You want to see what's really bad, a train wreck in slow motion, just look at what France is doing.
They've been subject to EU Excessive Deficit Procedures for multiple years, must bring deficit-to-GDP ratio from ~5.8% down to 3% within 3 years despite virtually no GDP growth and complete political and societal paralysis about reducing any public benefit or welfare whatsoever.
ECB will most likely get involved after 2029 to start austerity measures. You can predict how that will go over with the French public especially if Le Pen takes the presidency, which looks likely.
Very tough times ahead and the EU is facing a critical point about its future.
Everyone thinks they can grow their way out of deficits, but it's always a pipe dream. It results in a growth obsessed economic plan that then causes all kinds of other stresses (such as being petrified of cutting immigration, for example). So much of this is all happening in lieu of politicians just being willing to have honest conversations with voters and take a risk of blowback. But I think people are over it and will value authenticity these days enough that it's a false economy. Just tell people the truth.
It can be done, the US did it for decades, but the budget can't be reckless. You can't ignore the top line forever. I accidentally put spending first in this post, and that was a mistake. The US has cut taxes, cut taxes and while it is true that we've done little to curtail wasteful spending, we've not actually addressed the wasteful part, we've just moralized about "who deserves what"
There is growing without regard to the lower 95% (china, India, USA) which is great on paper, but arguably not great for the population. I'd say the EU, Australia, and a few other countries have done it significantly better - it's just a significantly harder approach to balance.
Edit: and probably not as effective, which risks being overtaken by others, I suppose.
The amount of growth the "95%" have seen in china is huge!
Also American peasants / lower tier white collar workers are usually richer than fairly well off Europeans... You cannot even begin to comprehend how much wealthier the US is in some ways - and remember how totally dysfunctional the US economy is in many limits i.e. if Europe could just be as _bad_ as the US it would grow much faster.
I hate to be a China apologist, but I’m not sure why you included them in that list. Bottom 95% is living in conditions unimaginable to a generation ago. Of course they have humongous problems, but in general, they have lifted everyone up by ignoring views of the rest.
If your deficit funds corporate welfare or war rather than state asset building (infrastructure) that has positive ROI through externalities ofc it’s a mess. But that’s not all deficits
> But I think people are over it and will value authenticity these days enough that it's a false economy. Just tell people the truth.
We have seen abundantly clearly that telling the truth is the worst thing you can do for your political career. The correct move is to lie, lie, lie, lie. Reality is completely irrelevant. All you need to do is tell them what they want to hear. Nothing else matters. They will not hold it against you if you break every promise you make. They'll vote for you again and in greater numbers if you ramp up the promises to even bigger lies, nevermind your track record.
It's true but I think it's symptom of the same problem - people feel they are constantly lied to so they throw up their hands and go with the nicest lie that appeals to their base instincts. They don't get an alternative of truth vs lie - they get "lie that agrees with my instincts" vs "lie that doesn't" and hence we get overwhelmingly populist politicians winning who have no real plan of competence to solve the problems or implement the promises they were elected on.
Sure, Trump lies, but it's not unique at all. Biden was going to cancel student debt, Obama was going to close guantanamo, end the Iraq War and have single payer healthcare, GWB's "Mission Accomplished"... etc. So Trump's general dishonesty about what he's capable of as President is par for the course.
Biden canceled student debt. A politically oppositional Supreme Court invented new powers to undo his move while allowing Trump far more.
Obama attempted to close Guantanamo. The political backlash was massive. He essentially ended the Iraq war leaving only a skeleton crew to work with the government.
Those are not even in the same universe as all the lies and corruption Trump has peddled.
Heck, Trump has had a dozen Mission Accomplished moments in the Iran war alone, compared to the 1 stupid photo op by Bush.
If anything, equating very different situations with Trump’s regular lies and corruption like this is why Americans are confused.
Can you show me your math on how taxing Billionaires solves France's Debt/GDP issue? Or even the US's debt servicing. I'd like to see the analysis.
This is not a argument on if they should pay more tax or not, it is a argument about what affect it has relative to the discussion of a countries debt.
The Macron government went out of its way to cut taxes for the wealthiest percentiles. Debt exploded, costs were cut, infrastructure went unmaintained (which only ended up adding to structural costs), but the GDP growth remained anemic.
However the wealth of the wealthiest increased substantially, so there's that, I guess.
I think austerity measures are counterproductive. After seeing how they worked (or rather didn't work) when imposed on multiple nations by the world bank, and self imposed in the UK and Germany, I don't think austerity works at this state of inequality.
Perhaps short periods of austerity work in decades past when enough of the foundation was still established for public goods, but a this point of neoliberal economics, austerity just causes economies to slow or shrink
Austerity can work in short doses and is intended for that.
However, most western institutions and governments have used periods which required austerity to bake in long term privatization and government service cuts for ideological reasons, as opposed to treating it as a chapter 11 bankruptcy, for example, where they use it to clean and streamline their operations and programs and restart the services on a better footing.
They can lose some monetary discretion if it goes on for too long. I'm not sure what "corrective net expenditure path" means in practice, but it sounds like other members get to decide that one at the time.
The ECB doesn’t have the political power to force France to give up any monetary control. The EU might govern France, but France (and Germany) govern the EU.
That's why I said that it is a coming crisis of confidence for the EU.
France has snowballing debt with virtually no prospects of growing out of it by itself. So what is going to happen? It's a very dangerous situation that is only feeding the euroskeptics even more.
While the far right in France has been gaining traction with full throttle populism on fertile grounds, I wouldn't overestimate their chances to make it to the presidency and discount the fierce opposition that will be expressed the day people cast their vote.
It is still a weak (but loud) political movement which lacks backbone and network.
We would have to raise federal taxes by an average of at least 39% per household and on businesses =just= to balance the deficit.
The reason the US is a comparably "low tax" country is because we're borrowing the difference.
What worries me the most is that this is at a high point in our economic cycle, when tax collection is arguably the highest. The deficit and debt will expand significantly in the next recession.
The modern US is a great example that maybe you should have tax and fiscal policy somewhat removed from democratic hands.
I.e. have a Fed-like entity that gives Congress a max in spending for the current tax policy, and Congress is required by law to stay below that number
Fixing US debt has always been politically unpopular, and it always will be.
Checks and balances were supposed to do that. Federalism was supposed to do that. Republicans have played a 60 year strategic game really well and blocked the checks and balances. Here we are. With no way back quite frankly
In what way would checks and balances do that at all? The only branch that has any sort of leeway to pass unpopular policies is the Supreme Court, and setting budgetary constraints is far outside their purview.
In a world where the president wasn’t politically associated with Congress (the US system It’s different from most in that the executive is not elected from the legislature), the President could theoretically demand Congress send them a balanced budget to sign, otherwise they would be responsible for the cuts.
Unfortunately the U.S. constitution was written with the, in hindsight, naive assumption that political parties could be avoided.
This just led to a system that has political parties but doesn’t really acknowledge their existence and therefore makes it difficult to regulate their behavior.
Yeah, cut the $1T/year in defense spending and raise taxes to pay down the debt (to cut $1T/year in interest expenses) and balance the budget. Entitlements remain because workers are entitled to those benefits they worked for. The same workers the wealthiest need to suck $5T+ a year of profit out of the economy.
We used to have 94% top tax bracket rate at one point, and higher tax rates in general. We’ll find the will to raise taxes as soon as the bond market compels the spineless in Congress to find the will (as the cost of debt continues to rise into the future), because you cannot deceive the bond market.
- In projections that the Congressional Budget Office produced last February, net interest costs are already at $1 trillion this year and on track to reach $2 trillion by 2035, meaning that much of federal spending is needed just to service old bills.
- But those projections assumed 10-year Treasury yields were in the ballpark of 4.3%. They're now nearly a full percentage point higher than that.
- In startling numbers that CBO released this week, in a scenario in which interest rates were 1 percentage point higher than its baseline, debt held by the public would grow to 222% of GDP in 2056, 47 percentage points higher than the baseline.
There's this perception that the majority of US government spending is on the military which is completely untrue.
Defence is only 12% of the US federal budget - what are you going to cut it to? It's not going to solve the issue even if it's abolished. Over the last 10 years health, Medicare and Social Security have grown 103%, 83% and 78% respectively for an increase of $1.64 trillion to $3.55t vs a $916b on defence. With an aging population it's only going to cost more and more over time, you can't continue to put higher taxes on a shrinking share of productive population to care for more and more unproductive retirees under any economic system.
Defense might not be a cure all for the deficit, but reducing expenses to the tune of 12% sure is a heck of a start. Clearly defense spending isn't buying us that much if the our armed forces can't deal with a middle income country (Hormuz blockage) and a group of rebels (Bab al Mandeb blockage).
Cutting defense doesn't even need to be complicated. Just stop forever wars in the middle east. It won't hurt our actual defense capabilities and will raise America's stature in the world. Heck, we have the best defense imaginable given to us for free (the Pacific and the Atlantic oceans), to the extent that two world wars combined didn't see a major attack on the US mainland.
Cutting (or better still privatizing) social security, medicare and medicaid, while being the Republican wet dream, actually translates to direct harm to millions of citizens.
Single payer Healthcare would flatten that curve by removing the incentive that insurance companies and health providers have to raise prices in coordination. Insurance is only allowed a certain percentage of admin costs (salaries etc) and profit from premiums so their incentive is to raise premiums but they can only do that by showing increased costs. Health providers have an incentive to show their costs aren't fully paid by insurance so they can also justify inflation of expenses.
Universal SPH would save a net $300B to $1T, reduce paperwork, reduce deaths/improve outcomes, and provide better care. The FUD canards of "rationing", "waiting lists", and "communism" as well as classism and corrupt profiteering are the barriers to less suffering. Just give everyone the same coverage that doesn't have a 20% hole or lifetime limits... and that eliminates Medicare, Medicaid, Tricare, CHIP, ACA, and most private insurance, and most billing coding and prior-auth nonsense. Not doing so wastes money and kills people, just like parts of the BBB coming into effect after the midterms is going to bankrupt and kill thousands of people.
I agree. I own home health care agencies in 14 states. The admin we have to fund is absolutely ridiculous and wasteful. But republicans use clerical errors to scream about waste fraud and abuse because that justifies cutting spending and so the system operates inefficiently and costs keep rising on the public and private side.
Of course those programs grow when people get old, that’s when they grow! I suppose the federal government should’ve invested in investments to increase productivity to support a rapidly aging population instead of using cheap debt for inefficient, unnecessary non mandatory spending (tax cuts and military spending).
> you can't continue to put higher taxes on a shrinking share of productive population to care for more and more unproductive retirees under any economic system.
Start at the top with very high marginal tax rates for the wealthiest, work your way down. The wealth exists, tax it.
Raising the income tax rates aren’t going to help though. The ultra wealthy you want to tax have (basically) no income to tax. Are you proposing to institute a wealth tax?
One thing that would capture tax revenue from the wealthy and eliminate a rather large tax loophole would be to automatically realize gains on stocks used as collateral for loans.
