit from about 7.5% of GDP to 3%, and that can be done. The real problem is political, not economic. Although the dollar closed 2025 unchanged against the yen, it lost 13.5% against the euro — its biggest drop since 2017. A major concern is that Trump is intensifying his attacks on the Federal Reserve, even threatening to fire Fed Chairman Jerome Powell.
Trump’s Attack on the Federal Reserve
All of this creates an opportunity for Xi to accelerate the internationalization of the yuan. In a sense, even in his wildest dreams, he could hardly imagine a better “opponent” than Trump. Since 2013, Xi has made it a top priority to strengthen the yuan’s international role in trade and finance. The transition will not be easy, not least because of Xi’s reluctance to make the yuan fully convertible. China needs to build more internationalized capital markets, strengthen the rule of law, and make the central bank independent. However, given the chaotic landscape that Washington has been projecting under Trump, 2026 may offer Xi a unique window of opportunity to effectively undermine the dollar’s dominance. The coming year may be remembered as a turning point in the yuan-dollar debate, as interest payments on US debt skyrocket higher and higher.Please follow and like us:
