Finally some evidence that the system is working. Most countries are borrowing like there's no tomorrow, so obviously rates should go up to compensate the risk of not paying back.
And the incredible thing is that yields are quite low based on historical standards. The risk of lending to most countries at yields that are barely above real inflation is massive.
Let's take the US, where you have to consider lending money to the government for 10 years at 5.009%. This barely covers inflation if you consider real numbers rather than the financial fiction ones that have been published in the last 10-20 years.
In the 90s, an era of relative prosperity when the US was the sole remaining superpower, 5-year treasuries were paying 7-9% with inflation in the 2-4% range!
> 5-year treasuries were paying 7-9% with inflation in the 2-4% range
One crucial difference: the US wasn't $40T in debt, and it wasn't pulling trillion dollar deficits. In 1998 the US federal government actually had a surplus! Even 9% interest wasn't going to wreck the Federal budget when the overall amount of debt to be serviced was so much lower.
Everything is relative to size. If your older brother lends you a dollar at 100% daily interest, you can still throw a balled-up Jackson at him a couple days later and walk away clean. But ask anyone who agreed to a crazy 20% interest rate on their car loan what it did to their personal finances, and all you'll hear is horror stories. 9% on $40T would be suicide.
Working is an interesting term (which I agree with btw) because place like Japan with debt at 200%+ of gdp, rates rising are going to annihilate spending in other important areas.
Maybe we should vote for people who are financially literate, can think long term, and can "conserve" rather than politicians who promise endlessly?
Eliminate candidates who promise to lower taxes (slows down debt repayment substantially) and those who promise new or expanded services. Who's left? "I'll tax you a little more and not spend that money" is a tough pitch, even if it would be helpful for the debt.
I think Clinton was the last us president to balance the budget and start reducing the deficit so I guess see what he did.
See what Clinton did? Well, he said he'd create a plan to balance the budget. And he did. It was a ten-year plan, and it involved doing very little for the first eight years, and then doing the real work in years nine and ten - that is, after Clinton was out of office, even if he got a second term.
Then 1994 happened, and the Contract With America. The Republicans took both the House and the Senate, and they passed a balanced budget , then, whether Clinton liked it or not.
So that's what "Clinton" did. He pretended he was going to do something, and the Republicans called his bluff, and made him do it.
Note well: Republican majorities in any other set of circumstances have not yielded a balanced budget. I'm not saying that they're the answer (what they did under Trump shows that they very clearly are not the answer for fiscal responsibility). All I'm saying is that "Clinton balanced the budget", while technically true, isn't really the way that played out.
> The Republicans took both the House and the Senate, and they passed a balanced budget
And Clinton signed it, which is what matters. Well, the Republicans have "both the House and the Senate" now plus the WH, where's the "balanced budget"? Nowhere, don't ask for it, nobody is going to sign it either - ask for $ 1.5 T Mil Bill, it will be signed for sure.
Do you know what was the Mil Bill in 1994?
1994 was a one-off stunt, in other words - mud in the eyes of the electorate. Old glory stories are worthless if they contradict the present reality,
Rates going higher increases interest expense materially. You either rack new debt or you cut in places that are uncomfortable. The point is: responsible leadership in the developed world has gone mia for decades. There's a price to be paid that's real.
> vote for people who are financially literate, can think long term, and can "conserve" rather than politicians who promise endlessly
I wish you luck. Endless promises and short term thinking are the main things the system incentivizes. Each politician is temporarily renting their seat, paid for by other people. Each bureaucrat is studiously, steadfastly avoiding learning anything that threatens their continued employment, which is paid for by other people.
“Promise endlessly” is an oft touted criticism of social safety net programs, when the reality is that reducing vast tranches of corporate welfare is typically more than enough to solve budget shortfalls.
You have to consider the fact that the populists are only popular because all the other parties in the last 20 years have made endless promises to the voters and failed to accomplish a tenth (if I am being generous) of what said they would do.
At some point, the blame as to lie also with whoever came before them too.
> Maybe we should vote for people who are financially literate, can think long term, and can "conserve" rather than politicians who promise endlessly?