Ideally, but failing that raise the estate tax to 90% for estates over the current exemption limit of $15 million and eliminate all trust loopholes.
The billionaires would be able to enjoy their money in their lifetimes and still ensure that their children are taken care of in their lifetimes all while paying their fair share to society upon death.
If necessary, yes. Whatever form is necessary to effectuate the target outcome. We tax real estate, real estate is just another form of asset and wealth (with a similar liquidity profile to private equity). We can do the same with securities, equity (public or private), etc.
We don’t really tax real estate. That’s why all the old farts pay $1000/year in property taxes on a home that’s worth millions. Do you propose taxing them on the actual value of their homes?
This is not a serious argument based on total property tax collected across all 50 states on an annual basis (~$2T) [1]. Federal government spends ~$7T/year against $2.4T in personal income tax, $1.7T in payroll tax, and $530B in corporate income tax (~$4.9T in revenue) [2].
Could we tax real estate more? I’m sure, not opposed based on fair valuations and implementation details. We should start with securities first imho, as we already tax real estate today. Conveniently, the top 10% of households own 93% of US equities. US GDP is ~$32T annually.
> Bond market is in revolt about the national debt and I hear crickets from Washington. You think this would be a crisis. Amazing really.
Some combination of the bond market rejecting Treasuries for other similar investments while also pushing up other debt costs causing excessive failures in interest rate sensitive parts of the economy. Hard to predict when, but it’ll look strikingly familiar to the 2008 GFC I think, the day Bear Stearns collapsed. An event will occur, and there will be a cascading loss of confidence in the bond market. Not a great time when diesel fuel is also at record high prices and will be for at least the next year.
They are called “entitlements” because we have a reasonable expectation of getting what we were promised when we agreed to pay taxes as our part of the social contract.
If you say, “We should have invested more,” I point you to the 40% of current retirees that were not in a position to invest because their jobs didn't pay them enough above the cost of existing. And then there are any number of events, such as age discrimination, common medical issues, divorce, and bankruptcy, that destroy retirement plans.
From what I can tell, it's not possible for the vast majority of the population to be able to save for a 20 plus year retirement.
One of the things that keep people from saving are the activities driven by their investing in the stock market. To increase returns, "Activist investors" and private equity drive companies to shed jobs. You shed a job, you destroy a person's ability to save for retirement, which makes them more dependent on the social contract of Social Security and Medicare.
Cutting benefits will only cause suffering. The cost will fall on society in other ways in terms of elderly homeless people filling the ERs, begging in the streets, or committing suicide. Is it time for a "Modest Proposal II"?
Totally false. It was balanced in the 90s. Its just that raising taxes has to be part of the equation. Guess what, three successive republican administrations have lowered taxes. So maybe just roll those back.
But that's not comparable. If the tax take/GDP was the same today as it was when the budget was balanced then (19.9%), there would still be a deficit well over a trillion dollars. The US is simply spending a lot more. In terms of entitlements, certain things have changed structurally.
For example in the year 2000, people aged over 65 were 12.4% of the U.S. population. Today, that demographic has grown dramatically to 19% of the population. That's fewer people working and paying taxes while also simultaneously drawing more from medicare and social security.
This doesn't mean it's "impossible". But to balance the budget today without major spending cuts would require raising taxes 39%. It's just so different than it was then to make the math work out.
One thing to do would be get rid of the $184k cutoff on payroll tax. That would greatly extend the life of the Social Security and Medicare trust funds.
That gives a lot more time to phase in any longer term changes to those programs.
If the remaining deficit is around a trillion dollars, and we spend more than that on needless wars in the middle east, it's easy to see what to cut to balance the budget....
Yes, I specifically said raise taxes because many here believe spending cuts alone will solve this. It is impossible to not raise taxes based on debt load and forward mandatory spending curves. The bond market will force this to occur, like your credit card company raising your interest rate and bringing your credit limit down to your current balance.
Taxes will go up, voluntarily or involuntarily. If we didn’t want to get here, well, should’ve never spent so frivolously on tax cuts for the wealthy and a bloated military that is unable to pass an audit. But we did, and that debt is going to have to be paid back, with interest. It’s impossible to grow out of this debt, and there are more workers than very wealthy people and their politicians.
My knowledge of new-gen-econ is pretty subpar, but isn't the strategy of US "don't dare to bet against us, we're writing new rules of the game"? It feels like all governments are acknowledging "letting it rip will suck for everyone, so why would we even bother". Normal monetary policy has been thrown out of the window, and every large state bank has stated it very openly throughout the wars that have started in this decade. And this leads to a lot of state-level financial backdoor discussions, deals and "stuff" that I'm not knowledgeable enough to even think about.
Wild times. Maybe it's information overload, since it probably happened in the past as well. But being bombarded with implications of these changes left and right is kinda weird.
I'll comment under my own post about "why i think this is happening" - it's the fact that the average age of the population in the world is higher than it has ever been, especially in richer countries. Just like the "housing theory of everything" posts that circulated around some time ago, I think that is the core reason why so many illogical decisions are being thrown around.
I don't have deep knowledge, other than a bunch of "pattern matchings" I've done throughout my readings, but as people get older, on average, their wants/needs change over time. Older people, especially as they get closer to retirement age, have more free time as well. Implicitly, these desires eventually bubble up into economic/political action, that's more or less unprecedented. It would be very cool to research this more in depth, but unfortunately i'm in the wrong field.
Normal economic policy hasn’t really been true since the 2007 financial crisis. Rates were kept at historically low rates because growth was anemic and everyone had seen Japan fail to pump up its economy. To some degree there was also thinking that countries in this situation should provoke inflation to get the growth flywheel growing again; at least the fixes to inflation are known vs deflation.
Well, it turns out that we did it with the COVID economic shocks, and for a while there was talk of a “soft landing” but that’s all but disappeared from the conversation.
I don't think it's correct to say "rates were kept low" as if the Fed had a choice in the matter. All the Fed can really do is respond to market conditions. It can be slow to react, and it could in theory be wrong about the market in a way that causes economic damage (in one direction or the other), but it can't really do better than the implied market rate.
Interest rates were kept at historic lows for a decade because the 2008 crisis caused available credit to absolutely implode, which destroyed a huge swath of the effective money supply. Leverage ratios at banks went from north of 40:1 to closer to 10:1. Without ZIRP and QE and all of the rest, we would have had outright deflation, kicking off the kind of deflationary debt spiral that made the Great Depression so bad.
That kind of dramatic destruction of credit did not happen during the pandemic. The banks were fine [0]. What happened was that the economic output of actual goods and services collapsed. So high levels of stimulus led to more money chasing fewer real resources, and you got inflation instead.
This should not have been a surprise.
[0] Modulo a few like SVB that blew up a couple of years later because they had forgotten that interest rates could also go up.
I agree, 2007 definitely changed a lot of "assumptions". But there were no "every main bankman stating out loud that aight, we're playing a new game now". Maybe 2007 started it, but 2020s, I'd say, is where everyone publicly acknowledged it?
> everyone had seen Japan fail to pump up its economy
Agreed about this, but I feel like everyone is watching Japan right now again. And I fear people will make wrong assumptions, given how its "economy is growing right now".
I'll posit that the 'crypto/blockchain-whatever' caused some curiosity in the market (both before and during COVID), COVID messed up everyone's plans for the recovery (recoveries take a long time without stuff like WW2 that cause other economical imbalances) and other political factors played in.
Not saying you're wrong about anything you're saying, to be clear.
Even songs we don't like have a lot of 'poetry' in their notes...
Well, it's still complicated because of the global economy.
- Most of the AI Companies are HQed in the US, and that's the 'hot thing' for the market overall
- Google and Apple have enough presence (i.e. some may be doing tax things but...) in the US and at least one of them has gotten 'too big to properly antitrust'.
- If we look deep enough, even some of the fanciest ASML tech is a result of IP sharing from US companies that are almost certainly government backed (i.e. ASML might be the ones working with other companies to help make it useful/scalable, but the tech is invented here.)
Ironically, something I would have listed at the top 10-15 years ago but is now last on the list...
- For the last (well, now) 80 years the US has been able to project an outward image of overall economic stability and relative growth; The closest it came to a crisis in the past was when the Bretton-Woods system collapsed and France came over and collected their gold.
On the flip side, there is the 'guard'.
- Any current bondholders have to choose between holding at the current rate, or selling at a discount. It becomes a 'Well do we really thing it will all fall apart before then or do we just hold?'. Because any new bonds, even at the current rate, would be carrying that risk on the open market if a sell-off occurred. IOW 'Is a bond I have now less the arbitrage cost going to be worth more than just holding it'.
What's important is what happens next. If we look at the Bretton-Woods collapse, there were a number of actions taken, many (most?) of them questionable, however it was pulling a bunch of levers at once and unpulling versus debating which lever to pull.
There is the confounding factor where parties are arguing that there is market manipulation going on, that changes the question of whether to hold onto existing bonds rather than making other options. After a certain maturity percentage one has to ask whether you hold or sell based on climate.
> There is the confounding factor where parties are arguing that there is market manipulation going on
My understanding is, it’s not even an argument anymore. Like the latest Yen intervention from the states was basically a state level manipulation, no? I mean there’s nothing really illegal. And it makes sense, and very much public. But one can assume there are just many more behind-the-scenes activity going on as well.
The primary issue is Social Security. It’s the biggest driver of spending, and nobody wants to do anything to cap its costs such as means testing or straight up lowering the amount it can pay out.
As for the people that will inevitably bleat about how this is just horrible and we need to lift the cap on taxable SS income, that wouldn’t solve the core problem either unless you pair it with spending caps or cuts.
This would add some more years of runway but does not solve the problem. Eventually, the fund would reach insolvency again. The SSA actuaries estimate that removing the cap would add 21 years before insolvency. 21 years may sound like a lot compared to the handful remaining now, but is well before the retirement age of the average person reading this comment.
Also an underdiscussed issue with such a policy is that while it increases social security fund revenue, it decreases the amount of federal revenue collected. The CBO estimates that about 15% of revenues gained by an uncapped SSA tax are offset (lost) by a reduction in federal revenues. Worsening the deficit problem.
It’s actually pretty easy- pick three or four options that have the very wealthy kick back into society what they have been syphoning out and it balances.
Uncapping income it is applied to and throwing in capital gains would totally solve the problem if you sever the link between contributions and payout (which is a form of means testing).
Right now a ton of wages from top earners are not being taken out for social security because the cap is around 176k (for the current year); I'm assuming it would simply extend the timeline for it hitting its deficit.
"Means testing" is the bad Social Security idea of the year. SS isn't a welfare program. Trimming benefits, changing retirement date (for all) and uncapping contributions are much more palatable to voters.
Social Security is funded by the people paying in, plus the money in funds like OASI. Yes, OASI is treasuries, so it’s connected, but the reason OASI exists is to cover the changing demographics as baby boomers retire. It’s not designed to be, long-term, the way the Social Security system works. The idea is that you collect income on the boomers greater than payouts while their cohort is in the workforce, and the pay that money back out when they retire.
