The One Big Beautiful Bill Act — the reconciliation package that extended and expanded the 2017 Tax Cuts and Jobs Act while adding new deductions, eliminating taxes on tips and overtime, and cutting spending on Medicaid and SNAP — is projected to add between $3.4 trillion and $5.7 trillion to US federal debt over the next decade, depending on whether you use the Congressional Budget Office’s conventional scoring or the Bipartisan Policy Center’s estimate inclusive of interest costs. Debt-to-GDP, already at 97% of publicly held debt and 117% on a total debt basis, rises to 129% under conventional CBO scoring by 2034.
Moody’s, the last major rating agency to hold the US at AAA, stripped that rating in May 2025, moving the US to Aa1. The 30-year Treasury yield briefly touched 5.03% in the days after the downgrade announcement before recovering as buyers returned. The S&P 500 did not collapse. The dollar did not crater. Bond markets absorbed the downgrade with what analysts described as “muted” reaction, and within weeks the fiscal debate had moved on to the reconciliation package rather than the rating itself.
The temptation — one that financial commentary indulged extensively — is to read the muted market reaction as evidence that US fiscal concerns are overblown, that Treasuries remain the global reserve asset regardless of rating, and that the debt trajectory is a long-term concern that the bond market will reprice only when it becomes acute rather than merely structural. This reading is not irrational. It may prove correct. But it is also exactly the kind of reasoning that precedes the moments when gradual fiscal deterioration becomes non-gradual market repricing.
What the Bill Actually Does to the Fiscal Position
The One Big Beautiful Bill Act’s fiscal impact requires separating several components that are often conflated in the political debate around it.
The tax cut extensions — primarily the individual rate cuts, the expanded standard deduction, and the increased child tax credit from the 2017 TCJA — account for the largest share of the cost. These provisions were already in the baseline projections as likely to be extended; the bill makes their extension permanent rather than requiring renewed legislative action. The net new fiscal impact of permanence, versus the alternative of continued temporary extensions, is nonetheless real and large.
The new provisions — no tax on tips, no tax on overtime, enhanced deductions for auto loan interest — add further cost while being specifically targeted at working- and middle-class voters. The Tax Foundation projects these provisions add $3.7 trillion in additional tax cuts on their own, with interest costs bringing the total fiscal impact above $4 trillion. Non-partisan estimates that include more pessimistic economic growth assumptions reach $5.7 trillion.
The spending reductions — primarily cuts to Medicaid through enhanced work requirements and eligibility restrictions, and cuts to SNAP — are projected to offset approximately $800 billion to $1.2 trillion of the tax cut cost over the decade. They do not come close to paying for the revenue reduction. The claim that the bill is fiscally responsible because it includes spending cuts is accurate in direction and misleading in magnitude.
The interest cost component deserves specific attention. US federal interest expense is already the second-largest budget item, exceeding defence spending in some projections for the current fiscal year. At current debt levels and interest rates, the federal government pays approximately $900 billion annually in interest on its outstanding obligations. Adding $3.4 to $5.7 trillion in new debt, at rates that are higher than the average rate on the existing stock, increases the annual interest burden by $150 to $250 billion — a self-compounding cost that grows as old low-rate debt matures and is refinanced at current rates.
Why Markets Have Not Repriced
The bond market’s failure to reprice US fiscal deterioration persistently is not mysterious, and explaining it is more useful than simply noting it.
US Treasuries are the global reserve asset — the instrument that virtually every sovereign wealth fund, central bank reserve manager, and institutional investor holds as the risk-free baseline. The demand for Treasuries is structurally large and partially inelastic: investors hold them not only because they expect positive real returns but because they need them for collateral, for liquidity management, and because their investment mandates reference them without regard to rating. Moody’s downgrade to Aa1 did not trigger forced selling by any major institutional category. Banks using the internal risk-based approach, FX reserve managers, and collateral-posting entities were all substantially unaffected by the rating change mechanics.
Additionally, the US fiscal position, while deteriorating, remains distinguished from the sovereign debt crises that have historically triggered sustained market repricing by one critical feature: the US borrows in its own currency, which the Federal Reserve controls. This eliminates the external financing constraint that has produced crises in countries borrowing in foreign currencies. A government that can print its own money cannot be forced into a hard default by bond market pressure — it can always inflate its way through. This does not mean there are no consequences; it means the consequences arrive through inflation and currency depreciation rather than through the mechanism of liquidity crisis.
Finally, there is no obvious alternative. The diversification away from US Treasuries as a reserve asset — toward euros, yuan, gold, or other instruments — has been discussed for two decades and has happened only partially and slowly. The absence of a credible alternative reserve asset means that even investors who are sceptical of US fiscal trajectory continue to hold Treasuries because the alternatives are worse or smaller or less liquid.
When the Repricing Risk Becomes Real
The stability of bond markets in the face of fiscal deterioration is not permanent — it is contingent on the factors above remaining in place. The risk scenarios where those factors break down are worth naming precisely.
The first is an inflation resurgence that forces the Fed to hold rates high for longer than the market expects. At 5% on the 10-year Treasury, the government’s annual interest cost on its full debt stock becomes an increasingly dominant budget item. Each percentage point of higher-than-expected interest rates adds approximately $350 billion annually to the deficit at current debt levels — a number that compounds into the next year’s debt issuance. The OBBBA adds to the deficit at exactly the moment when fiscal space for absorbing higher rates is most constrained.
The second is a global shift in reserve asset diversification that moves faster than current trend rates. Central banks have been increasing gold holdings and reducing dollar reserves at the margin. If tariff policy or geopolitical developments accelerate this trend — causing even a modest reduction in the structural demand for US Treasuries — the government faces higher rates on an expanded debt stock simultaneously. The combination is non-linear in its fiscal impact.
