Unraveling the Debt Web: How Soaring Government Deficits Could Ignite the Next Financial Crisis
How Soaring Government Debt Could Play a Starring Role in the Next Great Financial Crisis
By Barbara Shecter | Published October 27, 2025
Governments now face huge debts. They see deficits that risk global economic calm. Experts now warn that the U.S.—the world’s main engine—could spark or worsen the next major crisis because of its growing red ink.
The Growing Wall of Debt
Since the COVID-19 crisis, U.S. debt has shot up. It now reaches about US$37 trillion. Each year, a deficit of nearly US$1.8 trillion adds up. This figure is about 6% of GDP. Spending cuts have not slowed this rise. Deep political divides and a missing fiscal plan make debt cuts hard.
In April 2025, debt caught public attention. President Donald Trump put double-digit tariffs on over 80 countries on “Liberation Day.” At first, investors ran from stocks. They chose safe assets like U.S. Treasury bonds. Soon, however, this flight ended.
Rising Yields and Investor Anxiety
Bond prices then dropped. Yields climbed. Investors now ask for higher returns as risk grows. Ten-year Treasury yields hit 4.5%, up from 3.9%. Meanwhile, 30-year yields moved past 5%. This jump alarmed many economists.
Mark Manger, director of the Global Economic Policy Lab at the University of Toronto’s Munk School, has studied debt crises in Argentina and Nigeria. He sees this rise as strange in the market known for safety. “It is the part where observers are starting to freak out,” he said. His words show that investors now worry that rising yields harm the famed U.S. Treasury bond.
Higher yields also mean that paying back debt may hurt the economy. The U.S. Treasury market, a key part of global finance, may no longer seem the safest spot.
Potential Global Fallout
This warning goes far beyond the U.S. U.S. Treasuries and similar bonds sit at the heart of debt markets. Many banks, pension funds, and central banks hold them. A drop in their value might shake global finance.
Juan Carlos Hatchondo, an economics professor at Western University, studies sovereign debt. He explained that U.S. Treasuries work as collateral in repo deals. These deals help banks keep cash flowing overnight. If their value falls, liquidity in the system will suffer.
Foreign governments also hold these bonds. A drop in value would hurt their reserves and worsen economic shocks. In our connected system, one bad sign may start a global chain reaction.
The Looming Crisis?
A February 2025 study by the Brookings Institution said that a full U.S. default is not needed to cause a crisis. The fear of a strategic default or poor fiscal management alone might shake faith in U.S. debt. This loss of trust lowers asset values, weakens banks, and may spark a worldwide recession.
Reports from the Financial Post note that the debt crisis is not only in Washington. From Canada to the U.K. and Japan, high debts unsettle markets. Yet, the U.S. holds a special weight on the world scene. Its fiscal health can shift global economics.
What Lies Ahead?
With Canada’s Federal Budget on November 4th and similar events around the globe, all eyes are on governments. Political gridlock, high debt, and fears over safe assets put policymakers to the test.
For now, soaring U.S. government debt darkens the future of financial stability. The coming financial crisis may depend on how well the U.S.—the largest economy—manages its fiscal path and how investors see these moves.
For continued in-depth analysis on government debt and its global implications, visit FinancialPost.com and stay tuned for daily updates throughout the fiscal season.
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