By Peter Reagan
For decades, U.S. federal government debt was one of those rare products that seemed to sell itself.
Governments needed dollars to pay for imports. Central banks needed dollar reserves to stabilize their currencies. Financial institutions needed somewhere liquid to store enormous amounts of money.
All those dollars had to go somewhere – and a great many of them flowed into federal government debt.
Washington still had to conduct the sales, of course. But it did not have to work especially hard to explain the product. Global demand for dollars created a nearly automatic customer base.
Today, that arrangement looks a little less automatic.
The Treasury Department is not merely issuing more debt. Increasingly, it is adjusting policies, creating incentives and supporting backstops designed to attract new buyers – and prevent its largest existing customers from becoming sellers.
Last week’s unusual intervention in global currency markets offers a perfect example.
On the surface, this was a story about two currencies.
Underneath, it was a story about one increasingly important question:
Who will buy all of America’s debt?
Why did the U.S. intervene in Japan’s currency?
The yen has spent much of this year under intense pressure.
A weak yen raises the cost of Japan’s imported food, fuel and other necessities. Those rising prices have become a serious political problem for Japan’s government.
The United States has reasons to care, too. A deeply undervalued yen can give Japanese exporters an advantage over American manufacturers. It can also pressure neighboring countries to weaken their own currencies in response, potentially triggering a wave of competitive devaluations across Asia.
That was the official economic case for the U.S. joining Japan to purchase yen. It was the first coordinated U.S.-Japanese currency intervention since 2011. Reuters reported that months of negotiations preceded the decision, as Japan’s previous efforts failed to put a lasting floor beneath its currency.
Treasury Secretary Scott Bessent has now said the U.S. will do “whatever it takes” to support Japan’s attempt to stabilize the yen. The U.S. even sold euros rather than dollars to fund its yen purchases – an unusual maneuver that allowed Washington to support Japan’s currency without directly selling dollars.
Now, let me be clear, there is nothing inherently sinister about this. Some have scolded Bessent, calling this a hedge fund-style decision. The Wall Street Journal pointed out the potential unintended consequences of this trade. That’s all a bit above my pay grade.
Remember, Japan is an important American ally in the Pacific. Extreme currency movements can damage trade, raise consumer prices and spread instability well beyond the country where they began.
But there was another reason Washington cared – and it may be the most important reason of all.
Japan is the federal government’s largest foreign lender.
America can’t afford to lose its biggest customer
As of the end of May, the Treasury Department tells us Japan held approximately $1.14 trillion in U.S. federal government debt, more than any other foreign nation.
That matters because Japan needs dollars when it intervenes to strengthen its own currency.
The basic process is straightforward:
- Japan sells some of its federal debt reserves for dollars
- It uses those dollars to buy yen
- The transaction pushes the yen higher, and the dollar lower
But Japan does not keep all its reserves sitting around as piles of dollar bills. The vast majority of that money is held in the form of U.S. government debt.
If Japan needs a very large quantity of dollars very quickly, it will sell some of that debt. Now, under normal circumstances, one customer selling would not be a crisis. The federal government debt market is enormous, transacting $1.2-$1.5 trillion every day.
But Japan is not an ordinary customer! They’re the largest foreign customer at a time when Washington is already trying to finance enormous deficits.
Former Treasury Secretary Henry Paulson said it plainly during an interview about the intervention: “The United States did not need Japan selling its federal government debt right now.”
There it is!
The United States wasn’t defending Japan’s currency – that was just a side effect. Secretary Bessent was preventing one of our biggest customers from selling debt.
So was this a favor to Japan? Or was this an elaborate customer-retention program?
Treasury found a way for Japan to raise cash without selling
The yen purchases were only one part of this customer-retention strategy.
Bessent also encouraged the Federal Reserve to expand something called the Foreign and International Monetary Authorities Repo Facility (FIMA). Yes, these oddball agencies always have the most boring names.
FIMA was created during the pandemic specifically to allow foreign central banks to swap their U.S. government debt for cash.
