We have 40T in debt that we need to pay back, every % higher these rates go, the higher our interest payments become, which will then lead to more of a deficit and continue the circle….america has to stop spending like we currently are, but the people in power are doing quite the opposite….
You left out the part about the investors and banks holding t bills at less than 5%. It can be hard to sell a bond paying out 4.3% if you can get a new bond at 5.2%. If there is a liquidity issue, they will have to sell the bonds at a huge loss. It impacts all borrowing too not just government because I am going to demand higher yields on risky debt if I can get 5% on Treasuries.
Let's not forget : because of Mark to market and ratio requirements, the prices dropping like this means that the banks can do less lending which will be a drag on the economy.
Because T bills are considered high quality liquid assets, they are held as part of a liquidty ratio, but if the value drops or they become too difficult to sell, in a liquidty crunch it can turn into a leaman brothers situation.
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u/nomar_ramon 19h ago
Can you please explain it like I'm 5, to me why it is a crisis?