Treasury bonds: seeds of a crisis?

The entire world uses the 10 year Treasury as the foundation for bond ratings. However, Fitch recently downgraded the U.S. Treasury rating from AAA to AA+. This article forecasts trouble ahead.

The Scary Math Behind the World’s Safest Assets

Washington has laid the seeds of a crisis that Wall Street can no longer ignore

By Spencer Jakab, The Wall Street Journal, Aug. 12, 2023

The government’s pile of debt has swelled following the War on Terror, the global financial crisis and the Covid-19 pandemic. Low interest rates and Fed bond buying masked the strain: Interest costs recently were no higher than in the early 1990s as a share of federal spending. But the Treasury barely seized the opportunity to lock in rock-bottom rates by issuing more long-term notes and bonds…

Consider that around three-quarters of Treasurys must be rolled over within five years. Say you added just 1 percentage point to the average interest rate in the CBO’s forecast and kept every other number unchanged. That would result in an additional $3.5 trillion in federal debt by 2033. The government’s annual interest bill alone would then be about $2 trillion. For perspective, individual income taxes are set to bring in only $2.5 trillion this year…

Just letting rates rise high enough to attract more and more of the world’s savings might work for a while, but not without crushing the stock and housing markets. Or the Fed could step in and buy enough bonds to lower rates, rekindling inflation and depressing real returns on bonds… [end quote]

It’s impossible to say if or when this scenario would turn nasty.

The Fed has already bought a massive amount of Treasury debt without increasing consumer inflation. The fiat money went into other assets (e.g. bonds, stocks, real estate). It was the fiscal stimulus during the Covid era that went into consumer pockets at the same time as supply chain interruptions which caused inflation.



Stop using interest rates and start using taxes to cool the economy from inflation and simultaneously curbing deficit.

And put the tax cutters in an ever shrinking iron maiden box…

david fb


David FB,

It wont help. Hiking taxes or raising rates wont help.

We just have to wait for our and Mexico’s factories to put a deflationary force in the global economy with economies of scale.

There is no other solution.

Hiking rates is not causing this crisis. Prices of RE have gone too high. The rationales might sound good but that does not mean prices have to be high. Supply and demand at lower prices with a lack of supply is just as rational. The outstanding loans are killing it. Greed at the wrong time.

It is years too early to hike taxes much. Hiking taxes much later in the cycle will be necessary. Doing it now means more inflation when pressure gets taxes lowered later on.

Another way of seeing it. Since 1981 we have been giving up earning much as a nation. Marginally less output in real terms for at least two decades but I do not have the facts in front of me. We are not pulling our weight because of supply side econ. Until we pull our weight we have to pay, there will be inflation.

Another reality the inflation is a down payment on the factories. No one wants to pay that but it has to be paid.


No disagreement, and you misread both my target and timescale through no fault of your own. Let me restate more clearly.

  1. USAian national politics is in trouble (some states and localities are just fine thank you), becoming ever more absurd and debilitated partly because Congress is increasingly doing idiot media appeal circus acts rather than its main jobs, crucially including setting national economic policy by budgeting and taxing, The crucial signal is for Congress to engage and cooperate with the Executive and the Federal Reserve Bank in establishing a coherent economic strategy and to impement it through its crucial exclusive powers to tax and spend. We need a sane tax policy, and looking at the consequences of policy over the last decades raising taxes on the wealthiest (the original purpose of the Income Tax Constitutional amendment) is an obvious task to undertake, The Congress has failed in its duties forcing the Fed to make too requent and costly use of monetary policy.

  2. A majority of the members of Congress almost certainly are committed to relatively sweet and easy policies towards wealthy persons and institutions (across a spectrum of policies including taxation) and are paid to have that position by the wealthy and powerful, known and in the shadows.

Time to end that era or the Demand Side Era will die in the crib.

david fb


Counter cyclical economics matter here.

The wealthy own the press on both sides of all of it. They sway opinions. If we raise taxes there is pressure successfully to lower them. We create a time table.

Besides higher taxes wont slow inflation much. Later in the cycle they will by reducing borrowing. Much later in the cycle as we near the end of the demand side period again. Talking over 15 years from now going into 40 years from now.

If we raise taxes we get a recession which blocks the factory buildout.

I am for all boats rising. That includes the wealthy. If we set the wealthy boats on fire yeah the US will succeed at first. The next crop of wealthy will burn the house down later taking taxes down as inflation rises some 15 years out to 30 years old. It would cut short our demand side period. Like it did last time.

I am not as socialist as some would think. I am practical capitalist and a practical socialist. I do not see the man as a pig.

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