In plain English, it lets a foreign government say:
We need dollars, but we do not want to sell our American debt. Can we borrow against it instead?
Yes, the foreign government gets its dollars.
U.S. debt stays off the open market, which helps sustain a higher price.
Once the loan ends, the foreign government gets its debt back.
The Federal Reserve describes the facility explicitly as an alternative to foreign governments selling their U.S. debt into the market.
For Japan, that means access to dollars it could use to support the yen without selling American debt.
Now, as a crisis-management tool, this is clever.
It gives foreign governments access to liquidity without forcing them to sell at the worst possible moment. FIMA reduces the chance that one country’s currency emergency sends the federal government’s borrowing costs sharply higher.
My concern is not that the facility exists. Even though it sounds a lot like a kind of pawn shop run by the Federal Reserve.
My concern is what it tells us about the financial system itself.
We are creating more mechanisms that allow major holders of federal government debt to get through periods of stress without ever having to sell that debt.
While that can make financial markets more stable, it can also disguise weakening demand.
If an emergency backstop becomes an everyday facility, is it really an emergency backstop anymore?
The federal government is borrowing far too much to rely on automatic demand
The Treasury Department’s new salesmanship tactics wouldn’t concern me nearly as much if the federal government were borrowing less.
Alas, it is not.
The Congressional Budget Office projects a $1.9 trillion federal deficit in 2026. We’re exceeding the record set immediately after World War II already.
That’s not to say a debt crisis will break out tomorrow.
It means the Treasury Department has to pound the pavement, to actively find buyers for a tremendous and growing amount of debt year after year.
Think of a small-town bakery.
If you bake 100 loaves a day and customers regularly buy 100 loaves, you have a good business.
If you suddenly bake 200 loaves, you have to find twice as many customers. You might advertise. You might offer discounts. You might start delivering. You might create a loyalty program.
None of those ideas make the bread bad. But the fact that you need them tells us supply has outgrown your customer base.
That is increasingly what we are seeing with federal government debt.
Treasury officials are not merely waiting for customers to arrive. They are developing new distribution channels, adjusting the structure of federal borrowing and building mechanisms to keep existing buyers from selling out.
The yen intervention is one example. The GENIUS Act is another.
The GENIUS Act created new demand for federal debt
The GENIUS Act became law on July 18, 2025. It created a federal regulatory framework for payment stablecoins – digital tokens designed to maintain a value of one dollar.
The Act requires regulated stablecoins to be backed one-for-one by liquid dollar assets. Those approved reserves include cash, bank deposits and short-term U.S. government debt.
(And no, physical gold is not an eligible reserve asset.)
The White House was quite explicit about the goal. Its own GENIUS Act fact sheet said stablecoins would increase demand for U.S. debt and reinforce the dollar’s position as the world’s leading reserve currency.
That makes a stablecoin issuer more than just another cryptocurrency company. It makes them a distribution network for dollars and federal debt.
See, a person in Argentina, Turkey or Nigeria may not have easy access to an American bank account. But they may be able to acquire a dollar-backed stablecoin easily with their cellphone.
The issuer receives their money and invests the reserves in short-term federal debt.
The user gets a digital dollar.
The Treasury Department gets another customer.
Now, this isn’t necessarily a bad thing! As much as I gripe about the dollar, it’s the least bad currency. Dollar stablecoins may provide people living under unstable currencies with an easier way to store and transfer value. Clear reserve requirements may also make the stablecoin system safer than the loosely regulated market that came before it.
But the GENIUS Act reveals the same concern as the yen intervention:
The federal government needs to generate more demand for its debt.
There is also an important limitation.
Not every dollar flowing into stablecoins represents truly new demand. Some users may simply move money out of bank deposits or other cash-like accounts that already held federal government debt indirectly. Even the Treasury Borrowing Advisory Committee acknowledged that stablecoins could merely shift existing demand from one part of the financial system to another.
Stablecoins may help distribute federal government debt more widely. They do not reduce the debt itself.
The sales campaign may work
Listen: The dollar is not about to disappear.