Conservatives:
+-------------------------+----------------------------------------+
| President Name | Deficit Increase (+) or Decrease (-) |
+-------------------------+----------------------------------------+
| Donald Trump (2nd term) | N/A |
| Donald Trump (1st term) | +11.1% |
| George W. Bush | +4.3% |
| George H. W. Bush | +1.8% |
| Ronald Reagan | +0.5% |
| Gerald Ford | +0.8% |
| Richard Nixon | +0.7% |
| Dwight D. Eisenhower | -1.8% |
+-------------------------+----------------------------------------+
Liberals:
+-------------------------+----------------------------------------+
| President Name | Deficit Increase (+) or Decrease (-) |
+-------------------------+----------------------------------------+
| Joe Biden | -5.7% |
| Barack Obama | -6.7% |
| Bill Clinton | -6.1% |
| Jimmy Carter | -0.1% |
| Lyndon B. Johnson | +1.9% |
+-------------------------+----------------------------------------+
Deficit rate = (federal outlays - federal receipts) / GDP. Change = deficit rate in final fiscal year - deficit rate in first fiscal year. The % symbol below means percentage points of GDP, not relative percent change. The first and last fiscal years whose end dates occurred during each presidency
are used. Transition fiscal years can therefore span two administrations. Figures are OMB actuals through FY2025 and are rounded to 0.1%.
Yeah, in 2020 we let Trump print $4T in a single election year and then he spent the next four years successfully convincing the weak minded that Biden caused the pandemic inflation by printing half as much in the next four years.
This is kind of a fool's errand given that sample sizes are small and there are large exogenous causes. But the pattern is consistent and agrees with theory, so I think the comparison is worth making anyway.
You really don't want to accept that our deficit expansion has been overwhelmingly due to Republican largesse, do you?
Democrats aren't fiscal conservatives, but the last time they were able to expand the deficit in pursuit of social spending was LBJ. Deficit expansion during my lifetime has been overwhelmingly driven by regressive tax cuts, regressive bailouts, and wars in the middle east.
> Maybe we should vote for people who are financially literate, can think long term, and can "conserve" rather than politicians who promise endlessly?
These people do not exists. If a politician ran on such a platform, they would never get elected.
The fact is in modern democracies like in the EU or in the US there are simply too many people who rely on the status quo directly or indirectly.
Its almost comical, in France politicians have run, got elected and have swept the debt problem under the rug for the last 40 years, then they leave office and suddenly decide that the debt is a massive problem but that there was nothing they could do about while in office so they never did anything but now they speak about it.
And they all do it. Left, right, center, it's all the same.
The US’s most important export for many years was treasury bonds. As de-dollarization occurs, the United States is bound to face some economic reckoning.
It should be noted that even still almost all US debt is held locally.
Accounting for the asset holding, Japan's net debt is even lower than UK/US.
>The key lies in the Japanese public sector’s operation of a de facto sovereign
wealth fund. Unlike countries such as Norway and Saudi Arabia, which fund such
vehicles with national savings from natural resources, Japan finances its investments
largely through domestic borrowing at very low floating interest rates
.... >In the case of Japan, evaluating fiscal
positions solely through the lens of gross government debt can present a highly
distorted picture of the overall fiscal health of the country.
I feel like there is an inside joke here, so I apologize if I am being a bit spectrum-y taking it at face value.
Every sovereign can print money and repay lenders, but doing so cause an inflationary cycle. When it looks like that is inevitable, borrowing rates start spiralling, so you have to print more money, and soon you are Zimbabwe.
Like the US is catastrophically indebted -- both parties have been negligent on this, though one party has been much, much worse than the other -- and right now there's a certain defeated malaise about 40T in debt. The last time bond rates were this high the country had only $6T in debt, and even that was considered a catastrophic level.
"Oh but we'll just grow the economy..."
The debt has grown by 6.5x, and the GDP has grown by 2.8x since 2002. The math just isn't mathing. And remember that bond prices were historically low, and if there was ever a time to pay down the debt....