Yes, there are reasons why this isn’t working out as planned. But the idea that “Social Security is the biggest driver of spending” is not a cogent argument.
The OASI fund was at ~$ 2.4 trillion in around 2025. That's only about 1.5 years of payments given no contributions. The net interest from the fund is only around $ 60 billion. If you add in the DI fund, it only changes by about 10%. The $ 1.7 T cost of Social Security in 2026 will not be meaningfully affected by these funds. Mandatory spending payouts will thus have to come from contributions (which are fundamentally just another tax that could be redirected to other priorities) and from the general fund. The contributions brought in around $ 1.3 T in 2026, leaving somewhere around $300 B to be paid out of the funds.
Thus, I think "Social Security is the biggest driver of spending" is a perfectly cogent argument. The mandatory social security contribution is just another kind of income tax.
Obviously we can't just turn off Social Security, for many political, moral, and practical reasons, but any solution to the deficit or debt that ignores social security will be fighting with one hand tied behind its back.
You aren’t promised your money back with interest; that’s what an IRA is. Social Security is a different system which works by different principles. In Social Security, the money you pay goes to the people who are retired, and your retirement is funded by people who work in the future.
Your money --> older generation
Younger generation ---> you
The main thing that makes my description incorrect / incomplete is that baby boomers, such a large cohort, broke the system. This was predicted and so the baby boomers actually did get their money back: they were taxed to fund OASI, which then goes back to fund baby boomers’ retirements, until it runs out.
Baby boomers (only, sort of) <---> massive cushion in the OASI fund
SS (and the equivalent in other countries) was, in hindsight, an incredibly stupid system to set up that way - people should be exclusively contributing to cover _themselves_ so that it's a saving/investment scheme rather than a pyramid scheme. If you're in poverty in retirement that shouldn't be because the current generation of workers is shrinking. It should be because you failed (or were unable - doesn't matter which) to carry forward enough from your own career.
There are more 401k millionaires now than ever before. I wonder if in 20-25 years decrease in SS payout will be more palatable as people rely on other, far more valuable, retirement accounts.
On the other hand, I’ve been paying into ss for like 3 decades easy. Bitch better have my money!
It’s not Social Security, it’s Health and Human Services. It’s been the top line item in the federal budget for several years, and it’s growing at the fastest rate and has the largest unfunded liabilities.
Social security is easy to fix. Just raise the retirement age. Or do nothing and benefits drop by 25% or whatever it takes to become balanced based on current tax revenue.
Good luck rationing hip replacements and breast cancer treatments whose provision is statutorily required by law and whose cost will continue to rise with inflation.
None of this even begins to consider interest on the debt. As interest rates continue to rise and the debt continues to grow this line item will eventually dwarf everything.
Social Security is chump change compared to these two. But at least it’s nominally fixable by faking the CPI numbers used to set the cost of living increases. You can’t charge less for hip replacements or cancer treatments, they cost what they cost.
Social Security is not the issue no wealth tax, capital gains tax being less than income tax are the problem. Social security and government expenses going up are the symptom of the same problem ie not taxing capital gain which has resulting in prices for everything to keep shooting higher than incomes.
Bessent challenged Bloomberg bros to take him on, since he’s the house now, and it’s safe to say he lost that challenge.
Even if it goes down going forward, Bessent was incredibly reckless. Basic emotions have a surprisingly significant influence on financial markets’ behavior. I won’t be surprised if the rates would have been at least a few basis points lower if it wasn’t for Bessent’s silly bravado.
The equal-weight S&P 500 has been on a steady march downwards since it became apparent in August that the Iran war was not even close to over, and is now getting close to correction territory (7% down). This is exactly what you would expect given the news. It is the opposite of what you would expect from the inflation story, which would lift the earnings of everything in the S&P 500 (which, after all, is composed of the 500 largest companies and overweights monopolies or oligopolies in broad industries).
The S&P 500, however, has been basically flat over that same time period, holding at the 7700 level. It basically has a leg down over the course of the week, and then always pumps on Friday to regain the previous level. I'm not sure if it's government intervention or irrational exuberance in a small set of AI stocks, but the divergence between the broad market and the S&P 10 is becoming increasingly noticeable.
But as you say, it's the Iran war and other factors that are to blame. Inflation is lurking in the background but various things will always appear in the foreground to occupy the market's attention for a bit.
But on the scale of years inflation will dominate all transient idiosyncracies.
I'm not convinced of that, and I don't think the market is showing that it's convinced. At least not abnormal, above-2% inflation like we've had for the last 5 years.
I think there's a decent chance that Warsh gets inflation under control. The recent rise in bond yields is 100% due to Fed action: the Fed stopped rolling over long-term treasuries and MBS into like-kinded securities in June, instead rolling them over to short-term treasuries. This shrinks the Fed's balance sheet on the long end of the curve and adds to it on the short end, just like Warsh said that he would do. It's net-neutral for the Fed's balance sheet as a whole, but the effect is to push up long-term yields, hold short-term yields steady (which have a floor of the Fed funds rate), and steepen the yield curve.
The next step - and Warsh has made no secret that this is his plan - is that once the long-term Treasury market finds an equilibrium without Fed support, use that information to figure out what the neutral rate is, and set short-term rates accordingly. The price action we're seeing is a strong indication that the neutral rate is significantly higher than anybody expects right now.
The bond market is also not expecting significant inflation over the next 10 years. You can see this through the TIPS spread, the difference in rates between the 10-year TIPS and the 10-year Treasury bond. It currently stands at about 2.35%, indicating that the market as a whole expects about 2.35% (CPI) inflation over the next 10 years.
Stocks keep marching higher, to stable yet irrational levels, because the .1% need to put their money somewhere. That level of wealth grows so quickly that it's impossible to know what to do with it. A literal embarrassment of riches.
Don't get me wrong, I want to be in that category, but still.. this is our reality. It's an interesting experiment we are running. Without external factors like global wars and climate catastrophe, could the market even crash in our current environment?
Common misconception, this only affects debt that is locked in with long-term notes like the 10 year. A significant amount of debt is short term and refinances continuously, so the 10 year would go sky high if inflation climbs as investors demand a higher premium to invest with the treasury. So it doesn't evade all debt unfortunately
Stock market dynamics are fundamentally different now compared to the last period of sustained high inflation (70s)... And stocks have done fantastically over the last few years of stubborn inflation.
The roaring 20s were driven by a money cycle formed with post WWI farm machinery foreign demand, US factory growth to meet that stimulated demand, stocks to fund factory export growth market, and debt generated by unsecured customer financing.
Eventually the cycle/bubble collapsed, and the same 1930s tariff policy literally starved people for almost a decade.
I really hope we don't repeat that history. However, the Bear market distant roar can't be ignored. =3
It probably doesn't help rates to spike oil prices by starting a(nother) war of choice in the middle east while inflation is already running hot. Eventually you get demand destruction and outstanding debts don't look so good.
Sure but did the global economy roar in that period or did we just create inflation? The answer likely is the second. Aka most of our global investment did not create viable economic activity.
In a world of continuous population growth, there is some excuse (but not justification) for running governments at deficit, which is essentially a bet that future generations will produce enough to meet their needs and fulfill debt obligations from past generations. When population growth halts, so should deficit spending. Smith himself, in The Wealth of Nations: "What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom."
I am wondering how much of this is because AI capex is pulling dollars from everything else because it’s so lucrative.
Note that it is widely predicted that transformative AI will increase real interest rates for several reasons. I’m not sure we are there yet. But if progress continues I expect things to get weirder.
Go Brandon go. Or whatever stupid maga phrase is appropriate. Can we ask trumps dad to buy treasury bills like he bought casino chips to bail out the Casino?
Different factors have been discussed in the comments, like tax cuts, military spending, social security etc.
But the yields are going up simply because investors do not want to buy at lower interest anymore. It indicates that investors view the bond as riskier than before. A real fear is materializing that US will default on it's debt. Sure, the fed can always print money to bail them out, but the inflation is on track to cost the Republicans in the midterms.
There are a combination of factors which is causing this fear- those are radical changes in immigration, trade and military policies. The stability of the bond market is built on the trust that US will act rationally when it comes to skilled immigration, free trade and avoiding direct military conflict. Clearly it's no longer the case.
US population view themselves as immune to fallouts from global events. But we're starting to see that when you breaki promises left and right, people lose trust, and you pay the price, even when you're a superpower.
But why don't they want to buy treasury bills. Could it be because they see the US decoupling from the global trading network and predict we will be poorer? Or we are losing the reserve currency status? Or we don't have the political discipline to run a responsible budget and will hit a fiscal crisis. Who cares if you earn 8% on your money if we don't have market access around the world for our goods and services and we get less products because we erect barriers that mean less goods enter our market. We will feel as poor as we will become.
Oy. I'm no fiscal conservative, but the US federal government absolutely needs to balance its budget. Otherwise, it's bound to either choke on interest payments, devalue the dollar, or both.
Unlike most Trumpists, I see the the problem as a revenue issue, not expenditures; unlike many non-Trumpists, I doubt "tax the rich" is going to be enough to plug the hole.
Government healthcare payments would be a good start -- it seems likely that the amount most employees already (effectively) pay for health insurance could fund equivalent government coverage with some money left over to help pay for other government expenses.
I'm unconvinced that "balance the budget" is the issue here.
Interest rates are a function of inflation and joblessness. Both of which the current administration has created via terrible (for the country; great for the family members of the administration) policies.
The terrible policies are destroying jobs and causing the prices of goods to go up, thus increasing interest rates. The administration could balance the budget, but that would not correct the interest rate problem unless they also stop enriching themselves at the expense of the rest of the country.
How are interest rates a function of joblessness? Do you mean inversely?
My amateur understanding is that prevailing interest rates are more directly a function of supply and demand for capital; I agree that higher prices increase demand for capital. Joblessness would seem to be correlated with lower demand; the unexpected combination of high employment and persistently low interest rates in the 2010s was a source of a lot of commentary, as I recall.
I'm sure jobs are an important aspect here, but I kind of doubt that we can fix this without also finding a way to refocus our efforts on endeavors that most people approve of. As it is, letting the US succeed is bad and letting it fail is worse. That's unlikely to remain stable forever.
What I mean is, that the organization responsible for setting the interest rate, has two mandates: full employment and low inflation. Jobs are an important aspect for that reason.
It is absolutely a spending problem. The Department of Agriculture has 100k employees and a $500B dollar budget. That’s just one department of many. Throw a dart at the MTS [1] report and you’ll find dozens of other agencies with similar levels of spending.
There are plenty of places to cut spending before we start raising taxes on the W2 wage earners that are contributing the most to federal tax receipts.
How would nationalizing health insurance even make a dent in spending? Ultimately the same amount of healthcare will be consumed. You are truly clueless about the federal fisc if you think these are even remotely serious ideas for fixing the federal budget deficit.
I don't feel like I "both sides"ed it that much, but I guess reasonable minds can disagree. But: neither party has balanced the federal budget, or even made (sane) noises about doing so, since the Democrats in the 90s. I haven't heard much about it from Democrats this election cycle -- perhaps reasonably so since there are much more critical issues at the moment.
