BlackRock Warns of U.S. Debt Threat Amid Contentious Tax and Spending Bill

On June 30, 2025, BlackRock, the world's largest asset manager, issued a stark warning about the escalating U.S. government debt, identifying it as the most significant threat to the nation's standing in global financial markets. In their third-quarter fixed income outlook, BlackRock's executives expressed concerns that the surging debt could undermine investor confidence in key U.S. assets, including long-term Treasury bonds and the U.S. dollar. They noted that while fears of global de-dollarization remain distant, the growing debt levels amplify such risks.

This cautionary statement comes at a critical juncture, as Congress debates the "One Big Beautiful Bill Act" (OBBBA), a comprehensive tax and spending proposal aligned with President Donald Trump's economic agenda. The 940-page bill proposes $4.5 trillion in tax cuts—including the permanent extension of Trump’s 2017 tax rates and new tax exemptions—while slashing $1.2 trillion from Medicaid and food stamp programs through stricter eligibility, work requirements, and changes to state reimbursements. Additionally, it reallocates $350 billion to border security and deportations, funded partly by immigrant fees.

The Congressional Budget Office (CBO) estimates that the OBBBA would add $3.3 trillion to the national debt over the next decade and could result in 11.8 million Americans losing health insurance coverage by 2034. This estimate has been disputed by multiple GOP members, including House Speaker Mike Johnson and President Trump. The CBO later revised the estimated increase in the budget deficit to $2.8 trillion.

BlackRock's report highlights that higher government debt could weaken the traditional link between Treasury yields and Federal Reserve policy, with yields potentially rising due to increased debt issuance and reduced demand from the Fed and foreign central banks. They recommend diversifying investments outside of U.S. government bonds and focusing more on short-dated Treasuries that are likely to benefit from interest rate cuts.

The rising national debt has broader economic implications. A report by the Peter G. Peterson Foundation projects that, relative to stabilized debt, the current path of growing national debt will reduce the size of the economy by $340 billion in 2035, $1.1 trillion in 2055, and $1.8 trillion in 2075. It also forecasts a reduction in the number of U.S. jobs by 1.2 million in 2035, 2.7 million in 2055, and 3.6 million in 2075.

The potential cuts to social programs like Medicaid, as proposed in the OBBBA, could have significant societal impacts. Stricter eligibility requirements may lead to reduced access to essential services for vulnerable populations, potentially increasing poverty and health disparities. Additionally, the projected loss of health insurance coverage for millions of Americans could strain the healthcare system and lead to worse health outcomes.

The U.S. has faced concerns over rising national debt in the past, but the current levels are unprecedented. In 2017, the debt held by the public was approximately 77% of GDP, and the CBO forecasted it would rise to nearly 100% by 2028. The current trajectory suggests that these projections may be exceeded, raising questions about the sustainability of current fiscal policies.

As the U.S. grapples with escalating national debt and contentious legislative proposals, BlackRock's warning serves as a critical reminder of the potential economic and social ramifications. Stakeholders must carefully consider the long-term impacts of fiscal policies to maintain the nation's financial stability and global standing.