According to a Reuters report of BlackRock’s Q3 fixed income outlook note, the world’s largest asset manager is concerned about the rising US government debt. The financial institution believes that the surging debt could drain investor interest in US long-dated treasuries and the US dollar. Investors could instead look outside the US for investment opportunities.
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De-Dollarization May Gain As US Debt Rises
According to BlackRock’s fixed income executives, de-dollarization risks could increase due to rising government debt. According to the report, “We’ve been highlighting the precarious position of the US government’s indebtedness for some time now, and, if left unchecked, we view debt as the single greatest risk to the ‘special status’ of the US in financial markets.“
President Trump’s tariffs have led to substantial market fluctuations. The development has cast a shadow on the US dollar’s position as the global reserve currency. The report also highlights the tax and spending bill currently being debated by Congress. If passed, the legislation will add an additional $5 trillion to the national debt.
The increased supply of government debt may be met with lower demand from the Federal Reserve and foreign banks.
The report further added, “With foreign investors stepping back and the government issuing more than half a trillion dollars of debt weekly, the risk of private markets being unable to absorb this debt and consequently pushing government borrowing costs higher is tangible.“
BlackRock Moving Against The USD?
The latest report is not the first time the world’s largest asset manager has spoken against the dollar. In a letter to shareholders, CEO Larry Fink highlighted how the USD’s global reserve position may not last forever. Fink stated that other currencies, like Bitcoin, could replace the dollar.
Also Read: The World Quietly Moves on From the US Dollar
BlackRock’s stark warnings should come as a wake-up call for the US economy. The rising US debt was also highlighted by Elon Musk. In a podcast episode with Joe Rogan, Musk highlighted high dealing with the US debt should be of the utmost importance.