The last Republican to balance the budget was Eisenhower. Yeah, Clinton is pretty old today too, but almost no one alive today was of voting age during the Eisenhower administration.
Sorry, I was not aiming that directly at you, more like an old man yelling at clouds. I kinda give up on all of this. Nobody wants to hear or debate actual policies in the public. Politics is now just an exercise in campism. Nobody plays that game better than the current party.
Sorry for misspeaking. What I should have said is that "If you want anything approaching a balanced budget in modern times..."
The facts are that surpluses were routine before the 1960s, under both parties. Since then, not so much.
1998 was the first year the United States government recorded a budget surplus since 1969 [0] (Clinton with a GOP Congress).
Since 1981, the deficit deepened under Republican administrations and shrank under Democratic ones [1]
That aligned with the creation of a right-specific media system where "Republicans don't fight Republicans" - so there can never be any internal accountability.
A good faith cooperate tax would solve most if not all of our deficit, and arguably increase our GDP growth.
A 5% revenue tax on the fortune 500 would get us half way there. I could not quickly get a number for total revenue of more than the fortune 500, but I would not be surprised if a 3% VAT would cover the entire deficit. We lose so much tax revenue due to all the loop holes deliberately left in the corporate tax code.
On top of that, ban stock buy backs entirely, that way more of the record breaking profits have to go to wages or other means of investing in the business.
"A 5% revenue tax on the fortune 500 would get us half way there."
Given that ~20% of that group have net income margins below 5%, how much of such a tax policy would simply be an inflationary tax on consumers? I.e., we know Walmart cannot simply pay a 5% revenue tax, that would instantly make them deeply unprofitable. So they would have to raise prices to afford the tax. And if they know Target, Kroger, Costco, and Amazon also need to pay the same 5% tax, there is less competitive pressure to eat into margin. Even with zero collusion, there is perfect information symmetry regarding the tax.
At their present 3.1% net margin, if Walmart passed a 5% gross-revenue tax entirely to consumers while all else stayed equal, prices would have to rise MORE than 5% -- about 5.44% just to preserve its existing margin. Of course, some of the tax burden likely gets shared between Walmart, its customers, supply chain, vendors etc... In a world where the Fortune 500 (Walmart) has to pay the 5% revenue tax but a supplier of some SKU (not a Fortune 500) does not pay it, I imagine Walmart would lean extra hard on them to eat some of the tax. It all seems like a very messy and inefficient tax.
On the VAT, the CBO has actually studied a 5% VAT tax and modeled that it would raise $330B. That's 16% of the current $2.1T deficit.
Right there’s a lot of easy answers mechanically but they are challenging politically. The longer we wait to do anything the better they’ll look though that’s for sure.
It's very hard to gauge realistically what this means. There are a lot of vested interests in the financial system not crashing and those put strong reinforcing effects back on things. But in the end it is a game of chicken where eventually being the last to bail out becomes higher risk than continuing to support a system where an imminent crash is possible. It feels like there are strong non-linear tipping points where things could go exponential pretty suddenly here.
The problem is that the level of debt overall in the US - across both private and public sector - is just astronomical. We are truly in unchartered waters, outside of a world war. There's just no model or playbook for how this should work from here forward, other than it seems very clear we will hit a point where the math stops "mathing" and that point is getting closer and closer.
Now let's see some data from the past 5 or so years of the total sum of ransoms paid behind closed doors (ontop the few that are forced to disclose publically)
Strange that this is happening globally. I get that this is a US site, but this does not seem to be a US story at all. EU yields are up to 3.5% (not far behind US), and the same goes for individual countries (France 4.8%, Netherlands 3.6%, Spain 3.6%, Austria 3.8%, Germany 3.6%, Japan 3.1%, ..., all up from zero to negative 3 years ago, Poland 6.4%, Czechnya 5.3%, Hungary 5.8%, Australia 5.5%, ... all up from 0.5-2% 3 years ago). The same pattern is all over the place.
There's some details, like Hungary actually being down to 5.8%, presumably through more trust in the current government vs the last. But the pattern vs 3 years ago is one of constant rise.
And there are exceptions, India, for example, is showing a different pattern. China does not make sense (but I'm sure that's just by design). Russia, but I have a guess for that one. Ukraine ...
Almost like bond investors are expecting something dramatic to happen soon, with odds rising fast, at least across US and EU, including individual countries. At the very least, investors are expecting an economic disaster for the next 10 years (at least compared to the last 10 years)
It's weird how the discussion on this rarely mentions Trump's giant 2017 and 2025 tax cuts, plus the insane increase in military spending. Somehow it's always about we need to cut entitlements.
If you cross your eyes and squint a little bit, the following categories of 2026 spending are around the same size:
$ 1 T : total defense (roughly)
$ 1.7 T : total social security
$ 1.1 T : total medicare
$ 0.7 T : total medicaid
$ 0.7 T : total other entitlements (SNAP, VA, etc)
$ 1.1 T : net interest on the debt
$ 1.0 T : all other discretionary spending
The US took in somewhere around $5.6T in revenue in 2026. That's a net deficit of just under $2 T. Or roughly double the average size of the "block" of those separate spending categories. These are abased on Feb 2026 CBO assumptions. Net interest is going to keep rising as the Treasury yield rises.
So ... we can't fix this by doing any one thing. Even if we were willing to completely end social security (while keeping the separate contribution tax), that wouldn't be enough. If we threw away our military entirely, we would only be half way there.
We need to do everything a little bit, all at once.
Raise taxes - corporate and personal, on every bracket, progressively more on the rich ... but this will not even be half of enough because of the strength of the debt bomb and the global flexibility of corporations.
Cut defense spending - but not too much, because we also need to provide funding to repair alliances, rebuild our ancient navy, and rebuild our standoff and interceptor stockpiles after the recent middle east adventurism.
Repair social security - cut benefits, add a means test, raise the contribution amount and limits ... lots of things to do here.
Fix health care - it's just too damn expensive across the board; the US pays for this in the VA, medicare, medicaid, and the poor health of its workforce. I have no idea where to start on this one.
The CBO has a ton of data on this kind of thing. I like their budget options page for exploring the forecasts for specific changes. Of course it's not as simple as adding the numbers together to get to the deficit, but it's a good place to learn more and ground some assumptions.
According to the CBO, the TCJA and 2025 cuts/extensions have reduced revenues by about $430B per year. That's only 20% of the current annual deficit. It's just so small compared to the trillions per year in entitlement spending. And of course, that's just a first-order reading of the tax cuts. The second-order effect is that the tax cuts led to more private sector spending and investment, which spurred a little more GDP growth. The CBO estimates $2.6T of cumulative GDP growth as a result of the tax cuts through 2028.
So that's about $52B per year in taxation added back on that extra GDP growth, so the net effect of the cuts are around $380B reduced federal revenue per year, or 18% of the deficit.
18% of the deficit is a lot but if you could snap your fingers and undo it, you now have a $1.7T problem instead of a $2.1T problem. Eventually you have to look at entitlements. There's just no way around it.
That's because even fully undoing those things wouldn't be sufficient to fix the deficit. When federal revenue is $5 trillion, entitlements cost $4 trillion, and interest on the existing debt is $1 trillion, you just fundamentally can't balance the budget without cutting entitlements. All of the revenue is already spoken for before funding anything in the rest of the government!
The less reported fact is that TIPS yields are moving in lock step with nominal yields. Breakeven inflation is approximately constant at 2.2-2.3%. So this is not about inflation expectations. It feels like a genuine capital shortage, possibly driven by massive AI-related investment demand.
You want to see what's really bad, a train wreck in slow motion, just look at what France is doing.
They've been subject to EU Excessive Deficit Procedures for multiple years, must bring deficit-to-GDP ratio from ~5.8% down to 3% within 3 years despite virtually no GDP growth and complete political and societal paralysis about reducing any public benefit or welfare whatsoever.
ECB will most likely get involved after 2029 to start austerity measures. You can predict how that will go over with the French public especially if Le Pen takes the presidency, which looks likely.
Very tough times ahead and the EU is facing a critical point about its future.
Everyone thinks they can grow their way out of deficits, but it's always a pipe dream. It results in a growth obsessed economic plan that then causes all kinds of other stresses (such as being petrified of cutting immigration, for example). So much of this is all happening in lieu of politicians just being willing to have honest conversations with voters and take a risk of blowback. But I think people are over it and will value authenticity these days enough that it's a false economy. Just tell people the truth.
It can be done, the US did it for decades, but the budget can't be reckless. You can't ignore the top line forever. I accidentally put spending first in this post, and that was a mistake. The US has cut taxes, cut taxes and while it is true that we've done little to curtail wasteful spending, we've not actually addressed the wasteful part, we've just moralized about "who deserves what"
Very soon we all be multi-quadrillionairs.
You absolutely can grow your way out of a deficit - France is maybe the most regulated liberal economy in the world? It's designed not to grow
If you can keep energy costs down and get out of the way there will be growth. It's a thing that happens when people do business and make new things.
There is growing without regard to the lower 95% (china, India, USA) which is great on paper, but arguably not great for the population. I'd say the EU, Australia, and a few other countries have done it significantly better - it's just a significantly harder approach to balance.
Edit: and probably not as effective, which risks being overtaken by others, I suppose.
The amount of growth the "95%" have seen in china is huge!
Also American peasants / lower tier white collar workers are usually richer than fairly well off Europeans... You cannot even begin to comprehend how much wealthier the US is in some ways - and remember how totally dysfunctional the US economy is in many limits i.e. if Europe could just be as _bad_ as the US it would grow much faster.
I hate to be a China apologist, but I’m not sure why you included them in that list. Bottom 95% is living in conditions unimaginable to a generation ago. Of course they have humongous problems, but in general, they have lifted everyone up by ignoring views of the rest.
If your deficit funds corporate welfare or war rather than state asset building (infrastructure) that has positive ROI through externalities ofc it’s a mess. But that’s not all deficits
> But I think people are over it and will value authenticity these days enough that it's a false economy. Just tell people the truth.
We have seen abundantly clearly that telling the truth is the worst thing you can do for your political career. The correct move is to lie, lie, lie, lie. Reality is completely irrelevant. All you need to do is tell them what they want to hear. Nothing else matters. They will not hold it against you if you break every promise you make. They'll vote for you again and in greater numbers if you ramp up the promises to even bigger lies, nevermind your track record.
It's true but I think it's symptom of the same problem - people feel they are constantly lied to so they throw up their hands and go with the nicest lie that appeals to their base instincts. They don't get an alternative of truth vs lie - they get "lie that agrees with my instincts" vs "lie that doesn't" and hence we get overwhelmingly populist politicians winning who have no real plan of competence to solve the problems or implement the promises they were elected on.
most politicians cannot do this, to be clear.
trump can do this. it is very rare. you try to do what trump did and you'd be sent to jail instantly.
> most politicians cannot do this, to be clear
Most voters cannot handle it.