Nope, $2T deficit, "hide in the ballroom bunker and hold the world hostage with the nuclear launch button" projects, and now a hilarious $1.3T bribe to voters. Utterly busted. It is astonishing that it took this long for the world's lenders to chuckle and say nah.
Debt service costs as a percent of GDP are in fact lower than they were in the 1980's, when things came out fine. Is this the best way to run the budget? Likely no. Should we make policy changes? Certainly yes.
Is the best way to drive that policy argument flinging around adjectives like "catastrophically indebted". No. If you have a suggestion make a suggestion. Screaming about "The Problem" without discussing policy is echo chamber logic.
There are really just two ways to avoid the inflationary spiral. You can either increase income (i.e. grow gdp) or you can decrease spending (i.e. cut entitlements).
This is as close as it can be to clearly explain. The problem is that most of our politicians are not explaining it and instead ignoring it. As an individual the only thing you can do is vote for candidates who are willing to have that hard conversation with the public. Unfortunately it looks like that would require voting for a third party candidate and a vanishingly small minority of the electorate is willing to do that. So given all of that context I'm not really sure that the term "Catastrophically indebted" is wrong.
Not sure it plays out that determistically. If the gov prints money to just payoff debt without increasing the government spending, there is no new money entering the market.
You just pay off old promises that were expected to be kept.
The real risk is that new lenders will not be willing to lend you, yes. But not outright inflation.
The math that isn't mathing is that GDP needs to stop being the number we look at. Goodhart's Law says that "When a measure becomes a target, it ceases to be a good measure." and GDP is no exception. If I pay a cleaner $200 to clean my home, that's $200 into the GDP. If I do it myself, that's not reflected in the GDP. If I buy a robot maid, pay for it once, and it cleans my apartment for me, thats an ongoing quality of life improvement that's not going to be reflected in the GDP. If that $50,000 robot maid frees up 10 hours/week for me to do other stuff, GDP might actually fall instead of rise.
If you loan the person that prints dollars their own dollars back, there's really zero risk of not getting paid back because they can always print dollars and pay you back. The risk is inflation, same as any currency out there.
I take that back there is a risk they decide to burn trust as someone who doesn't honor deals, which is a new risk that didn't really exist at the nation state level a generation ago...
The debtor inflating the debt away is a soft default, even if not a mechanical "true" default of not making a payment.
Yields will rise and reallocation will occur to hedge against this inflation via debasement risk, as investors will manage against inflation adjusted real return versus other investment opportunities.
No, that risk always existed. When the Communists took over Russia, they did not bother to honor all of the Tsarist debts. A country is not like a company. Sovereign default is always a choice. That is what it means to be sovereign.
There have been over 70 incidents of overt domestic default since 1800. The United States defaulted in 1790, when a portion of the interest it owed was deferred for 10 years, and technically defaulted again in 1933 when it abrogated the gold clause.
One contributing factor might be that AI companies are raising money via (amongst other methods) also issuing bonds, which might compete with government bonds.
The system was always working, ZIRP was the market screaming that it had more capital than things to do with the capital. Of course, thinking about this too hard quickly leads to the idea of rolling back some of the enormous tax and policy privileges granted to capital, so it was critical for us to not think about it too hard.
"Capital" gets tax privileges to encourage investing, because investing creates things, consumption destroys things. We want more of the former than the latter.
Sounds like a self-fulfilling prophecy. If you draw a line between capital and consumers, and the latter are so tightly squeezed as a result of the "privilege" imbalance that they can barely afford housing, health care, child care, etc., how do you expect them to engage in entrepreneurship? How do you expect them to efficiently allocate their labor?
Meanwhile we see an absurd consolidation of capital that leaves consumers with fewer and fewer choices for basic products and services, allowing capital to make those products and services worse and more extractive. Rinse and repeat. The contempt for consumers and attitude that capital should be "privileged" manifests in our government's total indifference to the former's plight, despite the well known fact that they are the engine of our economy.
I don't actually think this interpretation is correct. ZIRP was the government printing money and buying bonds off the market. I think it had more to do with velocity of money, which ordinarily would have been corrected through a recession, but the government prevented that, which will create a much bigger recession at some point in the future.
