Economists have long contemplated, in the abstract, government activity crowding out private sector investing or consumer spending. Mr Rubenstein is fretting about government interest payments crowding out government spending on armaments.
"We have, as everybody now knows, $40 trillion of debt. Now, historically, if you go back over the last, let's say, 300 or 400 years, whenever a country paid more interest on its debt than it did for its national security, that's a sign of weakness in the country. Right now, we've crossed that threshold. We're now paying more in interest every year than we are paying on our national defense, and we're paying a trillion dollars in interest, a little bit more than that now, but we pay about a trillion dollars in national defense. And as that continues, the interest goes up, and the money available for defense goes down. That tends to weaken your national security."That might depend on the going concern value of the United States, as people might still be willing to hold Treasuries to finance the production of Tomahawks and Patriots and all the other tools the Pentagon possess to stay protected against flying Iranian gas mains and whatever else the primitives are cobbling together, and the dollar might still be less shaky than all the other candidates for global reserve currency.
That noted, those deep discounts might present gradually at first. "Surging US Treasury yields are starting to spook investors." All at once, sooner than you think?
A "disorderly bond sell-off" is now the top market tail risk. Investors remain bullish, however, on corporate earnings, the AI investment cycle, and economic growth."Disorderly bond sell-off" is trader-speak for "all at once." Buckle in.
US Treasury yields have faced upward pressure throughout September, driven by persistent signs of inflation and elevated crude oil prices.
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