Sure, Trump lies, but it's not unique at all. Biden was going to cancel student debt, Obama was going to close guantanamo, end the Iraq War and have single payer healthcare, GWB's "Mission Accomplished"... etc. So Trump's general dishonesty about what he's capable of as President is par for the course.
Biden canceled student debt. A politically oppositional Supreme Court invented new powers to undo his move while allowing Trump far more.
Obama attempted to close Guantanamo. The political backlash was massive. He essentially ended the Iraq war leaving only a skeleton crew to work with the government.
Those are not even in the same universe as all the lies and corruption Trump has peddled.
Heck, Trump has had a dozen Mission Accomplished moments in the Iran war alone, compared to the 1 stupid photo op by Bush.
If anything, equating very different situations with Trump’s regular lies and corruption like this is why Americans are confused.
Just because others broke promises it doesn't put them into the same class as Trump. He is a true "outliar" on this front.
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We live in a sick society where billionaires can buy fleets of mega yachts and space ships but governments can't afford to keep functioning.
We have spent decades selling these billionaires government debt instead of just taxing them correctly.
Can you show me your math on how taxing Billionaires solves France's Debt/GDP issue? Or even the US's debt servicing. I'd like to see the analysis.
This is not a argument on if they should pay more tax or not, it is a argument about what affect it has relative to the discussion of a countries debt.
The Macron government went out of its way to cut taxes for the wealthiest percentiles. Debt exploded, costs were cut, infrastructure went unmaintained (which only ended up adding to structural costs), but the GDP growth remained anemic.
However the wealth of the wealthiest increased substantially, so there's that, I guess.
If France or Germany are involved, it’s doubtful the ECB would be able to impose austerity.
I think austerity measures are counterproductive. After seeing how they worked (or rather didn't work) when imposed on multiple nations by the world bank, and self imposed in the UK and Germany, I don't think austerity works at this state of inequality.
Perhaps short periods of austerity work in decades past when enough of the foundation was still established for public goods, but a this point of neoliberal economics, austerity just causes economies to slow or shrink
Austerity can work in short doses and is intended for that.
However, most western institutions and governments have used periods which required austerity to bake in long term privatization and government service cuts for ideological reasons, as opposed to treating it as a chapter 11 bankruptcy, for example, where they use it to clean and streamline their operations and programs and restart the services on a better footing.
> must bring deficit-to-GDP ratio from ~5.8% down to 3% within 3 years
Or what? (Seriously.)
Greece was forced to the table because the market wouldn’t lend to it. So long as France has lenders, why does this rule matter?
They can lose some monetary discretion if it goes on for too long. I'm not sure what "corrective net expenditure path" means in practice, but it sounds like other members get to decide that one at the time.
The ECB doesn’t have the political power to force France to give up any monetary control. The EU might govern France, but France (and Germany) govern the EU.
That's why I said that it is a coming crisis of confidence for the EU.
France has snowballing debt with virtually no prospects of growing out of it by itself. So what is going to happen? It's a very dangerous situation that is only feeding the euroskeptics even more.
While the far right in France has been gaining traction with full throttle populism on fertile grounds, I wouldn't overestimate their chances to make it to the presidency and discount the fierce opposition that will be expressed the day people cast their vote.
It is still a weak (but loud) political movement which lacks backbone and network.
In 2026, entitlement spending + interest expense will be over 100% of federal tax revenue.
That's before the military, foreign aid, and everything that starts with "Department of"
Not sure why you're getting downvoted. I thought you were wrong, looked it up, and you're correct.
In 2025, federal gov revenues (total, not just tax) were $5.26T: https://fiscaldata.treasury.gov/americas-finance-guide/gover...
In 2026, entitlements plus interest is projected to cost $5.45T: https://fiscaldata.treasury.gov/americas-finance-guide/feder...
We would have to raise federal taxes by an average of at least 39% per household and on businesses =just= to balance the deficit.
The reason the US is a comparably "low tax" country is because we're borrowing the difference.
What worries me the most is that this is at a high point in our economic cycle, when tax collection is arguably the highest. The deficit and debt will expand significantly in the next recession.
This is the best time to raise taxes specially because the business cycle allows it. Guess what would help reduce inflation...raising taxes.
The modern US is a great example that maybe you should have tax and fiscal policy somewhat removed from democratic hands.
I.e. have a Fed-like entity that gives Congress a max in spending for the current tax policy, and Congress is required by law to stay below that number
Fixing US debt has always been politically unpopular, and it always will be.
Checks and balances were supposed to do that. Federalism was supposed to do that. Republicans have played a 60 year strategic game really well and blocked the checks and balances. Here we are. With no way back quite frankly
In what way would checks and balances do that at all? The only branch that has any sort of leeway to pass unpopular policies is the Supreme Court, and setting budgetary constraints is far outside their purview.
In a world where the president wasn’t politically associated with Congress (the US system It’s different from most in that the executive is not elected from the legislature), the President could theoretically demand Congress send them a balanced budget to sign, otherwise they would be responsible for the cuts.
Unfortunately the U.S. constitution was written with the, in hindsight, naive assumption that political parties could be avoided.
This just led to a system that has political parties but doesn’t really acknowledge their existence and therefore makes it difficult to regulate their behavior.
Entitlement spending has its own tax base though doesn't it? We could just raise taxes right?
Yeah, cut the $1T/year in defense spending and raise taxes to pay down the debt (to cut $1T/year in interest expenses) and balance the budget. Entitlements remain because workers are entitled to those benefits they worked for. The same workers the wealthiest need to suck $5T+ a year of profit out of the economy.
We used to have 94% top tax bracket rate at one point, and higher tax rates in general. We’ll find the will to raise taxes as soon as the bond market compels the spineless in Congress to find the will (as the cost of debt continues to rise into the future), because you cannot deceive the bond market.
https://taxfoundation.org/data/all/federal/historical-income...
https://www.axios.com/2026/09/27/rates-borrowing-yields-fisc...
- In projections that the Congressional Budget Office produced last February, net interest costs are already at $1 trillion this year and on track to reach $2 trillion by 2035, meaning that much of federal spending is needed just to service old bills.
- But those projections assumed 10-year Treasury yields were in the ballpark of 4.3%. They're now nearly a full percentage point higher than that.
- In startling numbers that CBO released this week, in a scenario in which interest rates were 1 percentage point higher than its baseline, debt held by the public would grow to 222% of GDP in 2056, 47 percentage points higher than the baseline.
https://www.cbo.gov/publication/62758
There's this perception that the majority of US government spending is on the military which is completely untrue.
Defence is only 12% of the US federal budget - what are you going to cut it to? It's not going to solve the issue even if it's abolished. Over the last 10 years health, Medicare and Social Security have grown 103%, 83% and 78% respectively for an increase of $1.64 trillion to $3.55t vs a $916b on defence. With an aging population it's only going to cost more and more over time, you can't continue to put higher taxes on a shrinking share of productive population to care for more and more unproductive retirees under any economic system.
Defense might not be a cure all for the deficit, but reducing expenses to the tune of 12% sure is a heck of a start. Clearly defense spending isn't buying us that much if the our armed forces can't deal with a middle income country (Hormuz blockage) and a group of rebels (Bab al Mandeb blockage).
Cutting defense doesn't even need to be complicated. Just stop forever wars in the middle east. It won't hurt our actual defense capabilities and will raise America's stature in the world. Heck, we have the best defense imaginable given to us for free (the Pacific and the Atlantic oceans), to the extent that two world wars combined didn't see a major attack on the US mainland.
Cutting (or better still privatizing) social security, medicare and medicaid, while being the Republican wet dream, actually translates to direct harm to millions of citizens.
Single payer Healthcare would flatten that curve by removing the incentive that insurance companies and health providers have to raise prices in coordination. Insurance is only allowed a certain percentage of admin costs (salaries etc) and profit from premiums so their incentive is to raise premiums but they can only do that by showing increased costs. Health providers have an incentive to show their costs aren't fully paid by insurance so they can also justify inflation of expenses.
Universal SPH would save a net $300B to $1T, reduce paperwork, reduce deaths/improve outcomes, and provide better care. The FUD canards of "rationing", "waiting lists", and "communism" as well as classism and corrupt profiteering are the barriers to less suffering. Just give everyone the same coverage that doesn't have a 20% hole or lifetime limits... and that eliminates Medicare, Medicaid, Tricare, CHIP, ACA, and most private insurance, and most billing coding and prior-auth nonsense. Not doing so wastes money and kills people, just like parts of the BBB coming into effect after the midterms is going to bankrupt and kill thousands of people.
I agree. I own home health care agencies in 14 states. The admin we have to fund is absolutely ridiculous and wasteful. But republicans use clerical errors to scream about waste fraud and abuse because that justifies cutting spending and so the system operates inefficiently and costs keep rising on the public and private side.
Of course those programs grow when people get old, that’s when they grow! I suppose the federal government should’ve invested in investments to increase productivity to support a rapidly aging population instead of using cheap debt for inefficient, unnecessary non mandatory spending (tax cuts and military spending).
> you can't continue to put higher taxes on a shrinking share of productive population to care for more and more unproductive retirees under any economic system.
Start at the top with very high marginal tax rates for the wealthiest, work your way down. The wealth exists, tax it.
https://en.wikipedia.org/wiki/List_of_wealthiest_Americans_b...
https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...
(The top 10% of U.S. households own roughly 67% to 68% of the total household wealth in the United States, the vast majority of which are securities)
Raising the income tax rates aren’t going to help though. The ultra wealthy you want to tax have (basically) no income to tax. Are you proposing to institute a wealth tax?
One thing that would capture tax revenue from the wealthy and eliminate a rather large tax loophole would be to automatically realize gains on stocks used as collateral for loans.
edit: formatting
> Are you proposing to institute a wealth tax?
Ideally, but failing that raise the estate tax to 90% for estates over the current exemption limit of $15 million and eliminate all trust loopholes.
The billionaires would be able to enjoy their money in their lifetimes and still ensure that their children are taken care of in their lifetimes all while paying their fair share to society upon death.
If necessary, yes. Whatever form is necessary to effectuate the target outcome. We tax real estate, real estate is just another form of asset and wealth (with a similar liquidity profile to private equity). We can do the same with securities, equity (public or private), etc.
We don’t really tax real estate. That’s why all the old farts pay $1000/year in property taxes on a home that’s worth millions. Do you propose taxing them on the actual value of their homes?
> We don’t really tax real estate.
This is not a serious argument based on total property tax collected across all 50 states on an annual basis (~$2T) [1]. Federal government spends ~$7T/year against $2.4T in personal income tax, $1.7T in payroll tax, and $530B in corporate income tax (~$4.9T in revenue) [2].
Could we tax real estate more? I’m sure, not opposed based on fair valuations and implementation details. We should start with securities first imho, as we already tax real estate today. Conveniently, the top 10% of households own 93% of US equities. US GDP is ~$32T annually.
[1] https://www.nahb.org/blog/2025/03/state-local-property-tax-c...
