Geopolitics Review - 2nd June 2025

The Donald Diaries: Trump and Debt

Dylan Muggleton

Jun 02, 2025

Contents

Introduction
Bills and Bonds
Concluding Remarks
Other News In Geopolitics This Week

Bitesize Edition

Last week, I started to explore whether Trump’s current master plan, as it is being presented to the world, is actually working or not. The Mar-A-Lago Accord, pursuing a cheaper dollar, Trump’s tariff policy, and pushing for the reshoring of U.S. manufacturing are huge parts of this story.
However, the biggest issue that we have to address in the long term is the forever-rising U.S. debt. In recent weeks, we have seen some developments emerge on this front. So, what are these developments, and how have they led to sharply rising long-term yields in the bond market?
Also, we can assess the near-term impacts, but in the longer term, the U.S. bond market is issuing warning signs. What potential narratives will unfold over the next few decades?

Introduction

Some issues have emerged in the last few weeks, especially in the bond market. At the same time, Trump’s new spending and stablecoin bills have passed through the U.S. political system. What effects has his spending bill had on the issue of the rising national debt? Why have long-term bond yields skyrocketed to the highest level in almost two decades, and can Trump do anything to counter this issue? Let’s dive in.

Bills and Bonds

I’ll start with Trump’s Big, Beautiful Bill. For lower-income citizens, the bill will likely be seen as less beautiful, despite Trump’s talk that it’s these voters that he wants to help the most. For any U.S. citizen who earns above $51,000 a year, they will earn more after tax income as a result of this bill. However, anybody earning less than $51,000 a year will earn less after tax income. The biggest gains in after-tax income via reduced taxes are seen for millionaires. For lower-income citizens, the bill also makes it more difficult to qualify for tax credits and slashes billions from support programs that benefit these citizens. In short, Trump has said one thing and pursued another.

Trump has also been set on reducing deficits in the United States. This needs doing because no action has been taken to address rising debts. If interest rates remain elevated or begin to rise, then interest payments on this debt will increase. What would be needed here to help would be a reduction of these deficits and a reduction of debt spending. According to reports in the last week, Trump’s Big Beautiful Bill will actually increase the deficit by trillions over the next decade, and ensure that deficits remain at between 6% and 7% of gross domestic product. So like countless before him, Trump is doing little, if anything at all, to help address the deficit and rising U.S. national debt.

The effects of this have started to become visible in long-term bond yields, which have been sharply rising. The 30-year yield rose to 5.1%, its highest level since 2007. Remember, bond prices and bond yields are inversely correlated, so when bonds are sold and bond prices fall, yields rise at the same time. There are so many geopolitical threads related to the bond market. After the United States confiscated Russian FX reserves, other nations started offloading their treasury holdings. We’ve also seen bond yields rise further as investors worry that interest rates will rise once again, as Trump’s tariff policy will see inflationary pressures return. But, the biggest question to address here is why this is happening more at the longer end of the yield curve?

asphalt road surrounded by trees — Photo by CALIN STAN on Unsplash

Before answering this question, take note of Scott Bessent’s recent speeches. In the last few weeks, he has shown confidence that many trade deals will be signed between the United States and countries around the world. However, as I’ve eluded to in the last few weeks, Trump doesn’t hold all the cards here. The world needs the United States, but the United States, and specifically its bond market, also needs the rest of the world. If nations around the world offload their U.S. debt held in the form of treasuries and don’t sign trade deals, somebody else will have to buy this debt, which is growing in its riskiness, as indicated by the credit downgrades, most recently seen by Moody’s. If nobody wants to buy U.S. debt, that would fall on the United States itself, which would have to buy its own debt. A risk of this is seen in U.S. Treasury market auctions at the long end, which have been incredibly weak as of late.

If interest rates rise to tackle inflation, and nations don’t formulate trade deals, or continue to ditch the dollar, huge crises could unfold. This is where the United States has to make interest payments on its debt, but these payments are higher than the money made via income. As a result, especially in an inflationary environment where rates could increase, these interest payments rise and rise until the United States can’t repay its debt when it reaches maturity. With interest rates elevated and inflationary pressures returning due to tariff policy, the Federal Reserve could once again raise rates to address rising inflation, since higher interest rates mean less economic growth and hence less spending.

It’s events such as this that lead to devaluations of debt or restructurings of debt. In the worst-case scenarios, it leads to a complete redrawing of the global financial system. It has contributed to the collapse of empires, a loss of the global reserve currency, and has seen currency systems fluctuate between hard-backed and floating for centuries. In summary, this is huge. Trump pursues rapid-fire policy decisions in an effort to create noise and confusion. Could that same confusion lead to a massive failure within the U.S. debt markets?

a blue question mark on a pink background — Photo by Towfiqu barbhuiya on Unsplash

This is why the long end of the bond curve is seeing a sharper rise in yields versus the short end. The U.S. debt situation isn’t going to envelop itself tomorrow. But in 30 years? Who knows. With this rising uncertainty, bondholders are selling the long end, which is increasing yields, because any bondholder wants to receive a greater financial reward for holding U.S. debt, which is now seen as more risky than Greek debt. Remember that the Greeks famously had a collapse of their debt markets as a consequence of the Global Financial Crisis? They relied too heavily on debt to balance their books, and when the recession struck and economic growth declined, it made it more difficult to raise money for debt payments. Credit agencies downgraded Greek government debt to “junk” status, which led to more selling of bonds and higher yields, again because holders wanted more financial reward for the higher uncertainty. For years after this, IMF borrowing and austerity affected Greek society, with unemployment skyrocketing. Because they were part of the Euro, they couldn’t print more money, nor could they change interest rates. This is something the United States can do, but more printing of money? That increases inflationary pressures, which raises interest rates. Lo and behold, the cycle repeats, and a crisis emerges again.

