Fed is paring back on open market operations while treasury is moving forward. The treasury buybacks are a pittance, though. This administration seems to be sleep walking into a debt crisis. I guess they think they can hold out long enough to blame it on the other party?
Some people on this site genuinely believe we're still in a Biden economy and when things start to look positive that's when the Trump economy starts, so you're probably right.
I hear this a lot, and for decades - yet during this time US debt and spending has exploded, including things like covid stimulus, great recession QE, etc. We happily printed/borrowed/etc but when it comes to social security - gee you're just out of luck, no money left, sorry!
Go ask a (capable, preferably open) LLM. If it doesn’t give you a direct answer it will give you enough of a starting point to start asking more questions.
The best way to derisk would be to get out of the US and surrender your citizenship. But the alternatives may not be all that much better (France has marginally lower debt to gdp, japan has much higher, to give two examples).
Classic answer would be: buy physical gold. Another, much more risky path: get into as much debt as possible: a fixed rate mortgage to buy a second house perhaps. Once the US get into hyperinflation that $1M will be less than your monthly salary. Sounds ridiculous, but something similar has happened in Poland in 1989 and I know of people who basically got a free house this way.
The uncomfortable reality is that fixing this will require tax hikes AND spending cuts. Not just taxes on people you don't like and spending cuts on niche programs, real changes like a VAT and slashing the VA.
Why do they need to pay it back? If they pay it back, then what will happen?
I'm from a developing country. My country is objectively much worse than US in every aspect. Yet we don't have this issue. Nobody screams that the country will collapse.
Is this kind of doomsday thing an American culture?
For decades, the U.S government has been spending much more than it takes in from taxes. To make up for the shortfall, it uses debt in the form of U.S. treasury bonds. They currently pay about 5% a year.
They have long been considered risk free. Boring, safe, low return investments. Companies or people who need absolutely reliability in their investments buy them - the elderly, pensions, insurance companies, banks the world over.
The U.S. has issued so many of these bonds that the total amount outstanding right now is $40T. This amount is so staggering that to simply pay that 5% in interest payments costs us more than it takes to fund our very large, expensive military.
If they don't pay it back, and declare all those bonds worthless - well all of those people who were relying on what they thought was a rock solid, safe investment go bust. Banks fail worldwide, pensions run dry, retirement funds suddenly are empty, all kinds of businesses collapse. It would make the financial crisis of 08 look like a joke, and it would be a true catastrophe.
That is almost surely not going to happen.
What could happen is that we enter a debt spiral - investors get worried we won't be able to pay it back, and view bonds as less than perfectly safe. They now want 6%. The U.S. has to pay even more in interest every year, so they issue more debt to roll it over, which makes it worse and we get to 7%, etc.
Typically in this situation, a country either quickly gets its act together and commits to reducing spending and raises taxes, or they just turn on the money printers, and use inflation to make that debt smaller in real terms. I have little faith in the U.S. to commit to fiscal austerity and expect them to try to inflate the debt away.
The question is, are we going to have another Volcker willing to raise the prime rate to 20% to counteract our useless legislative branch? Or is the idea of an independent central bank dead at this point?
I don’t think raising rates like “Tall Paul” (Volcker) did would help in this situation. We are in a bit of a pickle. Raising rates would cause the servicing costs to become enormous and would likely just result in even more debt. The alternative, lowering rates, would likely cause a massive spike in inflation. Inflation makes the debt easier to manage because it’s worth less, but then that wreaks havoc on everyone (especially folks on fixed income).
I think the only way out is to reduce military spending, nationalize the health care system, and tax the hell outta the ultra wealthy. But I suspect that won’t happen at least based on the current oligarchy running the country.
It’s really unfortunate too, because we could be taking on debt to invest in citizens like making college free, improving teacher salaries, and general infrastructure but… we ain’t.
Doing that in the middle of the AI bubble would be a huge systemic risk to the US and world economy. Expansion of the US economy is now largely driven by the colossal amount of data centers being built. No one anywhere in the world would invest in risky data centers, LLM company IPOs etc if they could get a 30y 20% bond. Financial institutions like investment banks, hedge funds rely on the AI musical chairs to justify the trillions of commitments on their balance sheets. A Volcker style rate hike would trigger a dash for the exit and cause the collapse of some of these institutions, risking a domino effect rippling through the entire economy.
Plus it'd also massively increase USG deficits since all the debt that's added and rolled over would be financed at that elevated rate. At that point, cuts would amplify the above domino effect (cf. Kalecki Levy equation) reducing tax intake, but no cuts would mean unleashing a debt spiral.