[2] https://usafacts.org/government-spending/
I have seen no evidence that Congress cares about what the bond market thinks. In what scenario do you think the bond market can compel Congress?
https://x.com/Aviation_Intel/status/2105415209284464925
> Bond market is in revolt about the national debt and I hear crickets from Washington. You think this would be a crisis. Amazing really.
Some combination of the bond market rejecting Treasuries for other similar investments while also pushing up other debt costs causing excessive failures in interest rate sensitive parts of the economy. Hard to predict when, but it’ll look strikingly familiar to the 2008 GFC I think, the day Bear Stearns collapsed. An event will occur, and there will be a cascading loss of confidence in the bond market. Not a great time when diesel fuel is also at record high prices and will be for at least the next year.
Global bond sell-off deepens as Asian yields jump - https://news.ycombinator.com/item?id=49917899 - September 2026
It’s essentially impossible to balance the budget without cutting entitlements as the comment you are replying to suggests.
They are called “entitlements” because we have a reasonable expectation of getting what we were promised when we agreed to pay taxes as our part of the social contract.
If you say, “We should have invested more,” I point you to the 40% of current retirees that were not in a position to invest because their jobs didn't pay them enough above the cost of existing. And then there are any number of events, such as age discrimination, common medical issues, divorce, and bankruptcy, that destroy retirement plans.
From what I can tell, it's not possible for the vast majority of the population to be able to save for a 20 plus year retirement.
One of the things that keep people from saving are the activities driven by their investing in the stock market. To increase returns, "Activist investors" and private equity drive companies to shed jobs. You shed a job, you destroy a person's ability to save for retirement, which makes them more dependent on the social contract of Social Security and Medicare.
Cutting benefits will only cause suffering. The cost will fall on society in other ways in terms of elderly homeless people filling the ERs, begging in the streets, or committing suicide. Is it time for a "Modest Proposal II"?
Totally false. It was balanced in the 90s. Its just that raising taxes has to be part of the equation. Guess what, three successive republican administrations have lowered taxes. So maybe just roll those back.
But that's not comparable. If the tax take/GDP was the same today as it was when the budget was balanced then (19.9%), there would still be a deficit well over a trillion dollars. The US is simply spending a lot more. In terms of entitlements, certain things have changed structurally.
For example in the year 2000, people aged over 65 were 12.4% of the U.S. population. Today, that demographic has grown dramatically to 19% of the population. That's fewer people working and paying taxes while also simultaneously drawing more from medicare and social security.
This doesn't mean it's "impossible". But to balance the budget today without major spending cuts would require raising taxes 39%. It's just so different than it was then to make the math work out.
One thing to do would be get rid of the $184k cutoff on payroll tax. That would greatly extend the life of the Social Security and Medicare trust funds.
That gives a lot more time to phase in any longer term changes to those programs.
If the remaining deficit is around a trillion dollars, and we spend more than that on needless wars in the middle east, it's easy to see what to cut to balance the budget....
Yes, I specifically said raise taxes because many here believe spending cuts alone will solve this. It is impossible to not raise taxes based on debt load and forward mandatory spending curves. The bond market will force this to occur, like your credit card company raising your interest rate and bringing your credit limit down to your current balance.
Taxes will go up, voluntarily or involuntarily. If we didn’t want to get here, well, should’ve never spent so frivolously on tax cuts for the wealthy and a bloated military that is unable to pass an audit. But we did, and that debt is going to have to be paid back, with interest. It’s impossible to grow out of this debt, and there are more workers than very wealthy people and their politicians.
Exactly this. Thank you for the thoughtful fact based analysis
the right wing is not going to like where this all leads (and neither are the centrists or any of the rest of us, tbh)
My knowledge of new-gen-econ is pretty subpar, but isn't the strategy of US "don't dare to bet against us, we're writing new rules of the game"? It feels like all governments are acknowledging "letting it rip will suck for everyone, so why would we even bother". Normal monetary policy has been thrown out of the window, and every large state bank has stated it very openly throughout the wars that have started in this decade. And this leads to a lot of state-level financial backdoor discussions, deals and "stuff" that I'm not knowledgeable enough to even think about.
Wild times. Maybe it's information overload, since it probably happened in the past as well. But being bombarded with implications of these changes left and right is kinda weird.
I'll comment under my own post about "why i think this is happening" - it's the fact that the average age of the population in the world is higher than it has ever been, especially in richer countries. Just like the "housing theory of everything" posts that circulated around some time ago, I think that is the core reason why so many illogical decisions are being thrown around.
I don't have deep knowledge, other than a bunch of "pattern matchings" I've done throughout my readings, but as people get older, on average, their wants/needs change over time. Older people, especially as they get closer to retirement age, have more free time as well. Implicitly, these desires eventually bubble up into economic/political action, that's more or less unprecedented. It would be very cool to research this more in depth, but unfortunately i'm in the wrong field.
Normal economic policy hasn’t really been true since the 2007 financial crisis. Rates were kept at historically low rates because growth was anemic and everyone had seen Japan fail to pump up its economy. To some degree there was also thinking that countries in this situation should provoke inflation to get the growth flywheel growing again; at least the fixes to inflation are known vs deflation.
Well, it turns out that we did it with the COVID economic shocks, and for a while there was talk of a “soft landing” but that’s all but disappeared from the conversation.
I don't think it's correct to say "rates were kept low" as if the Fed had a choice in the matter. All the Fed can really do is respond to market conditions. It can be slow to react, and it could in theory be wrong about the market in a way that causes economic damage (in one direction or the other), but it can't really do better than the implied market rate.
Interest rates were kept at historic lows for a decade because the 2008 crisis caused available credit to absolutely implode, which destroyed a huge swath of the effective money supply. Leverage ratios at banks went from north of 40:1 to closer to 10:1. Without ZIRP and QE and all of the rest, we would have had outright deflation, kicking off the kind of deflationary debt spiral that made the Great Depression so bad.
That kind of dramatic destruction of credit did not happen during the pandemic. The banks were fine [0]. What happened was that the economic output of actual goods and services collapsed. So high levels of stimulus led to more money chasing fewer real resources, and you got inflation instead.
This should not have been a surprise.
[0] Modulo a few like SVB that blew up a couple of years later because they had forgotten that interest rates could also go up.
Well also at some point QE would have to unwind, and no one had ever attempted an unwinding of such loose balance sheets before
I agree, 2007 definitely changed a lot of "assumptions". But there were no "every main bankman stating out loud that aight, we're playing a new game now". Maybe 2007 started it, but 2020s, I'd say, is where everyone publicly acknowledged it?
> everyone had seen Japan fail to pump up its economy
Agreed about this, but I feel like everyone is watching Japan right now again. And I fear people will make wrong assumptions, given how its "economy is growing right now".
I'll posit that the 'crypto/blockchain-whatever' caused some curiosity in the market (both before and during COVID), COVID messed up everyone's plans for the recovery (recoveries take a long time without stuff like WW2 that cause other economical imbalances) and other political factors played in.
Not saying you're wrong about anything you're saying, to be clear.
Even songs we don't like have a lot of 'poetry' in their notes...
No, out of 2007 we had stuff like negative interest rates and MMT and helicopter money.
Well, it's still complicated because of the global economy.
- Most of the AI Companies are HQed in the US, and that's the 'hot thing' for the market overall
- Google and Apple have enough presence (i.e. some may be doing tax things but...) in the US and at least one of them has gotten 'too big to properly antitrust'.
- If we look deep enough, even some of the fanciest ASML tech is a result of IP sharing from US companies that are almost certainly government backed (i.e. ASML might be the ones working with other companies to help make it useful/scalable, but the tech is invented here.)
Ironically, something I would have listed at the top 10-15 years ago but is now last on the list...
- For the last (well, now) 80 years the US has been able to project an outward image of overall economic stability and relative growth; The closest it came to a crisis in the past was when the Bretton-Woods system collapsed and France came over and collected their gold.
On the flip side, there is the 'guard'.
- Any current bondholders have to choose between holding at the current rate, or selling at a discount. It becomes a 'Well do we really thing it will all fall apart before then or do we just hold?'. Because any new bonds, even at the current rate, would be carrying that risk on the open market if a sell-off occurred. IOW 'Is a bond I have now less the arbitrage cost going to be worth more than just holding it'.
What's important is what happens next. If we look at the Bretton-Woods collapse, there were a number of actions taken, many (most?) of them questionable, however it was pulling a bunch of levers at once and unpulling versus debating which lever to pull.
There is the confounding factor where parties are arguing that there is market manipulation going on, that changes the question of whether to hold onto existing bonds rather than making other options. After a certain maturity percentage one has to ask whether you hold or sell based on climate.
I guess all you said makes sense.
> There is the confounding factor where parties are arguing that there is market manipulation going on
My understanding is, it’s not even an argument anymore. Like the latest Yen intervention from the states was basically a state level manipulation, no? I mean there’s nothing really illegal. And it makes sense, and very much public. But one can assume there are just many more behind-the-scenes activity going on as well.
The primary issue is Social Security. It’s the biggest driver of spending, and nobody wants to do anything to cap its costs such as means testing or straight up lowering the amount it can pay out.
As for the people that will inevitably bleat about how this is just horrible and we need to lift the cap on taxable SS income, that wouldn’t solve the core problem either unless you pair it with spending caps or cuts.
There is an easy solution to make Social Security solvent. Uncap the contribution. Problem solved.
This would add some more years of runway but does not solve the problem. Eventually, the fund would reach insolvency again. The SSA actuaries estimate that removing the cap would add 21 years before insolvency. 21 years may sound like a lot compared to the handful remaining now, but is well before the retirement age of the average person reading this comment.
Also an underdiscussed issue with such a policy is that while it increases social security fund revenue, it decreases the amount of federal revenue collected. The CBO estimates that about 15% of revenues gained by an uncapped SSA tax are offset (lost) by a reduction in federal revenues. Worsening the deficit problem.
https://www.cbo.gov/budget-options/60955
https://www.crfb.org/socialsecurityreformer/
It’s actually pretty easy- pick three or four options that have the very wealthy kick back into society what they have been syphoning out and it balances.
Uncapping income it is applied to and throwing in capital gains would totally solve the problem if you sever the link between contributions and payout (which is a form of means testing).
And dividends
that would be one of the largest tax increases in history, used to fund transfer payments to the disproportionately wealthy
Why would someone contribute more than they are legally required?
They wouldn’t and with the current cap they don’t. Uncap it (or just raise the cap) and now they will have to contribute more.
Right now a ton of wages from top earners are not being taken out for social security because the cap is around 176k (for the current year); I'm assuming it would simply extend the timeline for it hitting its deficit.
I think the argument is for changing what is legally required.
"Means testing" is the bad Social Security idea of the year. SS isn't a welfare program. Trimming benefits, changing retirement date (for all) and uncapping contributions are much more palatable to voters.
> The primary issue is Social Security.
No it's not. It's about 15% of the 2 trillion dollar defecit. Whoever told you that mislead you.