The third, and most underappreciated, is the auction dynamic. The US Treasury must roll over enormous quantities of maturing debt while simultaneously issuing new debt to fund the current deficit. If primary dealer demand at Treasury auctions weakens — even modestly, even temporarily — the yield required to clear the auction rises. Those yields feed immediately into the fiscal arithmetic. The 2023 “basis trade” disruption and the brief 2024 auction weakness episodes showed that Treasury market stress can materialise quickly even when the macro backdrop appears stable.
What This Means for Risk Asset Investors and Operators
For investors allocating across risk assets — equities, crypto, private credit, real assets — the US fiscal trajectory creates a specific macro backdrop that should inform portfolio construction without necessarily dominating near-term decisions.
The scenario in which US fiscal deterioration triggers a genuine Treasury market repricing is negative for most risk assets simultaneously: rising rates compress equity valuations, increase the cost of leveraged positions in crypto and DeFi, and reduce risk appetite globally. The correlation of fiscal risk with broad risk-asset drawdown makes it a particularly uncomfortable tail risk — the thing that could go wrong across multiple positions at once.
The scenario in which fiscal expansion is accommodated through inflation — the Fed allows higher prices to reduce the real debt burden — is more nuanced for risk assets. Nominal equity earnings rise with inflation; real assets and commodities benefit; Bitcoin and gold perform well as purchasing power hedges. But this scenario also implies sustained volatility in rates and currencies that creates operational uncertainty for businesses and protocols with significant fiat-denominated obligations.
The base case — continued fiscal expansion absorbed by structurally captive Treasury demand, with periodically elevated but manageable yields — is the one markets are currently pricing. It may remain correct. The honest assessment is that the base case benefits from path dependencies that cannot be assumed to continue indefinitely, and that the tail scenarios are heavier-tailed than typical risk models assume. The end of the era when macro headwinds could be ignored by risk asset investors includes the fiscal headwind that has been building for two decades but has not yet arrived in force.
The Crypto-Specific Angle
For Web3 operators and crypto investors specifically, the US fiscal trajectory intersects with Bitcoin’s investment thesis in a direct way. The core Bitcoin narrative — that hard-capped supply offers protection against the debasement of fiat currencies whose supply is determined by political decisions — is precisely the thesis that fiscal expansion tests. If the One Big Beautiful Bill adds $5.7 trillion to the debt over a decade, the real purchasing power of the dollar over that period is a function of how much of that debt is monetised versus financed at market rates. Either path — monetisation-induced inflation or market-rate financing — is part of the thesis that drove institutional Bitcoin allocation in 2020–2024.
The complication is that Bitcoin’s performance as a fiscal hedge has been inconsistent in timing. Bitcoin fell sharply during the 2022 rate shock — the period when the Fed raised rates to address the inflation that followed pandemic-era fiscal expansion — rather than performing as the hedge its advocates had promised. The lag between fiscal deterioration, inflation, and Bitcoin’s response to both means that positioning Bitcoin as a fiscal hedge requires a longer time horizon and more tolerance for mark-to-market volatility than many allocators can sustain.
What the fiscal trajectory does credibly support is a continued structural case for Bitcoin as a portfolio component — not a trade, but a long-horizon allocation sized for its volatility profile. The governments most likely to add the most debt over the next decade are also the ones whose citizens have the most reason to hold a fixed-supply alternative to their domestic currency. That is a claim supported by historical evidence from sovereign debt crises in Turkey, Argentina, and Venezuela, even if the US fiscal trajectory does not reach those extremes.
FAQ
What does the One Big Beautiful Bill Act do? It permanently extends the 2017 TCJA tax cuts and adds new provisions including no tax on tips and overtime. The CBO projects it adds $3.4 to $3.7 trillion to the deficit over 10 years; broader estimates including interest costs reach $5.7 trillion. Spending cuts offset approximately $800 billion to $1.2 trillion of the cost.
What did Moody’s do to the US credit rating? Moody’s downgraded the US from Aaa to Aa1 in May 2025, becoming the last major rating agency to strip the US of its top rating. S&P downgraded in 2011; Fitch in 2023. The market reaction was initially elevated yields, followed by recovery as buyers returned.
Why have bond markets not repriced US fiscal deterioration? Structural demand for Treasuries is partially inelastic — investment mandates reference them without regard to rating, and there is no credible alternative reserve asset at scale. The US also borrows in its own currency, eliminating the external financing constraint that triggers hard sovereign crises.
When does the fiscal repricing risk become acute? The specific triggers are inflation resurgence forcing sustained high rates, accelerated central bank diversification away from dollar reserves, or a weakening of primary dealer demand at Treasury auctions. Any of these could cause a non-linear fiscal impact at current debt levels.
What does this mean for crypto as a hedge? It supports the long-horizon structural case for Bitcoin as a fixed-supply alternative to fiat currencies facing fiscal expansion. But Bitcoin’s timing as a fiscal hedge has been inconsistent — it fell during the 2022 rate shock despite accelerating inflation — requiring long time horizons and tolerance for mark-to-market volatility.
Sources
- Marketplace — What tax cuts in the OBBBA could mean for the national debt
- Bipartisan Policy Center — What Does the One Big Beautiful Bill Cost?
- Tax Foundation — One Big Beautiful Bill Act: Details and Analysis
- CSIS — Moody’s Downgrade Signals Deeper Risk: Is US Debt Undermining Global Leadership?
- RBC Economics — One Big Beautiful Bill Act: What’s Changing and Why It Matters in 2026