Could the saviour be the Stablecoin Bill, the GENIUS Act? Crypto czar David Sachs has stated that this bill could boost demand for treasuries by unlocking over $200B in stablecoins. Deutsche Bank has reaffirmed this, stating that stablecoin transactions hit $28T last year, and that this will ensure the reign of the dollar as global reserve currency continues for years to come. Regulation here could provide confidence in stablecoins as a key part of a future digital payments system surrounding the dollar. Despite Trump benefiting here via his blockchain project and his personal holdings, the bill has passed, ushering in a new period of stablecoin use.

The overruling narrative here is the debt and rising inflationary pressures. Interest rates remain elevated, but Trump wants them cut. Powell has one year left as chair of the Federal Reserve, and he is focused on tackling inflation. If, after this, inflation has risen and Powell has raised interest rates to fight inflation but hasn’t beaten inflation, a Trump yes-man could be given the job. Inflation could remain elevated and eat away at U.S. debt, but for the everyday U.S. citizen, this would crush their cost of living. Especially with Trump’s spending bill hitting those from lower-income backgrounds, there are major economic risks looming here. Time will tell how all of these strategies come together, including DOGE, which sought to cut federal spending but has seen very little impact. This was likely very much against Trump’s plan, as he would have hoped savings would fund the spending bill. Elon Musk has now seemingly given up on the pursuit of DOGE to return to his day job.

Photo by Alexander Shatov on Unsplash

There have also been some blips where Trump has diverted from Miran’s original plan. Miran, surprisingly, didn’t plan 245% tariffs on China, essentially strangling the world’s most important trade relationship overnight. Trump initially was expected to pursue proper game theory, but he instead slipped into chaos theory. The initial tariff raised the stakes. They were a threat aiming to bring the United States a better deal. But the Chinese said they would “fight until the end”. They refused to move towards a new Nash Equilibrium, which is a term used to describe the optimal strategy for all players. The Chinese didn’t shift mainly because they are already positioned in an optimal position with their market share over key industries in global trade. Of course, with their deflationary issues, there could be room for negotiation in trade talks, but there is also much more room for the economic battles to continue. We will see if the current trade talks end up going anywhere.

As of today, if this current narrative of debt, interest rates, and inflation develops even further, Trump could have a job on his hands.

Concluding Remarks

Importantly, this isn’t a one-way street. The United States and Trump hold many cards, but other nations aren’t powerless. Japan has threatened a rapid ditching of its treasury holdings, and China vowed to “fight until the end” with tariffs, which they ultimately did as Trump was forced to back down.

Current foreign policy is volatile, and keeping up with it all is difficult, but this multi-faceted rise of a new global financial system will continue to unfold in all of Trump’s policies. Look at his spending bills and his hope to bring stablecoins into the U.S. financial system. We’re living through periods of huge change, and keeping up with it is important. If such a system involving financial and trade shifts works, the United States is set to experience a large number of wins. However, the key tradeoff here is reduced financial power projection. The potential lack of success of Trump’s negotiations could also see the role of the United States on a global scale be reduced. Albeit not completely, because the dollar is still the global reserve currency, but this trend is slowly unfolding. The debt issue remains the biggest talking point in the long term. Will Trump’s pursuits speed this up? Also, in the realm of power, when a vacuum emerges, does somebody always step into it? Lots to consider.

silver and black round coin — Photo by Ewan Kennedy on Unsplash

I’m reaching the end of this series on Donald Trump. Over the coming weeks, I’ll discuss changes to American society and a potential Iran deal. I’ll also cover the Indo-Pacific and the role the region will play in the future of our world. Many nations wouldn’t enjoy existing under such a United States security and trade umbrella. The biggest such nation is China. How will they fare in such a world, and because they can make moves of their own, what would they do to potentially counter it? I’ll discuss this over the next few weeks.

Other News In Geopolitics This Week:

Africa

Asia

Europe

Middle East

North America

South America

Essequibo War At Risk of Escalating

Other

Thanks for reading! I’d greatly appreciate it if you were to like or share this post with others! If you want more, then subscribe on Substack for these posts directly to your email inbox. I research history, geopolitics, and financial markets to understand the world and the people around us. If any of my work helps you be more prepared and ease your mind, that’s great. If you like what you read, please share this with others.

Thanks for reading Geopolitics Explained! This post is public, so feel free to share it.

Key Links

Geopolitics Database

The Geopolitics Explained Podcast

If you want to see daily updates and discover other newsletters that suit you, download the Substack App.

Available for iOS and Android

You can become a paid subscriber to support my work. There are paid posts every Thursday and long-form monthly articles in my global questions series exclusively for paid subscribers. The Geopolitics Database is also accessible. Read Geopolitics Explained for 20p per day or start a free trial below to find out if my work is for you! I appreciate your support!

Geopolitics Explained

Geopolitics Review - 2nd June 2025

The Donald Diaries: Trump and Debt

Discussion about this post