Why are U.S. Treasury yields high and hard to lower? Trump's leadership change cannot resolve the debt dilemma and the global savings depletion.

Trump continues to pressure the Fed to cut interest rates, but the deep-rooted economic malaise lies in the United States' massive debt, ongoing deficits, and shrinking global savings pool. Changes in demographic structure, geopolitical factors, and policy shifts have led to long-term capital fleeing U.S. Treasuries, pushing the yield on 10-year government bonds to potentially remain above 4.5%, making it difficult to reverse even with short-term rate cuts by the Fed. The high interest rate environment will continue to impact real estate, the stock market, and government finances, and the anti-inflation properties of crypto assets may receive more attention.

Trump's obsession with interest rate cuts and deep economic dilemmas Donald Trump's core economic goal has always been to push interest rates down. However, the real crux of the problem lies not with Fed Chairman Jerome Powell himself, but with a larger crisis deeply rooted in the foundations of the American economy: out-of-control debt scale expansion, high fiscal deficits, and the continuous shrinkage of the savings pool caused by demographic changes. Bloomberg Economic Research pointed out that regardless of who runs the Fed, the yield on the ten-year U.S. Treasury bonds, which affects mortgage and corporate credit costs, is more likely to remain above 4.5% rather than fall below that level.

The end of the low-interest rate golden age, debt servicing costs become a new burden For more than thirty years, borrowing costs have continued to decline. Washington has been able to spend freely without triggering a systemic crisis. Housing prices have soared, the stock market has skyrocketed, and the cost of capital has been low. But this era has come to an end. Today, the future facing the United States is that interest payments alone will exceed the Pentagon's annual budget. Mortgage rates are high at 7%, and the real estate market is showing signs of suffocation. But Trump believes that by replacing Powell, he can "solve all problems." This is far from a realistic way of operation.

Trump wants to control the Interest Rate, yet global savings are dwindling Trump has been pressuring for the appointment of a new Fed chair who can quickly lower interest rates. After Fed Governor Adriana Kugler left her position early, he saw an opportunity. By appointing a loyalist to fill her seat, he hopes to push the central bank toward his policy agenda. He even publicly threatened Powell, calling him "too angry, too stupid, too political." Although short-term interest rates may be lowered in September (especially as the job market shows signs of fatigue), it will be of no use – if long-term interest rates continue to rise.

Who is abandoning US debt? The global savings pool is collapsing rapidly The core reason for the rise in long-term interest rates is: the global savings pool is collapsing. The baby boomer generation, which was once a major contributor, is entering retirement and starting to consume pensions. China is no longer buying U.S. Treasuries in large amounts as it used to. Since 2014, its foreign exchange reserves have dropped from $4 trillion to $3.3 trillion. This has created a huge demand gap. Saudi Arabia is shifting its funds from U.S. Treasuries to its own giant projects (such as the futuristic city NEOM). Even oil-rich countries are withdrawing from Washington.

Policy Self-Inflicted Wounds: The Weaponization of US Debt Undermines Global Confidence The United States itself has exacerbated the problem. In 2022, after freezing $300 billion of Russian assets, the U.S. government weaponized treasury bonds. This move has caused deep unease among other countries—if the U.S. can seize Russian funds, it can do the same to anyone.

The independence of the Fed is eroded, and the halo of investment safe havens fades Moreover, the independence of the Fed itself is also under challenge. For decades, several presidents from Ronald Reagan to Barack Obama have respected its independence. It is this independence that gives investors a sense of security – no one wants to invest in a central bank that appears to be politically manipulated. The decentralization and anti-censorship characteristics of Crypto Assets are even more valuable in this context.

The Foundation of the Low-Interest Rate Era Crumbles: Excess Savings and Weak Demand Become History From the early 1980s to the 2010s, interest rates continued to decline. What is the reason? Excess supply of funds, while investment targets are scarce. The baby boomer generation saved for retirement. Countries like China accumulated huge trade surpluses and used the proceeds to purchase U.S. Treasuries. The same goes for oil-exporting countries. Low technology costs and slow growth. All of this means a lower natural interest rate. Bloomberg Economic Research estimates that this rate fell from about 5% in the 1980s to 1.7% in 2012. But this support system has now collapsed: the baby boomer generation is exiting the labor market; China is allowing the renminbi exchange rate to be more flexible, no longer needing to buy large amounts of U.S. dollars to suppress the exchange rate; Saudi Arabia is betting on the future and no longer financing U.S. debt. The forces suppressing interest rates have already reversed.

Government debt out of control, geopolitical and AI competition intensifies capital competition Government borrowing is now out of control. U.S. debt is approaching 100% of GDP, compared to just over 30% in 2001. Defense spending is rising again. After Russia's invasion of Ukraine, European NATO members agreed to increase their defense budgets to 3.5% of GDP. Bloomberg estimates this will add $2.3 trillion to European debt over the next decade. As global investors view French and German bonds as alternatives to U.S. Treasuries, this has also driven up U.S. Treasury yields.

The AI competition has become another money-draining black hole. Building data centers, upgrading the power grid, and restructuring supply chains require huge amounts of real capital. Governments and businesses are competing for limited capital, while savings rates have changed dramatically. The natural interest rate is rising. Bloomberg Economics currently sets it at 2.5% and expects it to possibly reach 2.8% by 2030. Even in the most optimistic scenario, this would keep the yield on ten-year Treasury bonds between 4.5% and 5%. If conditions worsen, interest rates could soar to 6% or higher. This is by no means something that Trump can resolve through personnel changes.

Conclusion: The U.S. economy is facing structural upward pressure on the Intrerest Rate, rooted in unsustainable debt and a global contraction of dollar liquidity. The Fed has limited room for short-term policy adjustments, and a high-interest rate environment may become the new norm. Investors need to follow the long-term U.S. Treasury yield risk and examine the potential role of Crypto Assets as an alternative asset allocation in hedging against fiat currency devaluation and risks in the traditional financial system. Geopolitical games are accelerating the diversification of reserve assets, and the cornerstone of dollar hegemony is facing challenges.