UBS Warns U.S. May Resort to Financial Repression Amid Soaring $36.2 Trillion Debt
Global wealth manager UBS has raised concerns that the United States may increasingly turn to financial repression as a strategy to manage its ballooning $36.2 trillion national debt.
In a recent report, the firm highlighted the possibility that U.S. policymakers could adopt more aggressive fiscal and regulatory measures to keep borrowing costs under control.
Financial Repression Seen as a Likely Tool
UBS analysts suggest that the U.S. government may resort to a combination of fiscal consolidation and financial repression to maintain control over sovereign yields and ease the burden of servicing its debt. These measures, they noted, are already present in various forms both in the U.S. and internationally.
One such measure could involve adjusting the supplementary leverage ratio (SLR) applied to major U.S. banks. Under current regulations, banks are required to hold equity capital against all assets, including U.S. Treasuries.
UBS posits that loosening these requirements—specifically by excluding Treasuries from capital calculations—could stimulate bank demand for government bonds and improve market liquidity. While such a change could be framed as a way to support bank lending, it would also serve to anchor Treasury yields.
U.S. Positioned to Implement Temporary Controls
According to UBS, the U.S. is uniquely positioned to implement financial repression in a controlled and temporary manner. The report argues that, due to its size and economic strength, the U.S. could manage such policies without significantly raising the risk of default.
UBS believes that temporary deployment of financial repression tools could provide necessary fiscal space, allowing for gradual budgetary consolidation and eventual policy normalization. In this scenario, any resulting economic distortions are expected to be limited and manageable.
The report underscores that while financial repression is not without risks, it remains a viable option for addressing the long-term sustainability of U.S. government debt.
Kosta Gushterov
Reporter at Coindoo
Kosta has been a part of the team since 2021 and has solidified his position with a thirst for knowledge, incredible dedication to his work and a “detective-like” mindset. He not only covers a wide range of trending topics, he also creates reviews, PR articles and educational content. His work has also been referenced by other news outlets.