No, the fed doesn't set rates. Not by much, not for long, not without inflation taking off. In theory they chase R*, in practice they chase the 2-year. Plot EFFR and US02Y on tradingview and tell me who leads whom, and tell me what happened when the fed tried to fight the market. Bonus: what is happening today, and what will happen shortly?
For the most part, congress decides to spend a certain amount in excess of receipts, the private sector bids on the debt, and the marginal bid sets the interest rate.
When the federal reserve steps in they can use their magic balance sheet to, at great expense, tug the interest rate around a little bit. However, artificially creating ZIRP in a non-ZIRP economy would not be a little tug. In 2020 it would have required $25T not $4T as the federal reserve would have had to buy all the unattractive bonds (GFDEBTN vs WALCL in 2020). Because the sum total of their intervention was small compared to the debt sold to that point, the low-intervention approximation is correct during the ZIRP era and the "P" in ZIRP is a misnomer.
"I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."
The war(s), especially with the impact on pipelines and the Houthis taking over more of Yemen, are finally affecting fuel prices and hence turning the global economic outlook less positive.
You can print money, but you can only ""print"" oil for a short time from reserves, which the US and China have been draining.
10y OAT are at 4.5% and rising with almost 100bps difference with Germany and no budget for 2027 since there is no majority in the parliament.
There is also a 6% deficit expected and growth has been revised down to 0.4% although during the first 6 months of 2026 there was actually a decrease of 0.2% of GDP in total so finishing the year in recession is totally possible.
Unemployment could also reach around 9% (15% in real terms if you count the people who have given up and/or been removed from the stats since they ran out of benefits).
Finally gasoline could reach 3 euros/liter (USD $13 per gallon) before the end of the year (already sitting at 2.5 euros/liter in many parts of France right now).
And don't expect any debate on economic policy in the next presidential campaign either… It's just going to be “should we tax the billionaires” vs “should we save a few basis points of GDP in pensions”, none of which is remotely close to the order of magnitude that's needed to put the country back on its feet.
I am not expecting anything. I left France a long while ago and I am not planning on coming back anytime soon except for holidays.
> the order of magnitude that's needed to put the country back on its feet
The amount of reforms needed in France could fit in an encyclopedia. LFI or the RN will not fix this mess and the center who has been in power for 10 years is all but useless. The old center-left and center-right parties have all been in power also and led us to this place which means that are not the solution either.
Seems to me that France is well and truly stuck on a slow but certain decline. But the other EU countries are not doing much better either.
> and no budget for 2027 since there is no majority in the parliament.
The French government can pass laws without a vote in the parliament under Article 49.3 of the constitution. I think the last budget was adopted in this way.
It can try but it could also be toppled by doing so. Last year the government had something to trade with the socialists (postponing the increase of the retirement age) so without the support of the socialists, the motion to topple the government failed.
This year is different. Macron is on his way out and everyone wants to stay as far away as they can from him including his former prime ministers who are both running in the election.
That means that there is literally nothing they can offer to the opposition to avoid being toppled. If a parti were to agree to not topple the government on the 49.3 motion, they would be signing their own death warrant for the election.
you may have the causality reversed. perhaps treasury yields are rising because bond investors would rather fund data center build out than buy 10yr notes
Only in the secondary market. In the primary market they require different types of money for settlement.
If you buy an AI issue, then the AI company has the bank deposit and the bank still has the matching reserves needed to buy government bonds in the primary market. All that changes is the ownership tag on the bank deposit.
That said, there is a meaningful difference in terms of who has control of the money, and what they choose to do with it. Bank reserves are a red-herring; before the investor chose to buy either AI or government bonds with it, it was sitting in a bank deposit where the bank had parked it in short-term Treasuries. But prices are set on the margin (because again, money flows through markets, not into them), and so it is the act of that investor choosing to buy AI company bonds rather than government bonds that sets the relevant interest rates of both.
A related confusion is that the bank reserves are parked in short-term T-bills, whose interest rate is largely controlled by the Fed, while the investments we're talking about are AI corporate bonds vs. long-term government bonds. These are three different asset classes that trade on three different markets with three different interest rates.