Social Security is funded by the people paying in, plus the money in funds like OASI. Yes, OASI is treasuries, so it’s connected, but the reason OASI exists is to cover the changing demographics as baby boomers retire. It’s not designed to be, long-term, the way the Social Security system works. The idea is that you collect income on the boomers greater than payouts while their cohort is in the workforce, and the pay that money back out when they retire.
Yes, there are reasons why this isn’t working out as planned. But the idea that “Social Security is the biggest driver of spending” is not a cogent argument.
The OASI fund was at ~$ 2.4 trillion in around 2025. That's only about 1.5 years of payments given no contributions. The net interest from the fund is only around $ 60 billion. If you add in the DI fund, it only changes by about 10%. The $ 1.7 T cost of Social Security in 2026 will not be meaningfully affected by these funds. Mandatory spending payouts will thus have to come from contributions (which are fundamentally just another tax that could be redirected to other priorities) and from the general fund. The contributions brought in around $ 1.3 T in 2026, leaving somewhere around $300 B to be paid out of the funds.
Thus, I think "Social Security is the biggest driver of spending" is a perfectly cogent argument. The mandatory social security contribution is just another kind of income tax.
Obviously we can't just turn off Social Security, for many political, moral, and practical reasons, but any solution to the deficit or debt that ignores social security will be fighting with one hand tied behind its back.
Social security is only collected from incomes 184K and below.
It’s literally not a spending problem at all.
> and nobody wants to do anything to cap its costs such as means testing or straight up lowering the amount it can pay out.
You forgot the huge one, which is uncapping the amount of income it is applied to.
> and nobody wants to do anything to cap its costs such as means testing or straight up lowering the amount it can pay out
Yes because everyone paid into it and wants their money back with interest as promised? This isn’t weird.
You aren’t promised your money back with interest; that’s what an IRA is. Social Security is a different system which works by different principles. In Social Security, the money you pay goes to the people who are retired, and your retirement is funded by people who work in the future.
Your money --> older generation
Younger generation ---> you
The main thing that makes my description incorrect / incomplete is that baby boomers, such a large cohort, broke the system. This was predicted and so the baby boomers actually did get their money back: they were taxed to fund OASI, which then goes back to fund baby boomers’ retirements, until it runs out.
Baby boomers (only, sort of) <---> massive cushion in the OASI fund
SS (and the equivalent in other countries) was, in hindsight, an incredibly stupid system to set up that way - people should be exclusively contributing to cover _themselves_ so that it's a saving/investment scheme rather than a pyramid scheme. If you're in poverty in retirement that shouldn't be because the current generation of workers is shrinking. It should be because you failed (or were unable - doesn't matter which) to carry forward enough from your own career.
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There are more 401k millionaires now than ever before. I wonder if in 20-25 years decrease in SS payout will be more palatable as people rely on other, far more valuable, retirement accounts.
On the other hand, I’ve been paying into ss for like 3 decades easy. Bitch better have my money!
Ah yes, let's make our poorest citizens even more poor. Means testing doesn't work, read a book.
It’s not Social Security, it’s Health and Human Services. It’s been the top line item in the federal budget for several years, and it’s growing at the fastest rate and has the largest unfunded liabilities.
Social security is easy to fix. Just raise the retirement age. Or do nothing and benefits drop by 25% or whatever it takes to become balanced based on current tax revenue.
Good luck rationing hip replacements and breast cancer treatments whose provision is statutorily required by law and whose cost will continue to rise with inflation.
None of this even begins to consider interest on the debt. As interest rates continue to rise and the debt continues to grow this line item will eventually dwarf everything.
Social Security is chump change compared to these two. But at least it’s nominally fixable by faking the CPI numbers used to set the cost of living increases. You can’t charge less for hip replacements or cancer treatments, they cost what they cost.
Social Security is not the issue no wealth tax, capital gains tax being less than income tax are the problem. Social security and government expenses going up are the symptom of the same problem ie not taxing capital gain which has resulting in prices for everything to keep shooting higher than incomes.
Bessent challenged Bloomberg bros to take him on, since he’s the house now, and it’s safe to say he lost that challenge.
Even if it goes down going forward, Bessent was incredibly reckless. Basic emotions have a surprisingly significant influence on financial markets’ behavior. I won’t be surprised if the rates would have been at least a few basis points lower if it wasn’t for Bessent’s silly bravado.
Stocks keep marching higher. And it's not irrational. Because the only way out of this mess (debt with high rates) is inflation.
I'd question all of the "stocks keep marching higher" and the "it's not irrational" and the "only way out of this mess is inflation" narratives.
Take a look at the S&P 500 vs. the equal-weight S&P 500 over the last 6 months:
https://finance.yahoo.com/quote/ES%3DF/
https://finance.yahoo.com/quote/RSP/
The equal-weight S&P 500 has been on a steady march downwards since it became apparent in August that the Iran war was not even close to over, and is now getting close to correction territory (7% down). This is exactly what you would expect given the news. It is the opposite of what you would expect from the inflation story, which would lift the earnings of everything in the S&P 500 (which, after all, is composed of the 500 largest companies and overweights monopolies or oligopolies in broad industries).
The S&P 500, however, has been basically flat over that same time period, holding at the 7700 level. It basically has a leg down over the course of the week, and then always pumps on Friday to regain the previous level. I'm not sure if it's government intervention or irrational exuberance in a small set of AI stocks, but the divergence between the broad market and the S&P 10 is becoming increasingly noticeable.
But as you say, it's the Iran war and other factors that are to blame. Inflation is lurking in the background but various things will always appear in the foreground to occupy the market's attention for a bit.
But on the scale of years inflation will dominate all transient idiosyncracies.
I'm not convinced of that, and I don't think the market is showing that it's convinced. At least not abnormal, above-2% inflation like we've had for the last 5 years.
I think there's a decent chance that Warsh gets inflation under control. The recent rise in bond yields is 100% due to Fed action: the Fed stopped rolling over long-term treasuries and MBS into like-kinded securities in June, instead rolling them over to short-term treasuries. This shrinks the Fed's balance sheet on the long end of the curve and adds to it on the short end, just like Warsh said that he would do. It's net-neutral for the Fed's balance sheet as a whole, but the effect is to push up long-term yields, hold short-term yields steady (which have a floor of the Fed funds rate), and steepen the yield curve.
The next step - and Warsh has made no secret that this is his plan - is that once the long-term Treasury market finds an equilibrium without Fed support, use that information to figure out what the neutral rate is, and set short-term rates accordingly. The price action we're seeing is a strong indication that the neutral rate is significantly higher than anybody expects right now.
The bond market is also not expecting significant inflation over the next 10 years. You can see this through the TIPS spread, the difference in rates between the 10-year TIPS and the 10-year Treasury bond. It currently stands at about 2.35%, indicating that the market as a whole expects about 2.35% (CPI) inflation over the next 10 years.
https://en.macromicro.me/collections/51/us-treasury-bond/846...
Stocks keep marching higher, to stable yet irrational levels, because the .1% need to put their money somewhere. That level of wealth grows so quickly that it's impossible to know what to do with it. A literal embarrassment of riches.
Don't get me wrong, I want to be in that category, but still.. this is our reality. It's an interesting experiment we are running. Without external factors like global wars and climate catastrophe, could the market even crash in our current environment?
Common misconception, this only affects debt that is locked in with long-term notes like the 10 year. A significant amount of debt is short term and refinances continuously, so the 10 year would go sky high if inflation climbs as investors demand a higher premium to invest with the treasury. So it doesn't evade all debt unfortunately
Stocks historically haven't performed well during periods of high inflation.
Past performance doesn't guarantee future results
Stock market dynamics are fundamentally different now compared to the last period of sustained high inflation (70s)... And stocks have done fantastically over the last few years of stubborn inflation.
The roaring 20s were driven by a money cycle formed with post WWI farm machinery foreign demand, US factory growth to meet that stimulated demand, stocks to fund factory export growth market, and debt generated by unsecured customer financing.
Eventually the cycle/bubble collapsed, and the same 1930s tariff policy literally starved people for almost a decade.
I really hope we don't repeat that history. However, the Bear market distant roar can't be ignored. =3
Howard Marks' take on bond yields: https://www.oaktreecapital.com/insights/memo/shall-we-repeal...
It probably doesn't help rates to spike oil prices by starting a(nother) war of choice in the middle east while inflation is already running hot. Eventually you get demand destruction and outstanding debts don't look so good.
All countries somehow are struggling at the same time. I don’t think we have seen something like this in the recent history.
Maybe we collectively just over-lend at very high interest rates and the real economy cannot anymore catch up with the promises?
Interest rates were historically low 3-4 years ago.
Sure but did the global economy roar in that period or did we just create inflation? The answer likely is the second. Aka most of our global investment did not create viable economic activity.
In a world of continuous population growth, there is some excuse (but not justification) for running governments at deficit, which is essentially a bet that future generations will produce enough to meet their needs and fulfill debt obligations from past generations. When population growth halts, so should deficit spending. Smith himself, in The Wealth of Nations: "What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom."
I am wondering how much of this is because AI capex is pulling dollars from everything else because it’s so lucrative.
Note that it is widely predicted that transformative AI will increase real interest rates for several reasons. I’m not sure we are there yet. But if progress continues I expect things to get weirder.
Yes the AI investment bond market is so large it is literally competing with the government.
Go Brandon go. Or whatever stupid maga phrase is appropriate. Can we ask trumps dad to buy treasury bills like he bought casino chips to bail out the Casino?
https://archive.ph/mqklu
Different factors have been discussed in the comments, like tax cuts, military spending, social security etc.
But the yields are going up simply because investors do not want to buy at lower interest anymore. It indicates that investors view the bond as riskier than before. A real fear is materializing that US will default on it's debt. Sure, the fed can always print money to bail them out, but the inflation is on track to cost the Republicans in the midterms.
There are a combination of factors which is causing this fear- those are radical changes in immigration, trade and military policies. The stability of the bond market is built on the trust that US will act rationally when it comes to skilled immigration, free trade and avoiding direct military conflict. Clearly it's no longer the case.
US population view themselves as immune to fallouts from global events. But we're starting to see that when you breaki promises left and right, people lose trust, and you pay the price, even when you're a superpower.
My money is on 8% yield by the end of Q1 '27.
But why don't they want to buy treasury bills. Could it be because they see the US decoupling from the global trading network and predict we will be poorer? Or we are losing the reserve currency status? Or we don't have the political discipline to run a responsible budget and will hit a fiscal crisis. Who cares if you earn 8% on your money if we don't have market access around the world for our goods and services and we get less products because we erect barriers that mean less goods enter our market. We will feel as poor as we will become.
Steady march towards Argentina
Oy. I'm no fiscal conservative, but the US federal government absolutely needs to balance its budget. Otherwise, it's bound to either choke on interest payments, devalue the dollar, or both.
Unlike most Trumpists, I see the the problem as a revenue issue, not expenditures; unlike many non-Trumpists, I doubt "tax the rich" is going to be enough to plug the hole.
Government healthcare payments would be a good start -- it seems likely that the amount most employees already (effectively) pay for health insurance could fund equivalent government coverage with some money left over to help pay for other government expenses.