Others have spoken to why US treasuries were considered a risk free asset, what is important now is that the US Treasury's market participation has been to attempt to keep borrowing costs lower without paying down the debt (US-Japan currency bailout, treasury bond buyback). The bond market is rejecting the theatrics. Fiscal policy can change (spend less, stop issuing new debt, start paying down existing debt), or yields will continue to rise, causing a potential debt spiral (as the US will be forced to issue new debt and refinance existing debt at ever increasing interest rates). Imagine your credit card interest rate keeps increasing, while you carry a balance the size of your annual income, you keep charging on the card, and the limit is unknown.
This will flow into consumer debt markets, pushing up borrowing costs for everyone (auto loans, credit cards, mortgages, etc), as all consumer debt is priced off of "risk free" US treasury yields. This could slow the US economy further, and the economy is already at stall speed without AI investment.
US Debt is not the same as personal debt. US Treasuries are the same as cash so it is just a measure of how much USD are in the global economy. So long as the "debt" can be serviced there is no issue.
Not at all true for most developing countries, they borrow despite the high interest. It just means that the burden of interest payments squeeze out welfare programs, development programs, etc. Usually the IMF/World Bank step in to influence austerity measures, fiscal and monetary policy for further loans to be disbursed.
> But, in US, people are so alarmed about US' economy collapsing.
It's more than US Treasuries (debt) are the safe asset upon which all other assets are priced. If they go mental, then lots of assumptions break and the machines will create a financial crisis for us (humans too, but the machines will start it).
34 comments
[ 0.99 ms ] story [ 18.8 ms ] threadBlaming the democrats for republican deficits has worked for the past 40 years, why stop now?
(This is not financial advice)
Why do they need to pay it back? If they pay it back, then what will happen?
I'm from a developing country. My country is objectively much worse than US in every aspect. Yet we don't have this issue. Nobody screams that the country will collapse.
Is this kind of doomsday thing an American culture?
They have long been considered risk free. Boring, safe, low return investments. Companies or people who need absolutely reliability in their investments buy them - the elderly, pensions, insurance companies, banks the world over.
The U.S. has issued so many of these bonds that the total amount outstanding right now is $40T. This amount is so staggering that to simply pay that 5% in interest payments costs us more than it takes to fund our very large, expensive military.
If they don't pay it back, and declare all those bonds worthless - well all of those people who were relying on what they thought was a rock solid, safe investment go bust. Banks fail worldwide, pensions run dry, retirement funds suddenly are empty, all kinds of businesses collapse. It would make the financial crisis of 08 look like a joke, and it would be a true catastrophe.
That is almost surely not going to happen.
What could happen is that we enter a debt spiral - investors get worried we won't be able to pay it back, and view bonds as less than perfectly safe. They now want 6%. The U.S. has to pay even more in interest every year, so they issue more debt to roll it over, which makes it worse and we get to 7%, etc.
Typically in this situation, a country either quickly gets its act together and commits to reducing spending and raises taxes, or they just turn on the money printers, and use inflation to make that debt smaller in real terms. I have little faith in the U.S. to commit to fiscal austerity and expect them to try to inflate the debt away.
I think the only way out is to reduce military spending, nationalize the health care system, and tax the hell outta the ultra wealthy. But I suspect that won’t happen at least based on the current oligarchy running the country.
It’s really unfortunate too, because we could be taking on debt to invest in citizens like making college free, improving teacher salaries, and general infrastructure but… we ain’t.
Plus it'd also massively increase USG deficits since all the debt that's added and rolled over would be financed at that elevated rate. At that point, cuts would amplify the above domino effect (cf. Kalecki Levy equation) reducing tax intake, but no cuts would mean unleashing a debt spiral.
This will flow into consumer debt markets, pushing up borrowing costs for everyone (auto loans, credit cards, mortgages, etc), as all consumer debt is priced off of "risk free" US treasury yields. This could slow the US economy further, and the economy is already at stall speed without AI investment.
https://think.ing.com/snaps/us-treasury-ups-its-buying-of-lo...
https://think.ing.com/articles/rates-spark-what-the-is-going...
https://www.axios.com/2026/08/20/bonds-fed-treasury-policy
https://www.axios.com/2026/08/20/bonds-treasury-foreign-hedg...
https://www.axios.com/2026/08/19/rates-treasury-borrowing-be...
https://www.axios.com/2026/08/17/treasury-yields-warsh-bonds
https://www.axios.com/2026/07/30/warsh-fed-inflation-bonds
https://www.youtube.com/watch?v=yh18YXKMk3g
America Is About to Get More Expensive - https://news.ycombinator.com/item?id=49388369 - August 2026
The US on the other hand keeps borrowing and borrowing
But then nobody really screams apocalypse. But, in US, people are so alarmed about US' economy collapsing.
It's more than US Treasuries (debt) are the safe asset upon which all other assets are priced. If they go mental, then lots of assumptions break and the machines will create a financial crisis for us (humans too, but the machines will start it).