Your local American tariffs can hardly explain a global rise in long term yields.
The Iran war isn't going great economically but doesn't explain thks. If anything the Russia-Ukraine war has had a bigger influence.
You mostly have to consider the day-to-day interest rates over the next 10 years ... overnight rate today in Greece is the ECB rate 2.40% vs the US Fed rate of 3.75%. Inflation, growth etc informs that path + then one goes on to consider the credit risk of the issuer.
Well for one thing, different currencies have different rates of inflation. If one currency has 10% inflation and another has 1%, the second countries bonds at 5% will have a higher real return than the first, even if the risk of defaulting were the same, so the first country will have to offer a much higher coupon to find any buyers.
Also governments can influence demand, e.g. by mandating banks or pension funds buy their bonds, thereby pushing yields down, without changing the risk of default.
Italy recently issued USD-denominated bonds, which are directly comparable, and the yields are much higher. The 30y ones were issued at 6% and are at 6.21% YTM now, vs 5.37% for US 30y Ts.
It's wild to me that a private company in a volatile industry like Google can borrow so cheaply for such a long period. I get that they have been wildly profitable and powerful in recent years, but modern history is absolutely stuffed with companies that seemed invincible at one point but then were dead or dying a decade later.
Tech in particular has an awful lot of churn. There's isn't a single tech company in the world that I'm highly confident will be reliably printing money 34 years from now.
The US will continue to starve the world of oil and natural gas as long as the stock market goes up.
Notice that the stock market is at all time highs because 50% of the economy is grift now and not real. That is why Republicans go into vast deficit spending to pump up AI and worthless "high-tech", "disruptive" defense stocks.
Trump (and British pound saboteur Bessent) don't care one bit if the US plebs and the rest of the world suffer. The game is printing money, give it to grift companies like AI, have family invest early and get out if everything collapses. Probably they get into real estate cheaply due to foreclosures.
Turns out countries with constitutions forbidding excessive debt are quite smart. It's like phone addiction -- if the parents don't lead by example and strictly enforce "no phones at the dinner table" then slowly it's just gonna creep back in and everyone's just staring at their phones again.
In the short term it will always look stupid. Borrowing allows you to invest, which leads to growth, which allows you to borrow more.
But debt also accumulates, and usually faster than GDP growth. Until debt servicing starts eating your budget. Which is a slowly encroaching killer
I find it difficult to draw conclusions just yet. Yes, Germany is under-investing and that hurts. But with another 20 years of hindsight it might look like the lesser evil
Debt is easy to deal with for a sovereign. Just dilute the currency. That will obviously happen before a debt crisis is allowed to materialize. And so the rich will get richer.
The real problem is not the debt, but the social instability caused by the measures taken to address the debt.
This would also make countries that constituionally prevent that level of debt look smart. At least if we see the state as an institution that should serve its citizens. If taking on debt requires making your citizens worse off to the point that it causes social instability that didn't serve them very well
If you see the state as an institution to allow the rich and powerful to extract resources from the rest of the population, then it's all fine. Just take out some debt to give a contract to your nephew, then pay it back by devaluing the currency
Curious to see what transpires with federal fund rate alteration in the acute future.
Both Warsh and Bessent are pupils of Druckenmiller, but Warsh seems aligned with Druckenmiller regarding letting the market naturally settle on appropriate bond yields, whereas Bessent is being a Trump puppet and attempting these various failed interventions to artificially lower yields.
I hope Warsh stays strong and doesn’t bend the knee!
90 comments
[ 0.25 ms ] story [ 49.7 ms ] threadLet's take the US, where you have to consider lending money to the government for 10 years at 5.009%. This barely covers inflation if you consider real numbers rather than the financial fiction ones that have been published in the last 10-20 years.
In the 90s, an era of relative prosperity when the US was the sole remaining superpower, 5-year treasuries were paying 7-9% with inflation in the 2-4% range!
