Credit and Power

The premium the world pays for U.S. Treasuries has decoupled from the premium it pays for the dollar. Measured against foreign sovereigns on a covered-interest-parity basis, the Treasury premium has been negative since 2021; the dollar premium has not. The funding instruments of American power are therefore under measurable pressure, and the mechanism is fiscal quantity rather than fiscal credibility: the stock of Treasuries has grown faster than the intermediation capacity and the relative supply of alternatives that once absorbed it at a premium.

A companion paper argued that China’s decline is largely endogenous and that the United States can accelerate or retard it only at the margin, so that American success depends less on what Washington does to Beijing than on whether it preserves its own structural advantages. This paper tests that claim in the domain where it is cleanest. Fiscal deterioration is the purest case of strategic self-harm: it depletes the advantages on which American statecraft depends, with no foreign cause.

The paper’s contribution is a strategic-solvency threshold — defined by the joint behavior of five observable series, with stated trigger values, rather than by any debt-to-GDP level — together with the specification of the object that threshold prices, which has split in two. The April 2025 episode, in which Treasuries and the dollar sold off together, is examined as the one observation that bears directly on whether the split will hold. The threshold is approached on the Treasury side and not crossed on the dollar side. The deciding constraint on American power has become internal, and the fiscal path is where that is most visible, because the remedy is known, has been executed before, and was abandoned.