The market bloodbath just exposed Wall Street’s true fears about U.S. debt, top economist warns
There have been competing theories to explain why Treasury yields have risen so much this year, but last week’s brutal stock selloff debunked one of them, according to a top economist.
Key points
- Berkshire Hathaway shares roared past the S&P 500 index this week and are outperforming the benchmark for the year-to-date.
- “On the other end are folks who say it’s hyperscaler debt issuance that’s pushing up yields, so there’s no sign fiscal policy’s in trouble.” Brooks said corporate borrowing is nowhere near where it was in the IT bubble of the early 2000s, while public borrowing is historically high and more likely driving up yields.
- That’s competed for investors’ dollars as the Treasury Department taps the bond market to finance the federal government’s $2 trillion budget deficit—and pay interest of the $40 trillion in U.S.
At the same time, hyperscalers have been flooding the bond market with fresh debt to finance massive capital spending and the AI infrastructure boom, which has kept the U.S.
Some on Wall Street have downplayed the spike in yields, saying the deluge of AI debt has crowded out U.S.
Additional details
- Brooks also cited the market-implied yield for a 10-year security 10 years from now, which gauges the premium investors demand for the risk of holding Treasuries long term.
- Social Security and Medicare were the biggest line items, but in third place was interest payments on the national debt, topping defense spending and Medicaid.
- In a Substack post on Saturday, he said the past week’s market selloff represented a “natural experiment” that puts the competing arguments to the test.
- He pointed to the bond market’s reaction to the latest monthly jobs report, which showed payrolls grew by more than double the consensus estimate.
- “On one end of the spectrum are people like me who think this is a rising fiscal risk premium as our public debt grows out of control,” he wrote.
How this summary was made: extractive summary — built from the sources' own reporting. It is drawn only from the reporting of the sources listed below — read the originals for full detail. How we summarize →
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