One crucial difference: the US wasn't $40T in debt, and it wasn't pulling trillion dollar deficits. In 1998 the US federal government actually had a surplus! Even 9% interest wasn't going to wreck the Federal budget when the overall amount of debt to be serviced was so much lower.
Everything is relative to size. If your older brother lends you a dollar at 100% daily interest, you can still throw a balled-up Jackson at him a couple days later and walk away clean. But ask anyone who agreed to a crazy 20% interest rate on their car loan what it did to their personal finances, and all you'll hear is horror stories. 9% on $40T would be suicide.
Maybe we should vote for people who are financially literate, can think long term, and can "conserve" rather than politicians who promise endlessly?
I think Clinton was the last us president to balance the budget and start reducing the deficit so I guess see what he did.
Then 1994 happened, and the Contract With America. The Republicans took both the House and the Senate, and they passed a balanced budget , then, whether Clinton liked it or not.
So that's what "Clinton" did. He pretended he was going to do something, and the Republicans called his bluff, and made him do it.
Note well: Republican majorities in any other set of circumstances have not yielded a balanced budget. I'm not saying that they're the answer (what they did under Trump shows that they very clearly are not the answer for fiscal responsibility). All I'm saying is that "Clinton balanced the budget", while technically true, isn't really the way that played out.
Or just hurry up and invent ASI and let it be someone else's problem to take care of this crazy human zoo.
And Clinton signed it, which is what matters. Well, the Republicans have "both the House and the Senate" now plus the WH, where's the "balanced budget"? Nowhere, don't ask for it, nobody is going to sign it either - ask for $ 1.5 T Mil Bill, it will be signed for sure.
Do you know what was the Mil Bill in 1994?
1994 was a one-off stunt, in other words - mud in the eyes of the electorate. Old glory stories are worthless if they contradict the present reality,
Rates going higher increases interest expense materially. You either rack new debt or you cut in places that are uncomfortable. The point is: responsible leadership in the developed world has gone mia for decades. There's a price to be paid that's real.
I wish you luck. Endless promises and short term thinking are the main things the system incentivizes. Each politician is temporarily renting their seat, paid for by other people. Each bureaucrat is studiously, steadfastly avoiding learning anything that threatens their continued employment, which is paid for by other people.
Just seems like one of those weird ambiguities.
You have to consider the fact that the populists are only popular because all the other parties in the last 20 years have made endless promises to the voters and failed to accomplish a tenth (if I am being generous) of what said they would do.
At some point, the blame as to lie also with whoever came before them too.
Conservatives:
Liberals: Deficit rate = (federal outlays - federal receipts) / GDP. Change = deficit rate in final fiscal year - deficit rate in first fiscal year. The % symbol below means percentage points of GDP, not relative percent change. The first and last fiscal years whose end dates occurred during each presidency are used. Transition fiscal years can therefore span two administrations. Figures are OMB actuals through FY2025 and are rounded to 0.1%.:)
Also some of the numbers are very sensitive to start/end dates (remind me, did anything happen in 2020?)
Democrats aren't fiscal conservatives, but the last time they were able to expand the deficit in pursuit of social spending was LBJ. Deficit expansion during my lifetime has been overwhelmingly driven by regressive tax cuts, regressive bailouts, and wars in the middle east.
These people do not exists. If a politician ran on such a platform, they would never get elected.
The fact is in modern democracies like in the EU or in the US there are simply too many people who rely on the status quo directly or indirectly.
Its almost comical, in France politicians have run, got elected and have swept the debt problem under the rug for the last 40 years, then they leave office and suddenly decide that the debt is a massive problem but that there was nothing they could do about while in office so they never did anything but now they speak about it.
And they all do it. Left, right, center, it's all the same.
It should be noted that even still almost all US debt is held locally.
https://www.hbs.edu/faculty/Pages/item.aspx?num=68142
Accounting for the asset holding, Japan's net debt is even lower than UK/US.
>The key lies in the Japanese public sector’s operation of a de facto sovereign wealth fund. Unlike countries such as Norway and Saudi Arabia, which fund such vehicles with national savings from natural resources, Japan finances its investments largely through domestic borrowing at very low floating interest rates
.... >In the case of Japan, evaluating fiscal positions solely through the lens of gross government debt can present a highly distorted picture of the overall fiscal health of the country.
