TOKYO \u2014 A trillion here, a trillion there and pretty soon you\u2019re talking about real money. This, with apologies to 1960s US Senator Everett Dirksen, is where Washington finds itself in 2026 \u2014 and it puts Asia on the hook.<\/p>\n
Dirksen was talking about billions, not trillions<\/a>, of dollars. The Illinois lawmaker and fabled fiscal hawk would later have a Senate office building in Washington named after him. But his observation about government spending surging by unthinkably huge numbers has never been more relevant.<\/p>\n This year will see the globe\u2019s biggest economy reach a dubious milestone: trillion-dollar interest payments on runaway US government debt. The nonpartisan Committee for a Responsible Federal Budget described it as the \u201cnew norm\u201d as the national debt approaches the US$39 trillion mark (it ended 2025 at around\u00a0$38.5 trillion<\/a>).<\/p>\n As Donald Trump\u2019s White House increases debt issuance to pay for this increasing shortfall, it will be looking Asia\u2019s way. This region is home to many of Washington\u2019s biggest holders of US Treasuries. The top two are Japan (nearly $1.2 trillion) and China ($689 billion).<\/p>\n The question, though, is why would officials in Tokyo and Beijing, in their right minds, increase their exposure to the US economy at such a precarious moment?<\/p>\n Tradition, partly. As major trading economies, Japan and China require substantial amounts of dollars. But given Washington\u2019s fiscal trajectory, there are reasons to think Japanese Prime Minister Sanae Takaichi<\/a> and Chinese leader Xi Jinping will be reluctant to continue loading up on Treasuries.<\/p>\n Evidence to this effect could reverberate through global markets in unpredictable ways.<\/p>\n Often, Asia\u2019s US dollar holdings are discussed in conspiratorial terms. When Takeshi Yamaguchi, chief Japan economist at Morgan Stanley MUFG, asks whether Japan might \u201cuse US Treasury holdings as a bargaining chip,\u201d it\u2019s hard not to recall former Finance Minister Katsunobu Kato saying last May that \u201ceverything that could be a bargaining chip<\/a> should be on the table\u201d regarding Japan\u2019s US Treasuries holdings.\u00a0<\/p>\n Such hints harken back to 1997, when then-Japanese Prime Minister Ryutaro Hashimoto\u00a0told a New York audience that \u201cseveral times in the past, we have been tempted to sell large lots of US Treasuries\u201d to make a point. One such episode was the heated auto negotiations a few years earlier.<\/p>\n So far, Takaichi has been rather obsequious toward Trump, not wanting to provoke the mercurial US leader. Yet Trump\u2019s desire for a weaker dollar may collide with her \u201cSanaenomics\u201d strategy to revive Japanese wage growth. It requires a weaker yen and for the Bank of Japan to keep its ultralow interest rate regime in place.<\/p>\n These preconditions would be made impossible if Trump were to pursue a weaker dollar. Yet there are valid reasons for Washington\u2019s top bankers in Asia to worry about its fiscal trajectory.<\/p>\n The US national debt is expected to reach 100% of gross domestic product (GDP) by the end of fiscal year 2025. As this milestone approaches, interest on the national debt<\/a> is rising rapidly. Just five years ago, in FY 2020, net interest totaled $345 billion. In 2025, it was $970 billion \u2014 nearly three times as large.<\/p>\n The official Congressional Budget Office (CBO)\u00a0notes<\/a>\u00a0that spending on net interest payments on the public debt has surpassed $1 trillion for the first time. The Committee for a Responsible Federal Budget projects that interest payments will top $1.5 trillion in 2032 and $1.8 trillion in 2035.<\/p>\n Trump\u2019s fiscal plans to date have been exceedingly tax-cut-heavy. The \u201cOne Big Beautiful Bill Act\u201d that Trump\u2019s Republican Party passed in 2025 made\u00a0permanent<\/a>\u00a0earlier tax cuts, without offsetting spending cuts.<\/p>\n This has the CBO estimating that interest payments could reach $1.5 trillion in 2030, pass $2.0 trillion in 2034 and ultimately end the decade at $2.2 trillion in 2035.<\/p>\n One problem is that Trump 2.0\u2019s attempts to cut government spending have been more stunt than reality. The Department of Government Efficiency, or DOGE, which Trump entrusted to Tesla billionaire Elon Musk to lead, saved taxpayers little money.<\/p>\n Trump\u2019s tariffs, meanwhile, have likely done more damage to GDP than any revenue the US government might be collecting from the levies. There are decent odds the Supreme Court will rule Trump\u2019s tariffs illegal, as the US Constitution spells out that only Congress has the power to impose import taxes.<\/p>\n Nearly one year ago, in February 2025, hedge fund celebrity Ray Dalio warned that the US head for a debt death spiral with vast implications for the global financial system.<\/p>\n \u201cIt\u2019s like if I was a doctor and I was speaking with you about your condition, I would say to you, this is now very, very serious. All of these are major problems,\u201d Dalio told CNBC<\/a>.<\/p>\n \u201cWhat you need to do is cut your deficit from about 7.5% of GDP to 3% of gross domestic product, and you can do that. There are certain things that you can do that cut it in a certain way that\u2019ll make it much healthier, so the real problem is a political problem,\u201d Dalio said.<\/p>\n Dalio concluded that \u201cI want to help, you know, and so I feel like the doctor, and then I would say everybody, politically \u2026 if this doesn\u2019t happen, and we have the equivalent of, you know, an economic heart attack, or a heart attack of the bond market, then you know who\u2019s responsible, because it can happen.\u201d<\/p>\n The question is whether Dalio\u2019s warning will materialize in financial terms in 2026. Although the dollar ended 2025 flat against the yen, it lost 13.5% against the euro. That marked the sharpest decline<\/a> since 2017.<\/p>\n One big worry is that Trump intensifies his attacks on the Federal Reserve, including threatening to fire Fed Chair Jerome Powell. \u201cWe expect that concerns around central bank independence will extend into 2026, and see the upcoming change in Fed leadership as one of several reasons why risks around our Fed funds rate forecast skew dovish,\u201d Goldman Sachs strategists wrote in a report.<\/p>\n George Saravelos, global head of FX research at Deutsche Bank, notes that \u201cwe project further dollar weakness but at a slower pace than 2025, leaving the trade-weighted dollar 10% weaker by the end of 2026. If these forecasts materialize, they will confirm that this decade\u2019s unusually long dollar bull cycle is over.\u201d<\/p>\n Saravelos adds that \u201cour\u00a0conversations suggest that the hedging decisions are still in flux,\u201d noting that \u201cthe outlook for hedging flows errs dollar bearish.\u201d<\/p>\n TD Securities analyst Jayati Bharadwaj says that \u201cfor the dollar to benefit from a strong US outlook<\/a>, you need the outlook for the rest of the world to materially deteriorate.\u201d Instead, the global economy \u201chas been resilient and held up much better than feared under tariff uncertainty.\u201d<\/p>\n In the interim, Trump both wants a weaker dollar and needs one to, as Bharadwaj puts it, \u201csustainably shrink the trade deficit.\u201d Yet, she notes, \u201cthe US is no longer shielded from exogenous global macro shocks but is instead the emanating source of them\u201d due to Trump\u2019s brawl with the Fed and uncertainty over tariffs.<\/p>\n