Is this how the dollar dies? Investment banker sounds alarm as China exits US debt

What happens when the world’s largest borrower starts defaulting in slow motion? According to investment banker Sarthak Ahuja, this question may soon define the global economy – as major countries begin withdrawing their money from the US, and the International Monetary Fund warns that the US debt spiral is “out of control”.

Ahuja’s LinkedIn post sparked controversy in various financial circles for his blunt warning: “The United States owes more than the GDP of Europe, Africa, and South America combined. That’s more than $100,000 in debt per American.”

This warning comes on the heels of the International Monetary Fund’s recent announcement of US federal debt at $36 trillion – fueled largely by post-2008 bailouts, record defense spending, and pandemic-era stimulus. Now America’s largest lenders want their money back.

China, Japan, the United Kingdom and Canada have quietly begun unloading US Treasuries. “China, the largest lender to the United States, has already started,” Ahuja writes. “Japan does the same thing.”

In order to retain investors, the United States is raising interest rates. But this is exacerbating the crisis, as annual interest payments now reach $1 trillion, even more than the Pentagon’s budget.

This shift is already evident in global capital flows. Central banks are turning to gold, and the Chinese yuan is gaining ground as an emerging market trading currency.

What’s left for the United States? Ahuja suggests higher taxes on the wealthy, but suggests continued tax breaks instead. Cutting spending on defence, health care or social welfare could spark unrest. In fact, the alternative solution appears to be to impose tariffs and reduce immigration – moves that threaten to further isolate the United States.

“If this situation continues, the value of the dollar may start to fall, and the world can move forward,” warns Ahuja.