America’s sovereign-debt spiral
America’s sovereign-debt spiral has been building since Washington embarked on large budget deficits in the 1980s.
As securities issued at interest rates as low as 0.5% mature, the principal is being rolled into the higher rates of the spot market, at the moment 3.7 percentage points higher.
Higher interest expenses feed into deeper deficits, sparking more borrowing, driving heavier debt loads. This is how the debt spiral spirals—unless, that is, lower rates are engineered by the Federal Reserve, which would cause inflation.
There will be no road left to kick the can down.
Let’s run the numbers. Projections to 2034 from the Congressional Budget Office (CBO) assume no recessions, an average primary deficit of 2.6% of GDP, plus 3.6% from debt expense (the latter assuming an effective interest rate on government debt of 3.5%).
In the next ten years, under those assumptions, America’s debt-to-GDP ratio would rise from 99% to 122%.
When external pressure at last forces America’s leadership into hard choices, I believe the first move will be dollar debasement.
Jeffrey Gundlach The Economist 13 december 2024
Huge US Budget Deficit fear that the bond vigilantes will reawaken
https://englundmacro.blogspot.com/2024/06/huge-us-budget-deficit-fear-that-bond.html
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