After the Cold War, the United States, benefiting from long-term peace, reduced military spending, enjoyed economic prosperity, and maintained a fiscal surplus for an extended period, resulting in extremely sound fiscal fundamentals. However, after more than two decades of escalating geopolitical conflicts, coupled with demographic and structural economic problems, the United States has completely abandoned its surplus era and is now mired in fiscal deficits and debt. Currently, global geopolitical risks continue to escalate, but the United States' fiscal buffer and risk resilience capabilities are weakening. This new landscape of "intensified external risks and weakened domestic finances" has fundamentally reshaped the pricing logic of global asset classes.

From fiscal surplus to $40 trillion in total debt: A complete reversal in US fiscal policy.

Since the end of the Cold War, US military spending has been continuously reduced. Coupled with fiscal reforms in the 1990s and the benefits of the internet economy, the federal budget has consistently been in surplus, and the global creditworthiness of the dollar and US Treasury bonds has reached historical peaks. The two core geopolitical conflicts of this century—the Afghan War and the current Middle East wars—share a highly similar negative fiscal transmission logic, which is the core cause of the US debt spiral. Both conflicts are protracted, attrition-based wars, rather than short-term, quick-resolved conflicts. Sustained overseas military investment has thoroughly depleted US finances and ended the Cold War peace dividend. The Afghan War was the first to reverse the US fiscal trend, with massive military spending crowding out domestic industrial and social resources, diverting private capital, and suppressing endogenous economic growth. The ongoing geopolitical rivalry in the Middle East continues and amplifies this negative path, further exacerbating fiscal pressure. The two wars share profound and lasting negative impacts: First, long-term military spending coupled with multiple rounds of tax cuts has continuously widened the fiscal deficit, driving the debt to snowball. Second, the wars were concentrated in the core global energy region, disrupting the crude oil supply chain, pushing up global commodity and industrial product prices, and continuously injecting inflationary pressure. Third, the long-term overseas wars have eroded the credibility of US hegemony, leading the market to fundamentally question the traditional system of "military backing the dollar's credit."

Compared to the war in Afghanistan, the negative impacts of this round of Middle East wars have a strong cumulative effect.

The current total US federal debt has exceeded $40 trillion, and the fiscal buffer has been largely exhausted. Increased military spending due to war, rebounding inflation, and rising interest rates directly amplify the risk of a debt crisis and a collapse of the dollar's credibility. As the core hinterland of the petrodollar system, geopolitical turmoil in the Middle East not only pushes up inflation, forces higher US Treasury yields, and increases interest payment pressure, but also continuously impacts the foundation of the petrodollar, accelerating the global de-dollarization process and escalating the US's single fiscal debt problem into a risk to the global monetary system. Academic research also confirms that long-term excessive overseas defense spending, continuously siphoning off high-quality social resources, is one of the core reasons for the US's slowing economic growth and continued fiscal weakness over the past two decades.

In addition to geopolitical conflicts, multiple black swan events and structural risks continue to amplify debt pressure.

The 2008 financial crisis, the COVID-19 pandemic, and the retirement wave of the baby boomer generation have pushed the US Social Security Trust Fund to its limit by 2032, leading to a continuous increase in rigid expenditure pressures. Since 2000, the US has maintained a long-term policy of loose deficit spending, coupled with three rounds of tax cuts, causing federal fiscal revenue as a percentage of GDP to fall from 19.1% to 16.7%, solidifying the structural imbalance in fiscal revenue and expenditure. Under the combined effect of these multiple factors, the total US federal debt has soared from $3.4 trillion in 2000 to the current $40 trillion (of which $32 trillion is publicly held debt). Rigid spending on people's livelihoods as a percentage of GDP has risen from 7.8% to 10.1%, with non-interest expenditures expanding simultaneously, while military spending has seen relatively moderate growth. Most alarmingly, annual US debt interest payments have exceeded $1 trillion, officially surpassing military spending, becoming a typical and indicative sign of a major power's fiscal decline.

The global arms expansion is driving up interest rates and globalizing debt risks.

