US Dollar Decline Defies Rising Yields as Soaring Debt Fuels Global Confidence Crisis

The US dollar’s persistent decline in 2025 is raising concerns, particularly because it’s happening alongside rising US government bond yields. Typically, higher interest rates would attract capital inflows and strengthen a currency. But the dollar has dropped 13.5% this year, defying historical trends. Economist Robin Brooks highlights this divergence as a worrying sign of deeper structural issues.

Brooks draws parallels to the UK’s 2022 financial scare, when unfunded tax cuts caused market panic and a plunging pound. Similarly, the US appears to be accumulating a risk premium on its currency as its fiscal stance becomes increasingly unsustainable. With public debt exceeding $37 trillion, fears are mounting that the US may soon face its own “Liz Truss moment.”

Trump’s Fiscal Plans Raise Deficit Fears, Triggering Downgrades And Undermining Investor Confidence

President Trump’s recent proposals, including the “Big, Beautiful Bill” projected to add $4 trillion to the deficit, are compounding concerns. Analysts worry that this massive fiscal expansion could trigger credit downgrades from agencies like S&P, Fitch, and Moody’s, especially as these deficits rival the GDP of entire advanced economies like Japan.

Since 2011, the US has seen a cascade of credit rating downgrades linked to its ballooning debt and governance issues. S&P started the trend in 2011, followed by Fitch in 2023, and most recently, Moody’s in 2025. The agencies cite persistent fiscal deficits, rising interest costs, and political gridlock as factors eroding confidence in US financial stewardship.

Rising Debt Threatens US Global Leadership, National Security, And International Investor Confidence Alike

The debt crisis is more than an economic concern—it’s becoming a strategic vulnerability. Economist Philip Luck warns that rising interest costs are crowding out spending on defense and diplomacy. If the debt hits 156% of GDP by 2055 as projected, the US could lose its global leadership edge, making fiscal reform essential for national security.

Foreign holders of US debt, particularly in Asia, are growing uneasy. Japan and China together hold nearly $2 trillion in US Treasury securities. These countries, especially China, have repeatedly voiced concerns over the safety of their US assets—concerns that have only intensified as US borrowing soars and fiscal discipline erodes.

The unusual behavior of the dollar—falling as interest rates rise—may signal the erosion of global confidence in the US’s fiscal management. Brooks and others warn that decades of loose fiscal policy combined with trade uncertainty could be triggering a critical inflection point. Without urgent reform, the US risks losing not just its credit rating but also its credibility and global economic dominance.