The US government is paying more interest relative to tax income than almost any other country. In the absence of deficit reduction, inflation and financial repression will become increasingly attractive options to lower real yields and return to fiscal stability.
With today’s truce announcement, the market is taking the view that the Iran-Israel conflict is in the rear-view mirror. But one thing that most certainly isn’t as far as Treasuries and stocks are concerned is the amount interest the US paying on its government debt. At more than $1.2 trillion a year, it’s a true outlier, paying more in net interest relative to tax than the average country by far. Lower real yields will become essential to maintain fiscal sustainability.
