US Debt Surpasses $40 Trillion, Trump Will Go All-in on 'This'

As a reserve currency nation, the United States has less burden regarding debt repayment and can address debt issues by supplying dollars. Currently, the US debt-to-GDP ratio is around 120%, which means it prefers policies that naturally lower the debt ratio by growing the GDP rather than directly repaying debt.

Sung Sang-hyun, Deputy Department Head, emphasized the privilege of a reserve currency nation, stating, "It doesn't matter if it reaches 50 or 60 quadrillion won. A reserve currency nation can continuously expand that debt."

If the US government opts for a populist approach of simply printing money to boost GDP, it could lead to a decline in currency value and the loss of dollar hegemony. Therefore, fiscal policies that lead to real GDP growth are crucial.

Sung Sang-hyun, Deputy Department Head, emphasized the importance of controlling inflation and inducing real growth, stating, "It is highly unlikely they will choose to repay the debt. However, if they try to solve this by simply printing money in a populist manner to boost GDP, I believe there's a high probability it will lead to a decline in currency value and the loss of its reserve currency hegemony."

The US government's fiscal deficit should not be viewed merely as debt, but as a structure that supplies capital to the private sector and other trading partners. When the government issues dollars and incurs a deficit, this capital flows to US private companies or countries with export surpluses to the US.

Sung Sang-hyun, Deputy Department Head, explained, "If the US government prints dollars, incurs a deficit, and gives it to someone, then those who can receive this government deficit are the US private sector or other countries that are not the US. Ultimately, these are countries with export surpluses." He added that this provides contrarian investment opportunities with a long-term view of the US market.

One of the main causes of the dot-com bubble collapse in 2000 is identified as the US government's shift to a fiscal surplus stance. When the government moves into surplus, the private sector can incur deficits, leading to a market contraction.

Sung Sang-hyun, Deputy Department Head, analyzed, "The dot-com bubble burst after 2000. I believe the most critical reason for the dot-com bubble bursting, aside from being overpriced, was that the government started to shift towards a surplus. Therefore, I interpret this situation from the perspective that a government surplus leads to a private sector deficit."

AI technology has immense potential to generate real productivity. In the past, the internet, combined with PCs, diffused and led to a 3.5% productivity increase from 1999 to 2005.

Sung Sang-hyun, Deputy Department Head, stated, "Can AI create productivity? I believe it absolutely can. The internet emerged when combined with PCs, and looking at productivity over 10-year periods, as the internet spread from 1999 to 2005, it even reached 3.5%." He predicted that after large-scale investment, productivity metrics would improve through technological integration.

While large-scale investments are being made in AI, the stage of actual application in workplaces to boost productivity is still nascent. It is anticipated that technologies like AI agents and humanoid robots will emerge, further amplifying AI's productivity.

Sung Sang-hyun, Deputy Department Head, stated, "I am looking at AI agents, humanoid robots, and such areas. So, something needs to emerge that can leverage AI to connect it to productivity." He predicted that these technologies would be key to translating AI into actual productivity.

Current large-scale investments in the AI industry are expected to yield sufficient returns in the future. From the perspective that the AI industry's pie itself will grow, even the current $1 trillion investment may not be a relatively large sum.

Sung Sang-hyun, Deputy Department Head, stated, "Considering the potential profit relative to invested capital, large-scale investment is expected to be sufficiently recoverable in the future." He drew parallels to Amazon or Nvidia, which were outside the top 10 in market capitalization in the early 2000s but came to dominate the internet ecosystem, suggesting that giant success stories could emerge in AI as well.

In this AI cycle, a 'Long-termism' perspective is key. Long-termism refers to the attitude of sustained long-term investment, even if capital is not immediately recovered, with the goal of securing the industry's future and preempting the ecosystem.

Sung Sang-hyun, Deputy Department Head, explained, "Who takes a longer-term view is key in this cycle. Long-termism is the perspective that even if the money invested now is not recovered immediately, we will continue." He predicted that the nation or company that preempts the AI ecosystem will gain an overwhelming advantage in future GDP share.

Three main factors determine productivity: capital investment, labor reduction, and 'innovation' that cannot be explained by capital and labor alone. The widespread adoption of AI agents and humanoid robots, in particular, is expected to drive this innovation, maximizing productivity.

Sung Sang-hyun, Deputy Department Head, explained, "Productivity originally involves three factors: capital investment, reduced labor needs, and innovation that cannot be explained by capital and labor, which leads to productivity." He emphasized that AI would usher in a new era of productivity through such innovation.

