Watching what’s happening in the United States, it’s becoming obvious they are approaching a serious economic reset. The U.S. national debt has ballooned to around $36 trillion, roughly equivalent to its GDP. Even their own Federal Reserve Chair has openly admitted that this path is "unsustainable," echoing warnings that top investors like Ray Dalio and Mohamed El-Erian have been making for years. Despite this, the U.S. government continues to run $2 trillion deficits annually, operating as if they have infinite capacity to borrow. The math is catching up with them faster than they would like to admit.
One of the most telling shifts has been the aggressive return of tariffs as a major policy tool. Tariffs are usually seen as political theater — a way to look tough without changing anything fundamental. But this time, the stakes seem higher. Historically, America kept its tariffs low after World War II as part of a grand strategy to rebuild Europe and Japan, fostering strong alliances during the Cold War. It made perfect sense when the Soviet Union was the primary threat. However, the Berlin Wall fell more than 30 years ago, and yet those trade structures have remained largely frozen in place. Today, European tariffs on U.S. goods are about four times higher than what the U.S. imposes on Europe. China and other major economies have even steeper barriers. It’s glaringly obvious that the global trade system America created has evolved into something deeply unfavorable to them.
The problem is that fixing it isn’t simple. Early on, tariffs seemed to be used smartly — as leverage. By applying targeted pressure, the U.S. could force other countries to lower their trade barriers and achieve fairer deals without permanent disruption. It made strategic sense. But over time, the approach shifted. Instead of being a temporary negotiating tool, tariffs began to look more like a permanent tax designed to raise revenue quietly at the border. That was already a risky shift, especially in a structurally hotter economy. Now, it's even murkier. With the latest wave of announcements, it's not clear whether tariffs are still being used for leverage, for revenue, or simply for political signaling. From the outside, the lack of a consistent strategy adds another layer of uncertainty for markets — but more on that later.
There’s a deeper danger too, one that’s easy to overlook: the U.S. bond market. Many inside the U.S. seemed to believe they could simply continue raising the debt ceiling and issuing endless Treasury bonds without consequences. But it’s clear that this assumption is built on borrowed time. If the U.S. keeps running these massive deficits, the supply of government bonds will overwhelm demand. Investors will require higher and higher yields to keep buying. When Treasury yields spike, it doesn’t just hurt government borrowing — it drains capital out of every other sector: stocks, real estate, private businesses. In effect, the government begins to crowd out the entire private economy.
That’s the real doom loop lurking beneath the surface. It’s not about politics anymore — it’s about basic supply and demand in the bond market. The more bonds America floods into the system, the harder it becomes to fund the rest of their economy without major collateral damage. And it’s happening faster than most people realize.
Complicating things further is the reality that the U.S. economy itself is different now. The post-COVID world isn’t a reset to 2019. Remote work, which used to involve about 4% of the workforce, now accounts for nearly 30%. This fundamental shift affects everything: consumer spending patterns, real estate demand, supply chains, labor markets. It’s a hotter economy, structurally speaking. Inflation is no longer naturally anchored at 2%. Even without the new tariffs, the new baseline inflation rate looks closer to 3–4%. Adding massive permanent tariffs on top of that only intensifies the pressure.
There’s also a major misconception about the scale of what’s happening with tariffs. Some headlines suggested that the U.S. backed off or softened its approach. But if you look closer, Bloomberg estimates the average U.S. tariff rate is jumping from 2.4% to 22% — nearly a tenfold increase. That would be the largest tariff spike in over a century. Whether people realize it or not, the structure of the American economy is being rewritten right now.
For other countries, the bigger issue isn’t just the economic pressure. It’s that America now believes the current system can’t go on, and they are trying to reshape it while they still have control. Through tariffs, fiscal expansion, and challenging old global trade structures, they are deliberately forcing a realignment — choosing volatility now rather than risking a larger collapse later.
So – are financial markets mispricing everything right now? Stocks are trading as if this is a short-term issue. Retail continues to buy the dips. Bond yields have pulled back slightly. Investors are still operating under the assumption that inflation will magically return to 2%, the Fed will soon be cutting rates, and the economy will coast into a soft landing.
It's understandable given how financial markets are interpreting the data. Right now, if you look at the hard data — actual numbers like employment, wages, and consumer spending — things still look relatively strong. Inflation is above target but stable, jobs are being created, and consumers are still spending. On paper, the economy isn’t falling apart.
But the soft data — sentiment surveys, business owner statements, purchasing manager indexes, consumer confidence — is flashing warnings. Businesses and households are signaling that they feel much worse about the future, even though the current numbers haven't collapsed yet.
This divergence is important. Soft data tends to move first. It captures fear and hesitation before it shows up in the hard numbers. It seems like the U.S. economy is standing on a solid floor that's starting to crack underneath — but the cracks aren't obvious yet if you only look at the headline statistics. If soft data is right, the hard data will follow — and financial markets, which are priced for perfection, are badly exposed to that shift.
Perhaps financial markets are still pricing risk the way they did in the 2010s — assuming cheap debt, endless liquidity, and no inflation consequences. But that world is gone. What’s emerging is an environment driven by fiscal dominance, structurally higher inflation, and tighter bond market conditions. Once markets are forced to accept this reality — whether through failed bond auctions, persistent inflation surprises, or sudden volatility spikes — the repricing could be sudden and brutal.
One only needs to look back at how markets behaved before the Global Financial Crisis in 2008. Everyone could see cracks forming, but the majority ignored them until the system was already breaking down in full view. By the time it became obvious, it was too late to reposition safely. The same setup seems to be building now.
From an investor’s perspective, it’s a dangerous place to be because the risks are already baked into the system — they’re just not baked into asset prices yet.
Everyone seems to agree that some form of change was required – the debates center around how much change is the right amount, and the execution of the change. It's clear though that the Americans can’t just hit “undo” and go back to how things were. The debt levels are different. The inflation dynamics are different. The bond market’s sensitivity is different. Even the geopolitical backdrop is different, as the U.S. is no longer the undisputed center of a unipolar world.
America moved first. Watch the board. We're playing global chess now. ♟️