Rising US Debt Drives Surge in Gold and Diversified Reserve Assets

Global investors are reassessing debt, interest rates, and geopolitical exposure by turning renewed attention toward gold and diversified reserve assets, according to recent market assessments.

US National Debt and Macroeconomic Pressures

Both domestic prosperity and global financial stability face risks from a mounting fiscal trap driven by U.S. borrowing. Gross national debt surpassed $39 trillion in early 2026, and debt held by the public reached 100% of GDP for the first time since World War II. This fiscal trajectory has shifted from a distant concern into an immediate risk factor across global markets.

Escalating warnings have been issued by the International Monetary Fund (IMF), all three major credit rating agencies, and Federal Reserve Chair Jerome Powell, yet Washington continues to legislate in the opposite direction. Federal debt held by the public stood at just 34.5% of GDP in the year 2000, buoyed by Clinton-era surpluses. Subsequent deficit-expanding decisions across multiple administrations contributed to the mounting debt pile, including the Bush tax cuts of 2001 and 2003, post-9/11 wars, the 2008 financial crisis relief, and $5.3 trillion in pandemic relief enacted through six bipartisan bills.

Legislative Drivers and Structural Spending

The 2017 Tax Cuts and Jobs Act layered on additional conventional costs, which were made largely permanent by the One Big Beautiful Bill Act signed on July 4, 2025. The Congressional Budget Office (CBO) scores that legislation at $4.7 trillion in additional deficits over the 2026 through 2035 period on a dynamic basis. Furthermore, the fiscal deficit for the 2026 budget year is projected at $1.9 trillion, representing roughly 6% of GDP. This level has never before been sustained outside of major wars and recessions.

Underneath these legislative events, structural spending growth quietly drives long-term deficits. Fueled by an aging population and increasing medical expenses, outlays for Social Security, Medicare, and Medicaid have climbed from 4.3% of GDP in 1971 to about 11% today. The CBO projects that these major entitlement programs plus interest payments will consume 14.2% of GDP by 2055. Revenue, meanwhile, has averaged just 17% of GDP, creating a structural gap that tariffs, efficiency drives, and growth spurts have failed to close.

The Crowding Out Effect on Private Investment

The economic consequences of this borrowing extend far beyond the government balance sheet. Heavy government borrowing absorbs savings that would otherwise finance private investment, elevating interest rates and dampening capital formation—a macroeconomic principle formalized by Milton Friedman during the 1970s known as the crowding out effect. Compared to less than 40% a decade ago, Treasuries currently represent roughly 60% of the nation’s $47 trillion fixed-income market.

Apollo chief economist Torsten Sløk has warned that this dominance is actively displacing corporate and consumer borrowing. Additionally, Infrastructure Capital Advisors projects that the crowding effect diminishes U.S. GDP by roughly $300 billion annually—constituting just over 1% of total output—calculated from the nearly $2 trillion deficit alongside the opportunity cost of foregone private investment. As the government’s demand for debt increases while the supply of savings remains relatively fixed, equilibrium interest rates rise, leaving fewer private investment projects able to clear higher hurdle rates.