The total US debt has surpassed $40 trillion for the first time, raising concerns among global investors about the sustainability of the world's largest economy. It took less than 18 years for US debt to balloon from just over $10 trillion in 2008 to today's $40 trillion figure, and this accelerating growth trajectory is a signal that demands close attention.
Ray Dalio has warned that a heart-attack-style debt crisis is approaching, comparing the situation to a person with plaque-clogged arteries who continues consuming high-fat foods without exercise. If the US fails to change its current course, Dalio suggests a crisis could erupt within three years. While this warning deserves serious consideration, crossing the $40 trillion mark doesn't necessarily represent a tipping point—much depends on the pace of future debt growth and whether Treasury yields continue hitting new highs.
Given the dollar's status as the world's reserve currency and US Treasuries' role as the underlying asset class for global finance, any default risk could have far-reaching implications for international financial markets and the global monetary system. The current $40 trillion debt load means the US government now pays approximately $1.2 trillion in annual interest expenses, representing more than 20% of federal revenue. This is also one of the objective reasons why many central banks have been reducing their Treasury holdings while increasing gold reserves.
The default risk has already been priced into Treasury yields. Textbooks traditionally refer to the 10-year Treasury yield as the risk-free rate, but with yields now exceeding 4.5%, this rate already contains a substantial risk premium and can no longer be considered truly risk-free. The speed of debt accumulation is particularly concerning—it took 27 years to go from $1 trillion to $10 trillion, but only about 18 years to climb from $10 trillion to $40 trillion, with the pace accelerating to roughly $1 trillion added every six months.
Meanwhile, the cost of borrowing has reached elevated levels. Yields on 10-year, 20-year, and 30-year Treasuries are all near 20-year highs. When debt servicing costs become this expensive, either issuing new debt becomes more difficult or the government struggles to manage the interest burden. If foreign investors reduce their purchases, domestic buyers must absorb the supply, ultimately putting pressure on the Federal Reserve—which would have significant consequences for the dollar's exchange rate, its credibility, and global liquidity.
The dollar index has recently declined, and the Treasury Department's announcement of expanded long-duration bond buybacks has provided some temporary relief for rising yields, with a short-term pullback. While this eases market pressure somewhat, it doesn't fundamentally solve the underlying problem. Since the 2008 financial crisis, US government spending has expanded continuously. During the pandemic, the Fed implemented massive quantitative easing, flooding the market with liquidity. Subsequent geopolitical conflicts—including the Russia-Ukraine war and Middle East tensions—further pushed up inflation. To combat inflation, the Fed was forced to raise rates, which directly increased Treasury yields.
During his two terms, Trump sharply cut corporate income taxes, reducing government revenue, while simultaneously increasing military spending, leading to fiscal deficits and rapid debt expansion to the current $40 trillion level. Every time the US faces a crisis, it resorts to quantitative easing, which appears to temporarily alleviate the problem but actually postpones it and accumulates greater risks. The notion that sovereign currency debt can expand indefinitely is flawed—while currency depreciation can provide some implicit debt relief, its effectiveness is limited. Once market confidence in the dollar erodes, hyperinflation and financial turmoil may become unavoidable.
For decades, US Treasuries have been regarded as the world's safest asset, but this foundation of trust is gradually weakening. The de-dollarization trend is becoming increasingly evident, and the long-term decline in the dollar index reflects diminishing confidence in the US currency, which in turn enhances gold's appeal as a store of value. International gold prices broke through the $5,000 per ounce level earlier this year, peaked around $5,400, then retreated to roughly $3,900 before recovering. The pullback was triggered by Middle East conflict leading to blockades of the Strait of Hormuz, which drove oil prices up and inflation expectations higher, reducing expectations for Fed rate cuts and sparking a gold selloff.
However, prices below $4,000 represented a golden opportunity—a view I expressed previously—and now gold has quietly climbed back to around $4,600 per ounce. Looking back, $3,900 per ounce proved to be a favorable entry point. Over the long term, the de-dollarization trend is unlikely to reverse, and allocating approximately 10-20% of a portfolio to gold-related assets may be a sound investment strategy.
Currently, amid the AI technology revolution, the US appears to be staking its national fortunes on this sector. Goldman Sachs recently projected that total US AI investment could approach $600 billion by 2026. The emerging AI industry is absorbing massive capital flows, which has also made US Treasuries harder to sell, reducing demand at auctions. During the AI boom cycle, markets prefer chasing AI assets. Whether AI can help the US escape its debt crisis depends on whether it ultimately generates real productivity gains and attracts global capital inflows—outcomes that remain uncertain.
US equities continue to trade at high levels with strong momentum, showing no signs of a bubble bursting. The recent sharp decline in US tech stocks, particularly the semiconductor and memory sectors, represents a correction after excessive gains rather than evidence of a bubble bursting. Therefore, the impact on A-share tech stocks should be short-lived.
Turning to the domestic market, after the sharp decline in July, the deleveraging process in the A-share market is largely complete, and August began showing signs of a stabilizing rebound. The recent weakness may be an aftershock of July's selloff rather than the start of a new downturn, and the likelihood of sustained significant declines is limited. The six major technology sectors are still expected to rotate in performance.
Since early last year, I've identified six sectors that are primary beneficiaries of AI in sequence—chip semiconductors, computing power and algorithms, commercial aerospace, solid-state batteries, and innovative drugs—all of which are AI-related and have delivered solid returns. Recently, as the earlier sectors underwent corrections, solid-state batteries and innovative drugs have begun to pick up momentum.
The humanoid robotics sector, however, was dragged down by the first A-share humanoid robot company's massive first-day surge, which created valuation bubble concerns, followed by a near-halving of its stock price that weighed on the entire sector. Nevertheless, from a long-term perspective, humanoid robotics remains an industry with deep competitive moats and substantial growth potential. While widespread household adoption remains distant, humanoid robots are already being deployed in research institutes, laboratories, public venues, shopping malls, and hotels. As mass production begins to ramp up, China's total robot production and sales could exceed 100,000 units this year, with multiples of growth expected next year. As humanoid robot production scales, leading component manufacturers may benefit from earnings releases. Therefore, recent corrections should not cause excessive concern—these are short-term adjustments. Given the high volatility characteristic of tech sectors, significant pullbacks actually present opportunities for staged capital deployment, while sharp rallies offer chances to lock in profits. A contrarian investment strategy remains effective.
In summary, the current market adjustment does not signify the end of the tech rally but rather a normal correction following the deleveraging process in tech stocks and weakened market sentiment. Over the medium to long term, opportunities should continue to be sought across the six major technology sectors. The transformation that the AI revolution brings to various industries is just beginning. We should actively embrace AI, identify opportunities it creates across sectors, and avoid industries it may disrupt—this represents genuine value investing in the AI era.