Promises kept. All is good
Every sovereign can print money and repay lenders, but doing so cause an inflationary cycle. When it looks like that is inevitable, borrowing rates start spiralling, so you have to print more money, and soon you are Zimbabwe.
Like the US is catastrophically indebted -- both parties have been negligent on this, though one party has been much, much worse than the other -- and right now there's a certain defeated malaise about 40T in debt. The last time bond rates were this high the country had only $6T in debt, and even that was considered a catastrophic level.
"Oh but we'll just grow the economy..."
The debt has grown by 6.5x, and the GDP has grown by 2.8x since 2002. The math just isn't mathing. And remember that bond prices were historically low, and if there was ever a time to pay down the debt....
Nope, $2T deficit, "hide in the ballroom bunker and hold the world hostage with the nuclear launch button" projects, and now a hilarious $1.3T bribe to voters. Utterly busted. It is astonishing that it took this long for the world's lenders to chuckle and say nah.
Debt service costs as a percent of GDP are in fact lower than they were in the 1980's, when things came out fine. Is this the best way to run the budget? Likely no. Should we make policy changes? Certainly yes.
Is the best way to drive that policy argument flinging around adjectives like "catastrophically indebted". No. If you have a suggestion make a suggestion. Screaming about "The Problem" without discussing policy is echo chamber logic.
This is as close as it can be to clearly explain. The problem is that most of our politicians are not explaining it and instead ignoring it. As an individual the only thing you can do is vote for candidates who are willing to have that hard conversation with the public. Unfortunately it looks like that would require voting for a third party candidate and a vanishingly small minority of the electorate is willing to do that. So given all of that context I'm not really sure that the term "Catastrophically indebted" is wrong.
You just pay off old promises that were expected to be kept.
The real risk is that new lenders will not be willing to lend you, yes. But not outright inflation.
Nobody has ever tried this before!
I take that back there is a risk they decide to burn trust as someone who doesn't honor deals, which is a new risk that didn't really exist at the nation state level a generation ago...
Yields will rise and reallocation will occur to hedge against this inflation via debasement risk, as investors will manage against inflation adjusted real return versus other investment opportunities.
There have been over 70 incidents of overt domestic default since 1800. The United States defaulted in 1790, when a portion of the interest it owed was deferred for 10 years, and technically defaulted again in 1933 when it abrogated the gold clause.
Predatory private equity. Unproductive rent-seeking. Anti-competitive "acquihires".
> consumption destroys things
Health care. Education. Selling/renting unoccupied housing.
Meanwhile we see an absurd consolidation of capital that leaves consumers with fewer and fewer choices for basic products and services, allowing capital to make those products and services worse and more extractive. Rinse and repeat. The contempt for consumers and attitude that capital should be "privileged" manifests in our government's total indifference to the former's plight, despite the well known fact that they are the engine of our economy.
How do you think it's going?
For the most part, congress decides to spend a certain amount in excess of receipts, the private sector bids on the debt, and the marginal bid sets the interest rate.
When the federal reserve steps in they can use their magic balance sheet to, at great expense, tug the interest rate around a little bit. However, artificially creating ZIRP in a non-ZIRP economy would not be a little tug. In 2020 it would have required $25T not $4T as the federal reserve would have had to buy all the unattractive bonds (GFDEBTN vs WALCL in 2020). Because the sum total of their intervention was small compared to the debt sold to that point, the low-intervention approximation is correct during the ZIRP era and the "P" in ZIRP is a misnomer.
- James Carville
You can print money, but you can only ""print"" oil for a short time from reserves, which the US and China have been draining.
10y OAT are at 4.5% and rising with almost 100bps difference with Germany and no budget for 2027 since there is no majority in the parliament.
There is also a 6% deficit expected and growth has been revised down to 0.4% although during the first 6 months of 2026 there was actually a decrease of 0.2% of GDP in total so finishing the year in recession is totally possible.
