The Debt That Built the Empire: How the U.S. Treasury Market Became the Heart of Global Finance

Chapter 1: The Birth of a Debt Superpower

It didn’t begin with Wall Street. It began with war.

In 1776, the United States declared its independence. But freedom isn’t free, and neither was revolution. The Continental Congress, lacking the power to tax, financed the Revolutionary War with borrowed money and by printing the Continental dollar—which, by the war's end, was nearly worthless. Out of the ashes of that financial chaos emerged a critical insight: credit, managed well, could build nations. Mismanaged and it can destroy a nation.

Alexander Hamilton, the first U.S. Treasury Secretary, understood this better than anyone. In 1790, he proposed consolidating the fledgling nation's war debts and issuing federal bonds. It was a radical move. But it worked. By assuming state debts, the federal government built credibility. The U.S. Treasury market was born, not as a byproduct of commerce, but as a mechanism to consolidate power and build trust. I was in New York a few months ago and paid homage to Hamilton and the first bond auction.

Chapter 2: From Domestic Tool to Global Anchor

Through the 19th century, the Treasury market remained a tool for domestic development. Wars, canals, railroads—debt funded them all. The Civil War, in particular, led to a massive issuance of government bonds. But it wasn’t until the 20th century, with two world wars and a rising industrial economy, that U.S. Treasuries became the linchpin of global finance.

World War I introduced Liberty Bonds, mass-marketed to U.S. citizens as patriotic investments. But World War II turned debt issuance into a matter of national survival. By 1945, U.S. federal debt stood at over 100% of GDP. And yet, America emerged from the war as the world’s preeminent creditor.

With the 1944 Bretton Woods Agreement, the U.S. dollar was pegged to gold, and other global currencies were pegged to the dollar. U.S. Treasuries, backed by the most powerful economy in the world, became the ultimate risk-free asset. Central banks began hoarding them. Sovereign wealth funds followed. The U.S. Treasury market had gone global.

Chapter 3: The Treasury Market Today—The World’s Safe Haven

Fast-forward to the 21st century. The U.S. Treasury market is now the largest and most liquid debt market in the world, worth about $29 trillion. It functions as the benchmark for virtually every other asset class. Need to price corporate bonds? Compare their yields to Treasuries. Want to hedge interest rate risk? Use Treasury futures. Need a safe place to park billions? Buy Treasuries. At least that has been the mindset for many decades.

Why Treasuries? Because the U.S. government, despite its deficits and political dysfunction, has never defaulted on its debt. The full faith and credit of the United States remains the gold standard—a phrase more symbolic than literal since 1971, when Nixon closed the gold window.

But this faith has limits.

Chapter 4: The Debt Spiral

The U.S. has run a budget deficit for most of the past fifty years. But the game changed after 2008. In response to the global financial crisis, the Federal Reserve began large-scale asset purchases—"quantitative easing"—to stabilize markets. That meant buying Treasuries.

Then came 2020. The COVID-19 pandemic triggered an unprecedented fiscal and monetary response. Trillions in stimulus flooded the economy. The Fed's balance sheet exploded. U.S. debt-to-GDP soared past 120% and remains there today.

At first, the world barely flinched. With deflationary pressures, near-zero rates, and no better alternative, Treasuries still looked safe. But as inflation returned with a vengeance in 2021 and 2022, something shifted…

Chapter 5: Cracks in the Foundation

Bond yields surged. Foreign buyers began to pull back. Japan and China—two of the largest holders of Treasuries—reduced their holdings. Fitch downgraded U.S. credit in 2023. And the cost of servicing the debt ballooned.

In 2024, U.S. interest payments exceeded military spending. Think about that. The empire that built its dominance on defense and diplomacy now spends more just to stay afloat. America’s forefathers would be ashamed of the fiscal quandary today’s politicians find themselves in.

Chapter 6: Why This Matters

The U.S. Treasury market isn’t just another asset class. It’s the foundation of the global financial system. Banks hold Treasuries as collateral. Nations store them as reserves. Insurance companies and pension funds rely on them for stability.

If confidence in Treasuries fades, the consequences are enormous:

• Liquidity evaporates in key financial markets.
• Interest rates spike, crushing borrowers.
• The dollar weakens, sending commodity prices soaring. Just look at gold today, bumping up to almost $3,200 per ounce.
• Global capital flees to harder assets—gold, oil, perhaps even Bitcoin.

It would be a monetary earthquake. And tremors are already being felt.

Chapter 7: What Comes Next?

There are three possible paths forward:

Return to Fiscal Discipline

• Politically unlikely in the short term.
• Requires entitlement reform, spending cuts, and tax hikes.

Inflate the Debt Away

• Quietly devalue the dollar by letting inflation outpace interest rates.
• Risk: loss of global trust, runaway inflation.

Financial Repression

• Force domestic institutions to buy more Treasuries.
• Cap interest rates. Impose capital controls.
• Already seen in subtle forms.

None are painless. All involve some form of sacrifice. The path of easiest resistance is to inflate the debt away, and that is what politicians always do. Like in the 1970s we should expect an extreme devaluation of the US Dollar in the coming years.

Chapter 8: The Investor's Dilemma

So where does that leave the self-directed investor?

You understand the stakes. You know this isn’t just a debt problem—it’s a confidence game. And when confidence breaks, the dominoes fall fast. Just look at the markets since ‘Liberation Day’.

Gold and other hard assets. Foreign markets. Alternatives to the dollar system. These are not fringe ideas anymore. They’re lifeboats.

The U.S. Treasury market has served as the bedrock of modern finance for over two centuries. But history tells us: every empire overextends. Every debt binge ends. The only question is how—and when. We may very well be witnessing the beginning of the fall.

Chapter 9: The Calm Before the Snap?

But underneath the surface of the wild stock market swings, the math is unforgiving. The longer interest rates stay elevated, the more precarious the situation becomes as the US must refinance its massive debt load - $9.2 trillion in 2025 alone - pushing up interest payments on the debt.

How long can the illusion hold when the world’s most trusted borrower becomes its most indebted?