The US debt: the risks of uncertainty

Not so long ago, the United States, the world's leading power, was perceived as a reliable economy, with stability and legal certainty. With Donald Trump in the White House, this image has changed, based on the comings and goings of tariff policy and the conflicts he has generated—such as the war with Iran. This is indicated by the interest rates on 10-year US Treasury debt, which have soared above 5.3%, well above the 5% threshold considered dangerous for an economy with a debt exceeding 40 trillion dollars.

With a greater perception of risk, investors demand higher returns to buy an asset that the state needs to finance itself, especially with the high existing expenditure due to the war. And also with the revenue cuts from tax breaks for high incomes and the promise to pay 5,000 dollars to every adult citizen in the country if the Republicans win the midterm elections on November 3rd. It does not seem like a large amount per individual, but in aggregate terms, it is around one trillion dollars charged to the public budget. And any tenth of a percentage point increase means much more cost for the administration given the gigantic volume of liabilities it carries (more than 40 trillion dollars). Federal debt has increased by five trillion dollars since Trump took office at the headquarters he occupies on Pennsylvania Avenue, in Washington.

These levels at which the North American country's bond has been placed exceed the peak it reached in 2007, which was the year prior to the collapse of the real estate bubble. And it is the highest interest rate since 2002. This interest serves the US to set the cost of mortgages and credit for families and businesses, in addition to being the global benchmark for financial assets.

United States bonds had always been seen as a safe haven, as is, for example, gold, especially in times of crisis. But there are many factors that trigger uncertainty, the variable that most unsettles the world of money, and penalize these assets given the trade wars and the one in Iran and its impact on energy prices. Many citizens of the world's leading power are wondering why their government got involved together with Israel in a war that has sent the price of gasoline soaring. And in the markets, all of this is causing Trump's image to have fallen to the lowest levels of this term, with only a few weeks left until the midterm elections.

Another element that has increased the perception of risk is the erratic trade policies of the White House, with its open war with old partners and neighbors. This has been an element that has also increased the cost of living for citizens, both in what they buy and in their mortgages. And the inflationary effect of the war also caused the Federal Reserve to raise interest rates last month for the first time since 2023. All of this generates an impact related to the consequences of creating uncertainty almost daily.