Is the US dollar collapsing? Eight key indicators reveal a worrying truth

U.S. federal debt breaks through $39 trillion, annualized interest expenses exceed $1.2 trillion, and the Federal Reserve balance sheet resumes expansion—a number of key indicators simultaneously issuing warnings, indicating that the dollar's purchasing power is facing systemic pressure.

From fiscal deficit to money supply, from Treasury bond yields to gold prices, eight core indicators all point in the same direction: more debt, more money printing, and continuous erosion of the dollar's purchasing power. This trend poses a long-term challenge for investors holding dollar assets.

The Federal Reserve recently announced the end of balance sheet reduction and will restart balance sheet expansion, while turning to a loose policy even as inflation is not yet fully under control. Meanwhile, gold prices have hit historic highs, seen as a direct reflection of faltering market confidence in the fiat currency system.

Fiscal Deficit Continues to Worsen

The trajectory of the U.S. federal budget deficit is worrying.

Even based on the optimistic assumption that "no wars or recessions will occur in the next ten years," the U.S. government is expected to see more than $22 trillion in additional deficits, all of which need to be financed through bond issuance.

However, this assumption is becoming untenable. According to reports, the Pentagon has requested an additional $200 billion in funding for military operations related to Iran, which is only the beginning of potential extra expenditures.

Debt Exceeds GDP, Economy Overburdened

Total federal debt now exceeds $39 trillion, accounting for more than 124% of GDP.

It is noteworthy that GDP calculations themselves count government spending as a positive contribution, and government spending accounts for at least 37% of U.S. GDP. If this factor were excluded, the real proportion of debt relative to productive economic activity would be far higher than presented in official data.

Annualized federal debt interest expenditures have surpassed $1.2 trillion, accounting for over 23% of federal tax revenue and still rising rapidly.

Currently, debt interest is the second largest expenditure item for the U.S. government and is expected to surpass Social Security expenditures within a few months, becoming the largest single expense for the federal government.

This dynamic forms a self-reinforcing cycle: rising interest expenses force the government to issue more debt, which further expands debt levels and increases the interest burden, thereby continuously narrowing fiscal space.

Federal Funds Rate and 10-Year Treasury Yield

Central banks represented by the Federal Reserve attempt to set interest rates, which is akin to a planned economy, is unlikely to be effective long-term, and may lead to distortions and losses.

Reviewing history: after the 2008 financial crisis, the Federal Reserve maintained zero interest rates for a long period; from 2015–2019, it entered a rate hike cycle; during the 2020 pandemic, rates returned to zero; and after inflation surged in 2022, it aggressively raised rates to over 5% within 18 months. Currently, although the policy turns to looseness, inflationary pressures remain.

Mechanically, the federal funds rate is a short-term rate directly controlled by the Federal Reserve, while the 10-year Treasury yield is determined by the broader market, influenced by policy but not fully controlled.

This yield is regarded as the core benchmark for global asset pricing; its rising usually means bonds are being sold off, financing costs are rising, and may pose pressure on the dollar system.

Federal Reserve Balance Sheet Reduction Promise Once Again Broken, New Expansion Cycle Begins

The trajectory of the Federal Reserve balance sheet reveals a recurring pattern: every contraction period after an expansion is interrupted by cracks appearing somewhere in the financial system, after which the balance sheet resumes expansion at a higher level, never returning to the starting point of the previous cycle.

After the 2008 financial crisis, then-Federal Reserve Chairman Ben Bernanke promised eventual normalization of the balance sheet, which at the time stood at about $2.5 trillion; the target was to return to below $1 trillion, the pre-crisis level. However, nearly 15 years later, the balance sheet is now more than double the promised level and is entering a new expansion cycle.

During the COVID-19 pandemic, the Federal Reserve's balance sheet surged from about $4 trillion to nearly $9 trillion. After so-called "quantitative tightening," the scale remains more than 50% above pre-pandemic levels. The Federal Reserve characterizes this new expansion round as "reserve management" rather than quantitative easing, but critics point out that regardless of labeling, buying Treasuries with newly created money essentially amounts to money printing.

Excessive Money Issuance

The long-term annual average growth rate of the money supply is about 6.8%.

During the pandemic, the Federal Reserve and major central banks worldwide released liquidity in a concentrated manner, creating about 40% of dollar supply within a short period, followed by inflation in 2022 rising to a 40-year high.

Does CPI Conceal Money Printing?

The Consumer Price Index (CPI) is the most politically manipulated of all government statistics. This indicator attempts to measure the average price changes of 340 million Americans through a unified price basket, but the actual consumption structure for each individual differs significantly.

In addition, the government is free to decide the basket components and weights for the CPI, which raises doubts about its objectivity as a measure of inflation. Analysts believe the real value in monitoring CPI lies more in inferring the Federal Reserve's policy direction than in accurately measuring actual inflation.

Gold Hits Historic Highs: Market Reflection of Pressure on Fiat Currency System

Gold prices have reached historic highs, regarded as a comprehensive response to multiple pressures outlined above. Annual new gold supply is only 1% to 2%; the supply cannot be expanded arbitrarily, which gives it a natural ability to resist currency depreciation.

Unlike fiat currency systems, the value of gold does not rely on government credit or counterparties, and it possesses innate international and political neutrality. Against the backdrop of renewed Federal Reserve balance sheet expansion and widening fiscal deficit, gold's appeal as a store of value is on the rise.

The eight indicators above—federal deficit, debt scale, interest expenses, federal funds rate and 10-year Treasury yields, Fed balance sheet, money supply, CPI, and gold prices—together portray a systemic picture of pressured dollar purchasing power, and its trends merit continued investor attention.

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