The Empire of Debt

May 2026 by Jorge Silveira Botelho.

Excessive government debt has turned debt into a system of governance that sustains states and, consequently, the world order. Debt has ceased to be a mere financial instrument and has become a dangerous anchor of sovereignty.

This new paradigm, based on a changing global order, increasingly demands the understanding that capital is a scarce resource. Thus, the increased fragmentation and growing demand for autonomy from the regions that this new order imposes may launch humanity into a new era of capital seeking.

Currently, and looking beyond the enormous geopolitical uncertainty we face, there are three major crucial themes that are closely associated with the acceleration of capital demand.

The first issue relates to the recurring lack of control over deficits and the dynamics of debt growth in the US.

Looking at the last 25 years, we see that at the beginning of the 2000s, the value of American public debt, in absolute terms, went from a similar value to that of the European Union to being more than double that currently.

Evolution of public debt in the US and the European Union.

Also noteworthy is the gradual decrease in the financing of this debt by non-residents. Between 2011 and 2025, the share of US public debt held by non-residents fell from 47% to approximately 30% (source: Treasury International Capital). On the other hand, it should also be noted that total public spending in 2025 was around 37.5% of GDP, highlighting the fact that debt interest payments already exceed the defense budget in 2025 and represent approximately 3.2% of GDP in 2025 (source: Congressional Budget Office.

What can be inferred from this set of data is that the financing effort of the American economy is increasing, something that is clearly evident in the dynamics we have been witnessing in the rise of 30-year long-term real interest rates in the US.

Evolution of 30-year real interest rates in the US over the last 20 years.

The second theme in focus in this new era of capital seeking stems directly from the alteration of the world order as we knew it. The urgent need for greater autonomy for countries and regions in matters of defense, energy independence, and critical infrastructure such as communication routes and networks will motivate a greater demand for capital and consequently its retention, whether through greater controls on its circulation or through incentives. This is already evident in countries and regions like China and some emerging countries.

In Europe, the adoption of the Savings Investment Union, in its origins, is nothing more than the purpose of further developing the capital market and creating incentives to retain and transform capital. In practice, excessive state debt necessitates the development of solutions that attract savers, based on the logic of converting deposits into productive capital.

What is implicitly inferred from this new autonomy of regions and countries is that many of the resources that were once available to other regions will simply cease to be so…

Finally, the third theme stems from the "chronicle of a death foretold" of one of the largest global sources of financing for financial assets, the famous yen carry trade. In fact, Japan is not only one of the most indebted countries in the world, with debt relative to GDP at around 250%, but it is also one of the countries most focused on securing its autonomy in this new world order. It is true that despite its high debt, more than 90% of it is held by residents (source: (IMF), and it is also a fact that Japan is a major external creditor, whose external assets represent about 75% of GDP. However, it is no less true that the rise in interest rates in Japan has not only reduced carry trade but is also motivating a strong movement of capital repatriation.

From this, it follows that, in these parts as well, capital will not be available in the same way as before.

Evolution of 30-year nominal interest rates in Japan this millennium.

In this context, the obvious conclusion to draw is that this new world order will dictate a new era in the pursuit of capital, given that we will witness distinct flows of capital.

The consequences of this new reality are numerous, but one is obvious: Active management and the need for greater diversification will be two critical success factors for us to move forward in this environment.

Therefore, successful asset allocation will belong to those who know how to navigate capital scarcity, not to those who are stuck in the past.