After the U.S. Midterms: The „Dollar Dilemma“ Persists

In the midterm elections on November 3, U.S. voters gave the Democrats a clear majority in both chambers of Congress. As a result, U.S. politics will undergo noticeable changes in many areas. However, according to the FERI Cognitive Finance Institute, the United States’ „dollar dilemma“ persists unchanged. This is because there remains a serious conflict of objectives: The U.S. wants to maintain the global dominance of its currency, yet it is undermining it itself—through rapidly rising national debt, efforts to devalue the dollar, and an aggressive tariff and sanctions policy. „The state of U.S. public finances will not fundamentally change even with a Democratic majority in Congress—rather, the negative trend is likely to intensify. The U.S.’s financial foundation is thus progressively deteriorating“, says Dr. Heinz-Werner Rapp, founder and director of the FERI Cognitive Finance Institute. U.S. national debt stands at more than 40 trillion U.S. dollars; roughly one-fifth of government revenue goes toward interest payments; and by 2036, the net debt-to-GDP ratio is expected to rise from around 100 to 120 percent of GDP. In a detailed analysis published back in September, the FERI Cognitive Finance Institute warned that this trend could pose a risk to the global financial system in the medium term.

Cross-Party Blockade of Reforms

„Rising debt leads to higher interest costs, and higher interest costs generate new debt. This cycle has developed a strong momentum of its own in the U.S., which has become structurally entrenched“, Rapp emphasizes. After all, rising national debt in the U.S. is not a partisan phenomenon: Debt rose just as much under Republicans George W. Bush and Donald Trump as it did under Democrats Barack Obama and Joe Biden. There is little political leeway for course corrections. About two-thirds of the U.S. budget is accounted for by mandatory spending such as Social Security, healthcare, and veterans’ benefits; only about a quarter of the budget is renegotiated annually. Tax increases have been considered taboo for years, and there is usually no consensus on spending cuts. „New majorities in Congress are changing U.S. politics in many ways, but they will not reverse the fundamental debt dynamics. Rather, the structural drivers of U.S. government debt will be further accelerated by the election results“, explains Rapp. 

Financial repression as the most likely scenario

The U.S. is already exhibiting alarming fiscal behavior. The U.S. Treasury is increasingly financing the budget through short-term Treasury bills, and the Federal Reserve, under its new chairman Kevin Warsh, is planning a fundamental realignment, yet at the same time faces a glaring conflict of objectives. „Before every interest rate move, the Fed must consider the consequences for government finances. The current election result does not change this regime of fiscal dominance in the slightest“, said Rapp. Nor will international confidence in the U.S. dollar automatically return with the election outcome: Even today, the dollar’s share of global central bank reserves, including gold, stands at only about 40 percent. While dollar-backed stablecoins with a market capitalization of around $300 billion create additional demand for U.S. debt securities, they can only partially offset the strategic withdrawal of major investors such as China.

However, the FERI Cognitive Finance Institute does not consider a full-blown financial crisis in the U.S. to be the most likely scenario. In the medium term, a scenario of financial repression—characterized by higher inflation, negative real interest rates, and targeted interventions in exchange rates and interest rates—is far more plausible, potentially extending to capital controls or concepts such as the „Mar-a-Lago Accord“, which calls for levies on foreign investments. „For professional investors with exposure to the U.S., now is therefore a good time to critically examine key portfolio risks“, Rapp emphasizes. In particular, dollar, interest rate, liquidity, and ownership risks in the U.S. should be specifically analyzed and systematically assessed, according to the FERI Cognitive Finance Institute.

The Cognitive Comment titled „Das Dollar-Dilemma: Schuldenfalle, Finanzrepression und digitales Geld – Powerplay um die Zukunft des US-Finanzsystems“ published in September 2026 by the FERI Group’s Bad Homburg think tank, provides professional investors with a comprehensive overview of debt dynamics, monetary policy, and digital currencies in the U.S. and helps them assess future opportunities and risks. The analysis is available in German for download on this page.