US Treasury Secretary Yellen and the Federal Reserve share the view that AI should be actively supported until it generates productivity. This suggests that interest rate policy may shift towards an accommodative stance as the year progresses.

Sung Sang-hyun, Deputy Department Head, analyzed, "They hold the view that AI should be supported until it yields productivity. Ultimately, from that perspective, I believe that the Fed and the Treasury are likely to gradually cooperate starting in the second half of the year." He saw AI industry growth influencing monetary policy.

A greater threat than the US government's $40 trillion debt itself is the interest cost on that debt. Current interest rates of 4-6% consume a significant portion of government spending, posing a substantial burden on fiscal operations.

Sung Sang-hyun, Deputy Department Head, asked, "Is $40 trillion in debt important? Or is the interest cost, where the average interest rate on government debt is 4%, 5%, or 6%, more frightening?" He pointed out that while interest costs need to be reduced by forcibly lowering Treasury yields, it is impossible due to market principles.

Holders of US government debt include the private sector (approximately $32 trillion) and intergovernmental accounts (approximately $7-8 trillion). To resolve the interest cost problem, demand for Treasury bonds must increase, and stablecoins are emerging as one solution.

When a stablecoin issuer sells a stablecoin for $1, that $1 is used to purchase US Treasury bonds as collateral. This creates a new source of demand for Treasury bonds that is less sensitive to interest rate fluctuations. Sung Sang-hyun, Deputy Department Head, explained, "If Americans pay $1 to buy a stablecoin, the stablecoin issuer takes that $1 and buys $1 worth of US Treasury bonds." He emphasized the effect of stablecoins creating demand for Treasury bonds.

Former President Donald Trump's favorable remarks about Bitcoin are connected to a strategy of activating the stablecoin ecosystem. For the stablecoin market to grow, the crypto asset market itself must not collapse and must be protected within the institutional framework.

Sung Sang-hyun, Deputy Department Head, stated, "Trump, in fact, makes favorable remarks about Bitcoin. The reason is that to foster stablecoins, the crypto asset market itself must not collapse." He analyzed that Trump's stance on crypto assets is directly linked to securing sources of demand for Treasury bonds.

While stablecoins originally emerged from a de-dollarization perspective, the US is currently focusing on their potential as a tool to maintain dollar hegemony. The US government aims to legalize stablecoins to gain control and integrate them into the dollar system.

Sung Sang-hyun, Deputy Department Head, stated, "From the US perspective, if they think they can use this to maintain dollar hegemony, then they will institutionalize it with law, right?" He implied that stablecoins could become a tool to strengthen the dollar's dominance.

Stablecoins offer easy access to financial services for people in emerging markets or African countries who struggle to open bank accounts, thanks to the advantage that anyone can create a stablecoin wallet.

Sung Sang-hyun, Deputy Department Head, mentioned, "Anyone can create a stablecoin account, a wallet." He believed that through such accessibility, stablecoins are highly likely to be used as a payment currency anywhere in the world. This has the potential to further accelerate the global expansion of stablecoins.

For efficient asset allocation, the principle "Subtract your age from 100. That is the amount you should put into risky assets" is recommended. This principle means that the younger you are, the greater proportion you should invest in volatile risky assets like stocks.

Sung Sang-hyun, Deputy Department Head, advised, "Subtract your age from 100. That is the amount you should put into risky assets." He emphasized that for longer investment horizons, it is important to increase the proportion of risky assets to pursue long-term returns.

Not all fiscal deficits are bad. Fiscal deficits that induce productivity improvements and real economic growth can be interpreted as a positive sign. Sung Sang-hyun, Deputy Department Head, stated, "Inflation caused by growth is not so bad," emphasizing that it is qualitatively different from a deficit simply to solve a problem.

Fiscal deficits that accompany investments for economic growth can be beneficial for the national economy in the long run. This is because they can be seen as costs incurred to generate future returns.

Investors need an investment strategy that looks at mid-to-long term cycles rather than being too constrained by economic indicators. Especially in technically overbought periods, it is important to curb excessive greed and maintain investment proportions. Sung Sang-hyun, Deputy Department Head, advised, "Look at economic indicators, but don't be too intimidated by them. Of course, bubbles can always lead to ruin in asset markets if mishandled."

The key to successful investing is to read the long-term trends of asset markets rather than being swayed by short-term market fluctuations.