The US appears to be at a turning point in its history. Over the weekend, IMF Deputy Managing Director Gita Gopinath called on Washington to take decisive action to reduce debt, warning that the temptation to finance all spending through borrowing is a path countries should avoid.

She argued that the U.S. economy is strong enough for some fiscal consolidation. Personally, this sounds a little painful to me during a cost of living crisis.

So where are we? The US Treasury market, the largest and most liquid government bond market in the world, has grown to a staggering $34 trillion. This figure is so huge that it rivals the combined economies of China, Japan, Germany, India and the UK.

The reason the US Treasury market has been allowed to grow to such size is because it is considered a safe haven asset, so central banks typically hold it as a reserve asset. Some economists argue that despite the size of the U.S. Treasury market, it can still absorb much demand for its issues because there are few alternatives to U.S. Treasuries.

However, China's attempt to diversify its economy away from the US dollar and towards gold is a clear signal that even the world's second-largest economy is nervous, either due to trade wars or geopolitical tensions.

The US government may have to act now to deal with this growing debt. Interest payments on the debt have become one of the fastest-growing federal spending items, projected to exceed military and Social Security spending by 2050. For the first time in history, interest costs on US government bonds exceeded $1 trillion, a significant and alarming milestone.

Moreover, the risk of a major global war in the near future could cause this debt pile to explode even further. If such a conflict occurs, it could tip the scales against the US dollar, exacerbating the current situation.

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