Will Washington weaponize its own debt?

While running through the forests of Bavaria today, my thoughts drifted away from markets and toward a question that has become increasingly difficult to ignore. I found myself wondering: will Washington weaponize its own debt?

My speculative conclusion: US’s debt problem was never going to be solved with growth or austerity and Washington knows it, which is why the real plan may be considerably more cynical than anything on offer from either party’s economists. Some 22% to 24% of the nearly $40 trillion in federal debt sits with foreign holders, led by Japan, the UK and China, with Belgium and a scattering of offshore centers like the Caymans further down the table and that residual, roughly $8.6 trillion, is the pressure valve nobody in Washington wants to name out loud.

The Euroclear precedent already proves the mechanism works: since 2024 the EU has been siphoning windfall interest off Russia’s frozen central bank reserves in Brussels, funneling billions to Ukraine each year while leaving the underlying principal nominally untouched, a maneuver justified entirely by the framing of sanctions rather than outright seizure. Substitute the word “Russia” for „EU“, “Japan” or “China” and the template writes itself, because Washington doesn’t need to confiscate a bond it can’t touch when it can simply manufacture the sanctions predicate that lets it freeze the account and pocket the coupon.

Trump’s own rhetoric toward the EU on NATO burden-sharing and the drumbeat around Taiwan pulling Japan into direct confrontation with Beijing, both read less like diplomatic friction and more like the early conditioning for exactly this kind of asset reclassification, where an ally’s Treasury holdings get relabeled as leverage the moment the relationship sours. None of this touches the roughly three-quarters of the debt held domestically, so the ceiling on how much this actually solves is real and probably closer to a few points of GDP than a structural fix, but as a stopgap that buys Washington another decade without a genuine fiscal reckoning, weaponizing custodial control over foreign-held Treasuries is coherent, cheap and consistent with exactly the kind of financial statecraft the Russia sanctions regime already normalized.