The Debt Tsunami: Why Rising U.S. Borrowing Threatens Global Markets—and How to Prepare

The U.S. national debt has surged to $36.2 trillion as of July 2025, with interest payments now exceeding defense spending for the first time in history. This debt explosion, fueled by fiscal stimulus, military rearmament, and legislative overreach, is not just a domestic issue—it's a ticking time bomb for global markets. As Nicolai Tangen, CEO of Norway's $1.9 trillion sovereign wealth fund, warns, the $100 trillion global debt burden could trigger a sudden spike in interest rates, destabilizing everything from tech stocks to government bonds.

The U.S. Debt Crisis in Context

The U.S. government spent $1.1 trillion on interest alone in 2024, a figure projected to hit $776 billion in 2025. The Congressional Budget Office (CBO) estimates that the "Big Beautiful Bill"—a Trump-era spending package—will add $3 trillion to the debt over ten years, pushing the debt-to-GDP ratio to unsustainable levels. With average Treasury bond maturities now exceeding 70 months, even a modest rise in rates could send interest costs soaring.

Tangen's warning about “higher-for-longer interest rates” is prescient. If bond markets lose faith in U.S. fiscal discipline, investors will demand steeper yields, creating a self-reinforcing cycle of rising borrowing costs. This would pressure sovereign borrowers, erode equity valuations, and force central banks into a corner—monetizing debt or risking defaults.

The Global Debt Domino Effect

Japan's debt-to-GDP ratio of 263%—the world's highest—offers a cautionary tale. Despite aggressive quantitative easing, Tokyo now faces yen depreciation and gold demand surging by 25% in 2024 as investors flee unstable currencies. The U.S., though shielded by the dollar's reserve status, isn't immune: Tangen notes that “you never know when the point is coming where investors suddenly decide the debt level is too high.”

Emerging markets, already burdened by dollar-denominated debt, could face a liquidity squeeze. Meanwhile, the BRICS+ bloc's push for de-dollarization adds geopolitical tension, with resource-rich nations weaponizing commodity markets—a modern replay of the 1970s oil crisis.

Norway's $1.9 Trillion Gamble

Tangen's own fund, holding 1.5% of global equities, is a prime example of systemic vulnerability. Its portfolio is skewed toward U.S. tech giants like Microsoft, Alphabet, and Tesla—collectively accounting for 20% of its holdings—a concentration Tangen calls “unprecedented.”

This strategy exposes the fund to twin risks:
1. Tech Sector Volatility: High valuations and reliance on cheap capital make tech stocks acutely sensitive to rate hikes.
2. Geopolitical Headwinds: U.S.-China trade wars and sanctions could disrupt supply chains and profit streams for global firms.

The Investor's Playbook: Mitigating Fiscal Instability

To navigate this storm, portfolios must rebalance toward three pillars:

1. Inflation Hedges

Gold's role as a “trust-free” asset is non-negotiable. Incrementum's $4,800/oz target by 2030—requiring 12% annual returns—is plausible as central banks grapple with fiscal dominance (prioritizing debt sustainability over price stability). Allocate 10-15% to physical gold, with a smaller slice in gold miners (e.g., Barrick Gold) for growth.

2. Interest-Rate Sensitive Sectors

• Utilities and REITs: These sectors, with stable cash flows and low correlation to equities, offer ballast.
• Short-Duration Bonds: Focus on Treasuries or high-quality corporates with maturities under 5 years to reduce rate sensitivity.

3. Diversify Geographically

Rotate out of concentrated U.S. tech holdings into Asia-Pacific equities (excluding China) and emerging market bonds with hard currency links. The Philippines and Indonesia, with strong demographic profiles and manufacturing hubs, offer better risk-adjusted returns than overvalued Silicon Valley darlings.

Final Warning: Time to Act

Tangen's analysis isn't just a caution—it's a call to arms. The $100 trillion debt overhang and rising interest rate risks mean that complacency is the greatest danger. Investors must pivot from passive indexing to active risk management, prioritizing liquidity, diversification, and inflation resilience.

The debt tsunami is coming. Those who prepare will survive it.

This article synthesizes data from the U.S. Treasury, CBO reports, and Norges Investment Management disclosures. Always conduct further research before making investment decisions.