The International Monetary Fund reported that the dollar’s share of global foreign-currency reserves actually increased a bit this year. Central bank gold holdings surpassed the federal debt’s share of reserves back in October 2025, though.
The Treasury Department definitely needs new customers. Its sales strategy may prove effective.
Stablecoins may attract additional buyers for short-term federal debt.
FIMA may prevent forced selling during currency emergencies.
Joint intervention may stabilize the yen and reduce pressure on other Asian currencies.
These measures could lower immediate financing pressure and support the dollar system.
In the short term, these forces would be neutral at best to mildly negative for gold’s price.
Why?
Because a stronger dollar-distribution system likely leads to a stronger dollar. More debt demand helps keep debt service payments low, and can contribute to lower inflation.
Essentially, this sales strategy helps delay the federal government’s inevitable reckoning with its unsustainable debt load. But delaying a problem is not the same as solving it…
The risks are being moved, not removed
The federal government still owes the money. It still has to refinance maturing debt. It still has to pay interest.
And it still expects to borrow trillions more over the coming decade.
The new debt sales system also creates new interconnections.
Stablecoins become more closely tied to federal borrowing. Foreign currency interventions become more closely tied to American debt demand. Federal Reserve lending facilities like FIMA become more important to preventing foreign governments from selling.
Each connection can make the system more stable during ordinary times.
Each connection also offers trouble another path to travel during a crisis.
If a large stablecoin issuer faces mass redemptions, it may need to sell its reserve assets quickly.
If several foreign governments need dollars simultaneously, they may all seek access to the same emergency facilities.
If those facilities are not large enough – or if confidence disappears faster than officials can respond – the selling pressure they were designed to prevent may merely arrive all at once.
This is the paradox of financial engineering:
Every new backstop reduces one risk by transferring it somewhere else.
The system does become safer, but only in the specific situation its designers imagined. When the situation changes, the system becomes more complicated and more unstable than anticipated.
What does all this mean for gold’s price?
The yen intervention is not, by itself, a reason for gold’s price to rise.
Neither is the GENIUS Act.
In fact, both measures are intended to strengthen the dollar system and make federal government debt easier to finance. If they work smoothly, they could reduce near-term demand for gold at the margin.
The more important message is what these policies reveal.
The supply of federal government debt has grown so large that maintaining demand now requires more active management.
Washington is creating new buyers through stablecoin rules.
It is offering liquidity to foreign holders so they do not have to sell.
It is intervening in currencies when the financial stress of a major debt customer threatens to spill back into America.
Federal government debt used to be bought because institutions needed dollars.
Increasingly, it is being sold through a coordinated combination of regulation, diplomacy, market structure and emergency support.
Gold sits outside that arrangement.
Physical gold does not require a government to make interest payments.
It does not need a stablecoin issuer to maintain one-for-one reserves.
It does not rely on a foreign central bank’s ability to repay a dollar loan.
It is not someone else’s promise.
That does not mean gold’s price moves upward every time Washington borrows another dollar. Gold prices can fall sharply, as we saw in January. Reuters reported that analysts have lowered their 2026 gold price forecasts for the first time since 2023.
Yet those same analysts said the longer-term forces supporting gold – government debt, doubts about currency credibility and central-bank demand – remained in place.
That distinction matters.
The next intervention, facility or stablecoin buyer may keep the system running quite well.
Or it may create another layer of dependency.
To be clear, I do not know which outcome we will get. That’s precisely why diversification matters so much.
Diversification is not a bet that the dollar will collapse or that federal government debt will suddenly become unmarketable.
It is an acknowledgment that no family’s savings should depend entirely on Washington’s ability to keep finding new customers for an ever-growing quantity of promises.
The Treasury Department may have become America’s most important government-debt salesman.
Physical gold, on the other hand, does not need a salesman. It has spent thousands of years making its own case.
If you are concerned about growing federal debt, currency instability or the increasing complexity of our financial system, consider learning more about diversifying a portion of your savings with physical precious metals. Request your free Precious Metals Information Kit right now to learn more.