Investors are curious about how Donald Trump might deal with America’s growing debt, especially since he has said he won’t cut popular health and retirement benefits. Some of Trump’s advisers have suggested unusual ideas, like swapping U.S. Treasury bonds with other countries for cheaper loans, or offering residency cards to rich foreigners for $5 million each.
The U.S. debt is now $36 trillion, more than 120% of what the country makes in a year (GDP). It’s rising quickly because the government is spending more than it collects in taxes. Last year, the U.S. budget deficit hit over 6% of GDP, and Treasury Secretary Scott Bessent wants to cut that in half.
Trump’s administration is trying hard to reduce federal spending through a new initiative called Elon Musk’s Department of Government Efficiency (DOGE). They’re also planning to collect more money by placing high tariffs on imports from countries like China and Canada. However, many investors and economists believe that these efforts may not be enough to significantly improve the budget situation. They worry that a forced swap of bonds could hurt the U.S.’s reputation for creditworthiness, which might increase interest rates on loans.
Larry Summers, a former Treasury Secretary, mentioned that there is limited potential for making major changes to long-term interest rates through financial tricks. A White House official noted that creative solutions are necessary and blamed previous Democratic leaders for the deficit and inflation problems.
After Trump’s election, investors worried that his tax cuts and tariffs would worsen the deficit, leading to inflation. But since mid-January, just before Trump took office again, the interest rates on 10-year Treasury bonds have dropped to around 4.2%. Investors also feel more confident about the future size of the debt.
Some experts believe falling interest rates are a result of economic uncertainty caused by Trump’s policies, leading to lower consumer and business confidence. The S&P 500 stock index has dropped over 4% since Trump’s return to the White House, compared to a smaller decline in global stocks.
The Trump administration must convince investors that its plans to control debt are effective. If investors lose faith, they may sell bonds, causing interest rates to rise, which could make it harder to implement policies.
In a paper, economist Stephen Miran suggested that Trump could convince foreign governments to exchange their Treasury bonds for cheaper long-term bonds, leveraging tariffs and U.S. military support. This idea, called the “Mar-a-Lago Accord,” could save about $100 billion in interest costs yearly. However, this would only represent a small piece of the total debt burden, which is expected to reach $52 trillion by 2035.
Another plan that Trump proposed is selling U.S. residency to wealthy foreigners, claiming it could raise trillions of dollars to help pay off debt. But some experts doubt this could attract many investors because it would also subject their global income to U.S. taxes.
There is also speculation that the administration may try to use gold reserves held in Fort Knox to help with debt issues. Although the gold is worth around $758 billion, it is recorded at just $11 billion on the Federal Reserve’s balance sheet due to past laws.
Bessent mentioned monetizing the U.S. balance sheet but has clarified he’s not considering a gold revaluation. Ed Mills, an analyst, noted that Trump’s background as a real estate developer might influence how he restructures the country’s debt. Trump has a history of overcoming his debts through negotiations.
In summary, with Trump as president, investors and officials need to expect the unexpected.
