Zooming in: The debt avalanche.
The US government is spending more than it earns, so it keeps returning to bond markets to make ends meet. It’s built up a monster debt pile: almost $31 trillion – roughly equal to the entire US economy – is owed to outside lenders alone.
▶ Debt this big can snowball. Every new bond that the government sells adds interest payments that can last for decades. And that means – you guessed it – the government may sell even more bonds to help cover those payments.
Zooming out: Uncle Sam isn’t alone.
Big Tech is building AI data centers on debt – the likes of Alphabet, Amazon, and Meta have borrowed almost $220 billion this year – while European governments are spending big on defense and infrastructure.
▶ More borrowers means lenders can charge more, and they sure are: US government debt hasn’t paid this well in years.
⚠️ That can drag on stocks: bond investors are able to earn a decent return with far less risk, while higher borrowing costs mean that companies’ future profits look less valuable today. Markets have shrugged so far, cheered by strong earnings – but the question is how much further those costs can climb before investors start to worry.