I'm unconvinced that "balance the budget" is the issue here.
Interest rates are a function of inflation and joblessness. Both of which the current administration has created via terrible (for the country; great for the family members of the administration) policies.
The terrible policies are destroying jobs and causing the prices of goods to go up, thus increasing interest rates. The administration could balance the budget, but that would not correct the interest rate problem unless they also stop enriching themselves at the expense of the rest of the country.
How are interest rates a function of joblessness? Do you mean inversely?
My amateur understanding is that prevailing interest rates are more directly a function of supply and demand for capital; I agree that higher prices increase demand for capital. Joblessness would seem to be correlated with lower demand; the unexpected combination of high employment and persistently low interest rates in the 2010s was a source of a lot of commentary, as I recall.
I'm sure jobs are an important aspect here, but I kind of doubt that we can fix this without also finding a way to refocus our efforts on endeavors that most people approve of. As it is, letting the US succeed is bad and letting it fail is worse. That's unlikely to remain stable forever.
What I mean is, that the organization responsible for setting the interest rate, has two mandates: full employment and low inflation. Jobs are an important aspect for that reason.
A reasonable capital gains would also solve the problem. the idea that money you don't work for gets taxed less than money you do is absurd
Taxing the rich would easily be enough to plug the hole, and it wouldn't even affect them in a meaningful way.
https://m.youtube.com/watch?v=AmzadQE9UD4&pp=ygUKQmlsbGlvbmF...
It is absolutely a spending problem. The Department of Agriculture has 100k employees and a $500B dollar budget. That’s just one department of many. Throw a dart at the MTS [1] report and you’ll find dozens of other agencies with similar levels of spending.
There are plenty of places to cut spending before we start raising taxes on the W2 wage earners that are contributing the most to federal tax receipts.
How would nationalizing health insurance even make a dent in spending? Ultimately the same amount of healthcare will be consumed. You are truly clueless about the federal fisc if you think these are even remotely serious ideas for fixing the federal budget deficit.
1. https://fiscaldata.treasury.gov/static-data/published-report...
I am getting way too old for this. No more "both sides." Look at the data. If you want a balanced budget, there is one party to avoid.
I don't feel like I "both sides"ed it that much, but I guess reasonable minds can disagree. But: neither party has balanced the federal budget, or even made (sane) noises about doing so, since the Democrats in the 90s. I haven't heard much about it from Democrats this election cycle -- perhaps reasonably so since there are much more critical issues at the moment.
If you look at the record, republicans out match democrats 3 to 1 for balanced budget years.
But it doesn’t matter. Those historical parties have nothing in common with their namesake parties today.
The last Republican to balance the budget was Eisenhower. Yeah, Clinton is pretty old today too, but almost no one alive today was of voting age during the Eisenhower administration.
So, I agree with your conclusion.
https://fred.stlouisfed.org/series/FYFSD
Sorry, I was not aiming that directly at you, more like an old man yelling at clouds. I kinda give up on all of this. Nobody wants to hear or debate actual policies in the public. Politics is now just an exercise in campism. Nobody plays that game better than the current party.
Yeah, it sucks. Thanks for clarifying :(
Since Bill Clinton and Lyndon B Johnson were the only two presidents to see a balanced budget I can guess which party you mean.
Sorry for misspeaking. What I should have said is that "If you want anything approaching a balanced budget in modern times..."
The facts are that surpluses were routine before the 1960s, under both parties. Since then, not so much.
1998 was the first year the United States government recorded a budget surplus since 1969 [0] (Clinton with a GOP Congress).
Since 1981, the deficit deepened under Republican administrations and shrank under Democratic ones [1]
That aligned with the creation of a right-specific media system where "Republicans don't fight Republicans" - so there can never be any internal accountability.
[0] https://clintonwhitehouse3.archives.gov/WH/New/html/19981028...
[1] https://www.yahoo.com/news/articles/fact-check-us-deficit-gr...
There hasn’t been a balanced budget for 25 years. Today’s parties aren’t the same.
What’s the point of one party balancing the budget if the next party just blows it up? That’s been the pattern since Clinton.
A good faith cooperate tax would solve most if not all of our deficit, and arguably increase our GDP growth.
A 5% revenue tax on the fortune 500 would get us half way there. I could not quickly get a number for total revenue of more than the fortune 500, but I would not be surprised if a 3% VAT would cover the entire deficit. We lose so much tax revenue due to all the loop holes deliberately left in the corporate tax code.
On top of that, ban stock buy backs entirely, that way more of the record breaking profits have to go to wages or other means of investing in the business.
"A 5% revenue tax on the fortune 500 would get us half way there."
Given that ~20% of that group have net income margins below 5%, how much of such a tax policy would simply be an inflationary tax on consumers? I.e., we know Walmart cannot simply pay a 5% revenue tax, that would instantly make them deeply unprofitable. So they would have to raise prices to afford the tax. And if they know Target, Kroger, Costco, and Amazon also need to pay the same 5% tax, there is less competitive pressure to eat into margin. Even with zero collusion, there is perfect information symmetry regarding the tax.
At their present 3.1% net margin, if Walmart passed a 5% gross-revenue tax entirely to consumers while all else stayed equal, prices would have to rise MORE than 5% -- about 5.44% just to preserve its existing margin. Of course, some of the tax burden likely gets shared between Walmart, its customers, supply chain, vendors etc... In a world where the Fortune 500 (Walmart) has to pay the 5% revenue tax but a supplier of some SKU (not a Fortune 500) does not pay it, I imagine Walmart would lean extra hard on them to eat some of the tax. It all seems like a very messy and inefficient tax.
On the VAT, the CBO has actually studied a 5% VAT tax and modeled that it would raise $330B. That's 16% of the current $2.1T deficit.
https://www.cbo.gov/budget-options/58637
Right there’s a lot of easy answers mechanically but they are challenging politically. The longer we wait to do anything the better they’ll look though that’s for sure.
It's very hard to gauge realistically what this means. There are a lot of vested interests in the financial system not crashing and those put strong reinforcing effects back on things. But in the end it is a game of chicken where eventually being the last to bail out becomes higher risk than continuing to support a system where an imminent crash is possible. It feels like there are strong non-linear tipping points where things could go exponential pretty suddenly here.
The problem is that the level of debt overall in the US - across both private and public sector - is just astronomical. We are truly in unchartered waters, outside of a world war. There's just no model or playbook for how this should work from here forward, other than it seems very clear we will hit a point where the math stops "mathing" and that point is getting closer and closer.
> outside of a world war.
There you go. After ww2 USA just inflated away its debt. It's actually chartered territory.
Now let's see some data from the past 5 or so years of the total sum of ransoms paid behind closed doors (ontop the few that are forced to disclose publically)
Strange that this is happening globally. I get that this is a US site, but this does not seem to be a US story at all. EU yields are up to 3.5% (not far behind US), and the same goes for individual countries (France 4.8%, Netherlands 3.6%, Spain 3.6%, Austria 3.8%, Germany 3.6%, Japan 3.1%, ..., all up from zero to negative 3 years ago, Poland 6.4%, Czechnya 5.3%, Hungary 5.8%, Australia 5.5%, ... all up from 0.5-2% 3 years ago). The same pattern is all over the place.
There's some details, like Hungary actually being down to 5.8%, presumably through more trust in the current government vs the last. But the pattern vs 3 years ago is one of constant rise.
And there are exceptions, India, for example, is showing a different pattern. China does not make sense (but I'm sure that's just by design). Russia, but I have a guess for that one. Ukraine ...
Almost like bond investors are expecting something dramatic to happen soon, with odds rising fast, at least across US and EU, including individual countries. At the very least, investors are expecting an economic disaster for the next 10 years (at least compared to the last 10 years)
It's weird how the discussion on this rarely mentions Trump's giant 2017 and 2025 tax cuts, plus the insane increase in military spending. Somehow it's always about we need to cut entitlements.
People need to study this graph https://fred.stlouisfed.org/series/FYFSD and think about what changed when.
If you cross your eyes and squint a little bit, the following categories of 2026 spending are around the same size:
The US took in somewhere around $5.6T in revenue in 2026. That's a net deficit of just under $2 T. Or roughly double the average size of the "block" of those separate spending categories. These are abased on Feb 2026 CBO assumptions. Net interest is going to keep rising as the Treasury yield rises.So ... we can't fix this by doing any one thing. Even if we were willing to completely end social security (while keeping the separate contribution tax), that wouldn't be enough. If we threw away our military entirely, we would only be half way there.
We need to do everything a little bit, all at once.
Raise taxes - corporate and personal, on every bracket, progressively more on the rich ... but this will not even be half of enough because of the strength of the debt bomb and the global flexibility of corporations.
Cut defense spending - but not too much, because we also need to provide funding to repair alliances, rebuild our ancient navy, and rebuild our standoff and interceptor stockpiles after the recent middle east adventurism.
Repair social security - cut benefits, add a means test, raise the contribution amount and limits ... lots of things to do here.
Fix health care - it's just too damn expensive across the board; the US pays for this in the VA, medicare, medicaid, and the poor health of its workforce. I have no idea where to start on this one.
The CBO has a ton of data on this kind of thing. I like their budget options page for exploring the forecasts for specific changes. Of course it's not as simple as adding the numbers together to get to the deficit, but it's a good place to learn more and ground some assumptions.
https://www.cbo.gov/budget-options
I got some of these numbers from:
https://www.cbo.gov/publication/62105
I used Claude to research this, but I wrote the post myself.
You’re right. There no easy fix despite what 50% of the comments in this thread claim ;)
According to the CBO, the TCJA and 2025 cuts/extensions have reduced revenues by about $430B per year. That's only 20% of the current annual deficit. It's just so small compared to the trillions per year in entitlement spending. And of course, that's just a first-order reading of the tax cuts. The second-order effect is that the tax cuts led to more private sector spending and investment, which spurred a little more GDP growth. The CBO estimates $2.6T of cumulative GDP growth as a result of the tax cuts through 2028.
https://www.cbo.gov/publication/54994
So that's about $52B per year in taxation added back on that extra GDP growth, so the net effect of the cuts are around $380B reduced federal revenue per year, or 18% of the deficit.
18% of the deficit is a lot but if you could snap your fingers and undo it, you now have a $1.7T problem instead of a $2.1T problem. Eventually you have to look at entitlements. There's just no way around it.
The effective tax rate has actually not changed that much in decades, regardless the “tax cuts” (more like “tax reallocations”)
That's because even fully undoing those things wouldn't be sufficient to fix the deficit. When federal revenue is $5 trillion, entitlements cost $4 trillion, and interest on the existing debt is $1 trillion, you just fundamentally can't balance the budget without cutting entitlements. All of the revenue is already spoken for before funding anything in the rest of the government!
The less reported fact is that TIPS yields are moving in lock step with nominal yields. Breakeven inflation is approximately constant at 2.2-2.3%. So this is not about inflation expectations. It feels like a genuine capital shortage, possibly driven by massive AI-related investment demand.
Good point. Maybe it’s higher expected real growth from AI?