Despite record federal borrowing, U.S. households and corporations have actually deleveraged. Household debt-to-GDP is lower than in 2000, and corporate debt is stable. This private sector strength explains why the economy has remained resilient to high interest rates, creating a divergence between public and private financial health.
A direct consequence of escalating U.S. government debt and Treasury market interventions is a potential weakening of the U.S. dollar. Investors may favor currencies with stronger fiscal fundamentals. The Australian dollar is highlighted as an attractive alternative due to its combination of high yields and significantly lower government debt.
The primary risk from rising U.S. debt isn't that businesses and consumers will stop borrowing. It's that investors will reallocate capital from equities to high-yielding bonds, which now offer attractive returns. This shift in investor preference, not a traditional credit crisis, is the key market stress to monitor.