The normalization of geopolitical risks has spurred a global wave of arms expansion. As the United States gradually weakens its dominant position in global security and a multipolar world takes shape, countries are proactively increasing their defense spending and independently safeguarding their national security. Data shows that global military spending as a percentage of GDP has climbed from below 2.2% in 2022 to nearly 2.5%, with the EU and Japan also seeing significant increases in their respective military spending ratios, indicating that global defense spending has entered a long-term upward cycle. Even if regional conflicts ease temporarily, geopolitical confrontation in Europe and security competition in the Persian Gulf will persist for a long time, making it difficult to reverse the trend of high military spending. The US plans to increase its military spending by 43% in fiscal year 2027, exceeding $1.5 trillion. Although this is likely to be cut by Congress, the replenishment of military equipment and the expansion of defense spending are already a given, and have already boosted the military industry sector. The two rounds of geopolitical conflicts in Afghanistan and the Middle East, coupled with the US's out-of-control fiscal deficit, have directly driven up global long-term bond yields. After the outbreak of the Middle East conflict at the end of February this year, shipping disruptions in the Strait of Hormuz pushed up crude oil and diesel prices, leading to global inflation and logistics costs, exacerbating selling pressure in the bond market. Long-term bond yields in many countries have hit multi-year highs, and the debt issue has completely shifted from an economic matter to a political game, with global debt risks continuing to escalate. In addition to government debt, massive borrowing by tech giants in the AI sector has further pushed up interest rates. This year, leading tech companies' AI-related long-term debt reached $310 billion, equivalent to 50% of the total long-term debt issued by the US Treasury. This imbalance between debt supply and demand continues to suppress the bond market and support high yields.

Policy maneuvering amid the US debt crisis: Treasury and Federal Reserve providing implicit support

Faced with an out-of-control debt scale and high long-term bond yields, US policymakers have initiated implicit support mechanisms. Market opinions on the risks of US debt are divided; some institutions define the $40 trillion debt risk as excessive market speculation, while authoritative institutions such as the Brookings Institution warn that the actual US debt risks are far greater than the market perception suggests. To hedge against the risk of debt collapse and suppress long-term yields, the US Treasury has launched Treasury repurchase operations. Meanwhile, Federal Reserve Chairman Warsh released a strong hawkish signal against inflation at the Jackson Hole Summit, reversing his previous dovish stance. The market generally interprets this as a new policy tacit understanding between the Federal Reserve and the Treasury, with the core objective of stabilizing long-term bond yields under the pressure of a huge deficit and preventing systemic financial risks caused by runaway interest payments. JPMorgan Chase warns that without major structural reforms, the US will fall into a long-term chronic debt crisis; once it encounters external shocks or policy missteps, a slow recession could quickly evolve into a debt collapse, triggering severe turmoil in global financial markets.

Debt Reshapes Asset Pricing: The Logic Behind Gold's Long-Term Bull Market is Thoroughly Confirmed

Two decades of debt expansion and the normalization of global debt risk have completely restructured the pricing system for major asset classes, solidifying the long-term bullish logic for gold. Traditionally, gold, as a non-interest-bearing asset, was considered negatively correlated with US Treasury yields, and rising interest rates were believed to suppress gold prices. However, the current market pricing logic has shifted. The US debt crisis and the hidden risks of dollar debt have replaced short-term interest rate fluctuations as the core driver of gold prices. The US's massive $40 trillion debt and trillions of dollars in annual interest payments continue to erode the global credibility of the dollar. Meanwhile, the war in Afghanistan has depleted the US fiscal resources, and the Middle East wars have impacted the petrodollar system. These two rounds of geopolitical risks have shattered the traditional safe-haven aura of dollar assets. Against this backdrop, gold, without sovereign credit risk, has become a core target for hedging against US debt risks, geopolitical conflicts, and weakening dollar credibility. This has also driven global central banks to continuously accumulate gold and diversify their US Treasury holdings, providing solid support for gold prices. In the short term, expectations of Fed rate hikes and high US Treasury yields will continue to put pressure on gold, with the market likely to maintain a high-level consolidation pattern. However, the trend of chronic deterioration in US debt is irreversible. The Federal Reserve and the Treasury's actions to artificially prop up yields are essentially overdrawing the dollar's credibility and delaying the outbreak of risk, which in turn strengthens the market's demand for gold as a hedge. In summary, the market will continue to trade on the core logic of "weakening dollar credibility and global debt proliferation" in the long term. Short-term pullbacks caused by interest rate fluctuations are all excellent opportunities to buy gold. Before the US debt risk is completely cleared, the long-term upward trend of gold is unlikely to be shaken, and the debt cycle has become the core underlying logic supporting the bull market in gold prices.