@allin: David Friedberg: Higher Interest Rates Are About to Make America’s $40 Trillion Debt Problem Much Worse “The federal government has a problem because over the next 12 months they have to refinance $10 trillion of debt. That debt is coming due. Those bonds are now due. They have to pay the principal back to the bond holders, and they have to go back to the treasury market and sell more treasuries to borrow more money to refinance. So the borrowing cost now is going to climb up, and when that borrowing cost climbs up, the federal government's burn goes up and the fiscal deficit goes up. So my theory and my argument on this is: There is no action that Bessent can take that's actually going to have a meaningful effect on the long end of the curve. We have a fundamental fiscal spending problem with the federal government right now. It is very expensive now to borrow money if you're the US federal government. And the reason is persistent inflation, I would argue because of excess government spending on social programs and other things. And the big problem at this point is the federal government is spending so much that if they were to cut spending aggressively, the argument and the concern is it would hit unemployment and it would cause a recession because the federal government is such an intricate part of the economy now. That's the argument. But it's causing inflation, and it's causing deficit spending. So this year the deficit will be roughly $2 trillion. And as a result, the market is saying, ‘We're worried about the US fiscal solvency over the long run, or there's a higher risk. As a result, we're going to charge you a higher interest, 5.2% on the 30 year.’ What does this mean for the federal government? Well, today, the federal government's average cost of debt is 3.4%. That's what we're paying on interest on average on the $40 trillion of debt that the federal government has outstanding. For every 1% change in the interest rate, the US government has to pay 1.25% of GDP in excess interest each year. 1.25% of GDP in interest each year for that 1% change in the interest rate.”

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Monday 31 August 2026 02:02:56 GMT