Investors Scrutinize Trump’s Unconventional Strategies to Tackle U.S. Debt Crisis

NEW YORK (Reuters) – Investors are currently evaluating whether Donald Trump might adopt unconventional strategies to manage the escalating U.S. debt, following his assertion that he will not reduce popular health and retirement benefits. Some of Trump’s advisors have proposed unorthodox solutions in recent months, such as compelling foreign governments to exchange Treasuries for cheaper bonds to lower interest payments and selling residency cards to wealthy foreigners for $5 million each.

U.S. Debt: A Growing Concern

With numerous officials and economists warning that U.S. debt is on an unsustainable trajectory, investors in U.S. bonds, currency, and equities markets are increasingly attentive to these unconventional ideas. Currently, U.S. debt stands at a staggering $36 trillion, exceeding 120% of the annual economic output (GDP), and continues to rise as government spending outpaces tax revenue. Last year, the U.S. budget deficit reached over 6% of GDP, although Treasury Secretary Scott Bessent has expressed intentions to reduce that figure significantly.

Government Spending and Revenue Strategies

Trump’s administration has initiated aggressive measures to cut federal spending through Elon Musk’s Department of Government Efficiency (DOGE). Additionally, plans have been announced to generate extra revenue by imposing hefty tariffs on imports from trade partners, including China, Mexico, and Canada. However, more than half a dozen investors and economists have conveyed to Reuters that the effectiveness of these efforts to close the deficit remains uncertain. They also noted that none of the unconventional ideas would sufficiently impact the fiscal situation.

Risks of Unconventional Debt Strategies

In fact, a forced debt swap with foreign governments could jeopardize U.S. creditworthiness and disrupt the global financial system, potentially undermining Bessent’s goal of significantly lowering the yield on benchmark 10-year U.S. Treasuries, which serves as a foundation for borrowing costs throughout the economy. Larry Summers, an economist and former Treasury Secretary under President Bill Clinton, remarked, “The prospect for manipulating a long-term yield through some kind of financial or political engineering operation is very limited.”

White House Perspective on Fiscal Policies

An official from the White House’s National Economic Council, the primary group of economic advisors to the president, stated that “out-of-the-box thinking is exactly what is required,” attributing the previous Democratic administration for exacerbating deficits and inflation. The official emphasized that Trump has acted swiftly to “restore fiscal sanity.” They pointed to a recent decline in long-term U.S. interest rates as a sign of market confidence in Trump’s policies, along with a decrease in the term premium, which indicates what investors charge for holding debt over extended periods.

Recovery in U.S. Bond Prices

Following Trump’s election in November, investors initially sold off government bonds due to concerns that his policies, including tax cuts and tariffs, would worsen the U.S. deficit and lead the economy toward inflation. However, since mid-January, just days before Trump’s inauguration, benchmark 10-year Treasury yields have plummeted. The 10-year yield, which moves inversely to price, has fallen to approximately 4.2%. This shift in the term premium reflects changing investor sentiment regarding the sustainability of U.S. debt management strategies.

As the situation evolves, the focus remains on how Trump’s unconventional approaches will influence the broader economic landscape and investor confidence. For more insights, visit the original article.