How Likely Is a U.S. Debt Crisis?

Why It Matters

The dollar’s dominance underpins global finance, so shifts in confidence affect reserve allocations, Treasury yields, and market volatility.

Key Takeaways

• 30% of family office respondents reducing dollar‑denominated assets
• Dollar reserve share fell to 56.8% by end‑2025
• U.S. debt topped $39 trillion, over 100% of GDP
• No viable alternative currencies; yuan and euro shares stagnant
• Prolonged debt growth could prompt rating downgrade, raising risk premiums

Pulse Analysis

The UBS Global Family Office Report released for 2026 flags a growing unease among high‑net‑worth investors about exposure to the U.S. dollar. Roughly three in ten respondents say they have already trimmed, or are planning to trim, dollar‑denominated holdings, reflecting concerns that the world’s primary reserve currency may be losing some of its sheen. Yet the dollar’s share of official foreign‑exchange reserves slipped only modestly, from 59.4 % at the end of 2021 to 56.8 % by the close of 2025, and it still underpins about 90 % of all FX transactions. The scarcity of liquid alternatives—most notably a capital‑controlled yuan and a euro that has barely expanded its share—keeps the greenback firmly entrenched.

Meanwhile, U.S. federal debt surged past $39 trillion in early May, breaching the 100 %‑of‑GDP threshold for the first time since the pandemic era. Although the headline figure looks alarming, history offers perspective: Japan has carried a debt‑to‑GDP ratio above 200 % for decades without a fiscal collapse, and several European economies operate comfortably with ratios near 100 %. The key difference lies in the United States’ ability to attract continuous foreign demand for Treasury securities, a demand that outpaces the rapid issuance of new debt.

Even with robust corporate earnings and a still‑dominant dollar, the debt trajectory is not without risk. A prolonged inability to curb the deficit could prompt rating agencies to downgrade sovereign credit, which would likely push Treasury yields higher and force investors to demand larger risk premiums. Such a shift would ripple through global markets, increasing borrowing costs for businesses and potentially reshaping reserve‑currency allocations. For investors, the prudent approach remains diversification while monitoring fiscal policy signals and any signs of deteriorating confidence in U.S. creditworthiness.