Former President Trump has recently announced a 90-day suspension of reciprocal tariffs, a decision believed to be linked to significant sell-offs of U.S. debt in the market. Former legislator Guo Zhengliang analyzed on the show "Liangzi Mechanics" that the worsening U.S. debt crisis signifies a challenge to dollar hegemony.

He suggested that if the problems with U.S. debt remain unresolved, there will be an increasing emergence of local currency swaps in regional trade, leading to a gradual "de-dollarization" of the currency market. After Trump's announcement of reciprocal tariffs on April 4, the yield on U.S. 10-year bonds surged to 4.5% within days, rising 0.7%, which translates to an additional $300 billion in interest.

Guo pointed out that this is related to the forced liquidation of hedge funds involved in basis trading. He explained that basis trading involves hedge funds buying physical U.S. Treasury bonds while selling corresponding Treasury futures contracts, facing demands for liquidation as yields rise, creating liquidity risks that affect market confidence.

Additionally, Japan sold over $20 billion in U.S. debt during this period, mainly due to a major insurance company deciding to adjust its investment focus from U.S. debt to Japanese bonds. Regardless of any adjustments in Trump’s trade policies, the yield on U.S. debt has remained stagnant between 4.3% and 4.4%.

Guo recalled the last debt crisis occurring during the COVID-19 pandemic in 2020 when the Federal Reserve intervened with unlimited QE purchasing up to $1.6 trillion in U.S. debt. He indicated that the Federal Reserve currently holds around $6.8 trillion in U.S. debt, and should another crisis occur, they would be unable to engage in large-scale purchases. He noted that the U.S. debt deficit is rising at a rate of $2 trillion annually and is expected to reach historical highs in the coming years.

There are growing concerns as the market gradually loses confidence in U.S. debt, with credit rating agencies like Fitch downgrading the U.S. government’s debt rating. Guo fears that if foreign institutions are unwilling to hold U.S. debt, they might redirect their funds toward bonds from other countries, such as Japanese, German, or Renminbi bonds. Furthermore, the trade tensions sparked by Trump have been pushing countries toward a trend of local currency swaps.

Guo proposed that Trump might explore the potential of integrating cryptocurrencies to expand trading volume in U.S. debt; however, he expressed skepticism about incorporating Bitcoin due to its volatility, emphasizing that the current trading volume of Bitcoin still falls short compared to the vast U.S. debt market.