$40 Trillion by Next Year – The U.S. Debt Crisis Escalates

As Washington Digs Deeper Into Debt, China De-Dollarizes and Buys Gold

Say what you want about the current U.S. government, but they’re just as bad with money as the ones who came before. Politicians might claim otherwise, but the numbers don’t lie, even if they do.

The U.S. Treasury recently released data that should make anyone nervous.

In the first 10 months of fiscal year 2025, the budget deficit has already hit $1.6 trillion—$109 billion more than during the same stretch in 2024. In July alone, Washington overspent by $291 billion.

What does that mean? Simple: more debt.

Specifically, by year’s end Washington will need to borrow that same $1.6 trillion in net market debt. This money won’t go to long-term projects. It won’t go to emergencies. It’s just more debt piled onto a mountain that’s already crushing—simply to plug the hole in deficits.

That kind of borrowing is exactly why reckless government spending is pushing America toward bankruptcy faster than anyone expected.

Consider this…

• In January 2024, the national debt was $34 trillion.

• By July, $35 trillion.

• By December, $36 trillion.

• In August 2025, it crossed $37 trillion.

That’s about $1 trillion in new debt every 5–6 months—nearly double the average pace of the past quarter century. If this pace holds, $40 trillion will be here by late 2026.

Mind you, all this is happening without a pandemic or emergency to blame. Current levels of spending and borrowing look a lot like the extraordinary stimulus of 2020–21—except now it’s just “normal” government operations, burning through money faster than ever.

But here’s the problem.

When the Biggest Buyer Turns Seller

While Washington’s borrowing explodes, demand for American debt is evaporating.

According to official July data, China sold $25.7 billion worth of U.S. Treasuries—the sharpest cut in nearly two years. That left China with $730.7 billion, its lowest level since 2009.

This isn’t the first time China has trimmed its holdings. They dumped $53.3 billion in the first quarter of last year and $21 billion in the quarter before that. But July stood out—it was one of those rare times China offloaded such a large chunk in a single month.

This is quite extraordinary when you think about it…

Not long ago, China was the biggest holder of U.S. debt. That started to change in 2018 with the trade war. By 2019, Japan had taken the lead. But the real pullback came after 2022, when Washington froze Russia’s reserves and cut it off from SWIFT. Since then, China’s ownership of U.S. debt has fallen off a cliff.

Between 2022 and July 2025, China’s Treasury holdings fell by $303 billion—nearly 30%. Go back about a decade, and the drop is closer to 50%.

It’s not hard to see why they’re cutting back on U.S. debt.

As South China Morning Post put it:

The decline in China’s Treasury holdings comes as the country’s economists continue to warn of the weaponization of the U.S. dollar amid rising tensions between the two superpowers, coupled with ongoing concerns over the sustainability of U.S. debt.

The logic is simple: cutting back on U.S. Treasuries means less dependence on American monetary policy, less exposure to the mess in U.S. finances, and less risk of having assets frozen—like Russia’s were in 2022.

The big deal about this is that it sends a clear signal to every country to think about doing the same. And sure enough, these days governments talk openly about how the risks tied to U.S. debt and inflation are too high to keep all their eggs in one basket. Even Japan has floated using its Treasuries as “leverage” in negotiations with Washington.

The upshot is that the days when U.S. debt was a no-brainer for overseas buyers are long gone.

This matters because about $9 trillion—roughly 32% of America’s publicly held debt—is in the hands of foreign countries.

Gold Over Dollars

Alright then, but if not Treasuries, where is China putting its money instead?

It could be euros, pounds, or other currencies—but one thing is clear: they’re buying gold. And lots of it.

China has always had a taste for gold, but in 2023 it went into overdrive—buying 225 metric tons and becoming the world’s top central bank buyer. It added another 44 tons in 2024 and 21 tons so far this year.

Naturally, that buying spree has run in parallel with its steady selloff of U.S. debt.

And gold has responded. Since 2023, prices have nearly doubled—hitting a record $3,784 an ounce earlier this week.

But here’s the big question: how much more gold does China still want?

We can only speculate. Future plans for China’s state reserves—officially at 2,300 tons—are a closely guarded secret. But there are clues. Back in 2009, Hou Huimin, then vice general secretary of the China Gold Association, floated a target of 5,000 tons (citing China’s rising international status).

Note: If China’s gold reserves hit 5,000 tons, its central bank would be the world’s second-largest holder—behind the U.S. (8,134 tons, at least on paper) but ahead of France, Germany, and Italy.

But that was when China’s GDP was just $5 trillion. Today, it’s more than $18 trillion. The economy has more than tripled since then.

So if 5,000 tons made sense in 2009, the target today is probably much higher—8,000, maybe even 10,000 tons. Nobody outside Beijing knows for sure. But given the U.S. debt risks and the broader de-dollarization trend, you can bet China (and the rest of the BRICS) will keep buying gold—in bulk.

And that, more than anything else, may be the single strongest driver of gold prices for years to come.

Regards,

Lau Vegys