Unemployment could also reach around 9% (15% in real terms if you count the people who have given up and/or been removed from the stats since they ran out of benefits).
Finally gasoline could reach 3 euros/liter (USD $13 per gallon) before the end of the year (already sitting at 2.5 euros/liter in many parts of France right now).
/s
> the order of magnitude that's needed to put the country back on its feet
The amount of reforms needed in France could fit in an encyclopedia. LFI or the RN will not fix this mess and the center who has been in power for 10 years is all but useless. The old center-left and center-right parties have all been in power also and led us to this place which means that are not the solution either.
Seems to me that France is well and truly stuck on a slow but certain decline. But the other EU countries are not doing much better either.
The French government can pass laws without a vote in the parliament under Article 49.3 of the constitution. I think the last budget was adopted in this way.
This year is different. Macron is on his way out and everyone wants to stay as far away as they can from him including his former prime ministers who are both running in the election.
That means that there is literally nothing they can offer to the opposition to avoid being toppled. If a parti were to agree to not topple the government on the 49.3 motion, they would be signing their own death warrant for the election.
If you buy an AI issue, then the AI company has the bank deposit and the bank still has the matching reserves needed to buy government bonds in the primary market. All that changes is the ownership tag on the bank deposit.
I suppose in that respect, all investments compete.
That said, there is a meaningful difference in terms of who has control of the money, and what they choose to do with it. Bank reserves are a red-herring; before the investor chose to buy either AI or government bonds with it, it was sitting in a bank deposit where the bank had parked it in short-term Treasuries. But prices are set on the margin (because again, money flows through markets, not into them), and so it is the act of that investor choosing to buy AI company bonds rather than government bonds that sets the relevant interest rates of both.
A related confusion is that the bank reserves are parked in short-term T-bills, whose interest rate is largely controlled by the Fed, while the investments we're talking about are AI corporate bonds vs. long-term government bonds. These are three different asset classes that trade on three different markets with three different interest rates.
The more clear it is, the cheaper 30 year bonds become.
You mean due to Trump? Tariffs and Iran war caused this.
* https://www.investing.com/rates-bonds/
That's not what rates indicate. its one component, but its far from a straight line from higher rates to more risk.
You can't really compare bonds that pay in different currencies by Rate alone.
Also governments can influence demand, e.g. by mandating banks or pension funds buy their bonds, thereby pushing yields down, without changing the risk of default.
That's a fair question if you aren't int he industry. Inflation would be the best example of why you can't do that.
Would you rather have a Zimbabwe bond that pays 10%(when they had 10,000% inflation a year) or a US bond that pays 5%
Tech in particular has an awful lot of churn. There's isn't a single tech company in the world that I'm highly confident will be reliably printing money 34 years from now.
Notice that the stock market is at all time highs because 50% of the economy is grift now and not real. That is why Republicans go into vast deficit spending to pump up AI and worthless "high-tech", "disruptive" defense stocks.
Trump (and British pound saboteur Bessent) don't care one bit if the US plebs and the rest of the world suffer. The game is printing money, give it to grift companies like AI, have family invest early and get out if everything collapses. Probably they get into real estate cheaply due to foreclosures.
https://youtu.be/ajH6YVhdOZU?is=Xht8Qsd_eGqnS7wW
But debt also accumulates, and usually faster than GDP growth. Until debt servicing starts eating your budget. Which is a slowly encroaching killer
I find it difficult to draw conclusions just yet. Yes, Germany is under-investing and that hurts. But with another 20 years of hindsight it might look like the lesser evil
The real problem is not the debt, but the social instability caused by the measures taken to address the debt.
If you see the state as an institution to allow the rich and powerful to extract resources from the rest of the population, then it's all fine. Just take out some debt to give a contract to your nephew, then pay it back by devaluing the currency
Both Warsh and Bessent are pupils of Druckenmiller, but Warsh seems aligned with Druckenmiller regarding letting the market naturally settle on appropriate bond yields, whereas Bessent is being a Trump puppet and attempting these various failed interventions to artificially lower yields.
I hope Warsh stays strong and doesn’t bend the knee!