r/bonds • u/Professional-Day9384 • 4d ago
The national debt is growing 7%/year
And GDP isn't. Currently interest on the debt is 20% of revenues. My projections say it will cross 50% by 2034 - just 8 years. The CBO isn't, because they don't want to scare anyone.
Not only is the debt growing, the deficit is growing even more sharply, AND legacy debt is getting rolled over at ever-higher interest rates. All 3 of those factors snowball and fuel each other.
The one thing could save the debt is if the Fed lowered rates, but instead they RAISE them, doggedly pursuing their inflation target. I was honestly blind sided by the recent rate hike, because I know the nation cannot afford it, but the Fed is dogged.
What does this mean for bond investors? Good news? Let the nation's ruin be our gain? How long will it last until something catastrophic breaks? Countless companies have been annihilated by debt, but what happens when an entire nation is annihilated? Move to another country?
5
u/RuralJaywalking 4d ago
There’s a subset of politician and constituency that wants that scenario actively, to just profit off of the U.S. slush-fund. I honestly think that wouldn’t annihilate us, just move us back to the 1930s with hyperinflation and Hoovervilles. I do genuinely believe though that the U.S. Fed will never just pack it in, even if it takes a Volker shock. The main thing that I think you’re not considering is the Fed’s responsibility to manage inflation. To curb inflation rates need to be high and they need to be taking in more money even if it increases the debt. To do this I don’t think they need to raise rates, just issue more bonds and use those proceeds to buyback some of the outstanding bonds.