19 December 2025 | 12:31PM EST Economics Research GLOBAL MARKETS ANALYST An Investor's Guide to Japanese Portfolio Flows Karen Reichgott Fishman +1(212)855-6006 | karen.fishman@gs.com Goldman Sachs & Co. LLC Lexi Kanter +1(212)855-9701 | alexandra.kanter@gs.com Goldman Sachs & Co. LLC Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. ...

Core Insights - The U.S. national debt has reached over $37.86 trillion as of September 2025, marking the highest level in history and significantly increasing since 2020 [3][5] - The government is forecasting a deficit of $1.97 trillion for 2025, indicating ongoing fiscal challenges [1] - Ray Dalio warns that the U.S. is on a path toward a debt-induced crisis, with potential implications for inflation, interest rates, and global markets [4][6] Debt Growth and Economic Implications - The rapid increase in national debt is attributed to stimulus measures and expanded unemployment benefits during the COVID-19 pandemic, coinciding with rising interest rates from the Federal Reserve [2][6] - Dalio emphasizes that debt growth is outpacing income growth, which could lead to a loss of market confidence and a potential debt spiral [7][8] - The debt-to-GDP ratio is now significantly above historical averages, creating a cycle of borrowing that successive governments struggle to escape [6] Investor Strategies - Investors are advised to diversify their portfolios to mitigate risks associated with rising debt and inflation [12][19] - Fixed-income assets such as investment-grade corporates and municipal bonds are suggested as alternatives to U.S. Treasuries, which may lose their status as a safe investment [14][19] - Gold and commodities are recommended as hedges against inflation, while equities with strong pricing power may perform well in a high-debt environment [16][19] - Maintaining liquidity through high-yield savings accounts or mid-term CDs is also advised to navigate potential economic instability [17][19]