13d • General discussion
The War Is Accelerating the US Debt Spiral—and Creating an Inflation Crisis
- The 10-year Treasury yield can be thought of as a key barometer of the US dollar-based system
- Bond yields move inversely to bond prices. When bond prices fall, bond yields rise
- A rising 10-year Treasury yield signals trouble for the US dollar because it means investors are selling Treasuries, which pushes up the US government’s borrowing costs
- The 10-year Treasury yield was 3.97% when the war started. Now it is around 4.60%, an increase of roughly 63 basis points.
- At today’s debt levels, every 1 basis point increase in the government’s average borrowing cost adds roughly $3.9 billion in annual interest expense. So a 63 bps translates to nearly $250 billion in additional yearly interest costs
- Higher yields mean the US government must pay tens or even hundreds of billions more in interest on its debt
- At the same time, the global economy faces even greater added costs because Treasury rates serve as the benchmark for borrowing worldwide
- Further, if Hormuz remains closed, drastically higher oil prices are all but certain
- Higher energy prices mean higher prices across the economy and higher official inflation rates, which means investors will demand still higher yields to compensate
- The problem is that interest on the federal debt is already over $1.2 trillion and is now the second-largest item in the budget
- War spending is financed largely through debt, which is then, in large part, bought by the central bank with currency it creates out of thin air.
- A more accurate equation is: War = Debt = Inflation
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The War Is Accelerating the US Debt Spiral—and Creating an Inflation Crisis
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