[roenxi]

> The 10-year U.S. Treasury yield , the globe's benchmark safe-haven anchor...

The US government is ~37 trillion dollars in debt and rising. They're not going to do anything to cut spending until they hit a crisis so massive that they just can't spend any more. Which is going to have to be a shocker of a crisis given how they've handled the last couple. Raising taxes seems to be off the table too.

While it is true that US treasuries are low risk, they are low risk in the way that lending the broke town drunk money are low risk - you can come up with accurate estimates of how likely you are to get the money back. The real mystery has for some time been why people persist in feeding the US government money voluntarily. The math doesn't seem to be ambiguous, the value lent can't be paid back in real terms. Foreign holders of these things are engaging in charity.

[procaryote]

The absolute amount of debt isn't as interesting as it's percentage of GDP, or as percentage of revenue. If US productivity improves faster than its debt grows, the debt becomes less of a burden relatively.

https://fred.stlouisfed.org/series/GFDEGDQ188S

Of course, the long term trend there isn't great either. It was OK until the financial crisis of 2008, after which it grew to around 100% debt to GDP, which is usually seen as a warning level. Then it grew again very sharply during the pandemic and today is around 121%.

The apparent pattern is that it grows during recessions, but stays pretty flat during good times, and as the current administration seems to want to have recessions for fun, confidence among lenders may have been shaken

[tim333]

There's almost no repayment risk - the government will pay the dollars stipulated. There is an inflation risk - that the dollars will be worth less.

[roenxi]

Do a walk through of what you're implying there - you're suggesting the US is going to lump trillions of dollars worth of inflation losses onto the voting public to protect foreign investors. At a time when the public are extremely twitchy and sensitive to price rises.

There is a clear risk that the US will instead lump trillions of losses on foreign investors and attempt to protect the purchasing power of their voters. It isn't like they're fooling anyone either way - they borrowed a bunch and can't pay it back. They can pretend they paid it back but the markets are going to respond to the magnitude of the losses and not the excuses. The leadership may as well let the bulk of the damage fall on people who don't vote in US elections - there isn't any particular reason to do otherwise.

The US could choose to tank their own currency but it'd be more orderly and the incentives certainly could be aligned to formally default regardless.

[ac29]

> to protect foreign investors

There is a common misconception that most US debt is held by foreign investors, but that is wrong - 80% of treasuries are held domestically.

[roenxi]

The domestic bondholders would pay the inflation tax and are all wealthy enough to have savings, ie, they are also taxpayers. They're not getting out of this no matter what happens; they're going to lose out.

The question is really do the bondholders directly eat the losses (20% foreigners) or US consumers and their tax base eats them (potentially ~0% foreigners although inflation is so complicated in practice it is hard to tell). It'd be pretty easy to handle the situation by a standard default and probably better for the voting base. The risk of the politicians breaking that way is obviously present.

It is risk, it doesn't even have to be likely. It is just the question of "will the bondholder get all the money they're promised?" and the answer can obviously be no. The US can't afford to repay their bonds, purposefully triggering vast inflation would be quite damaging to the US political class and there is a chance they decide not to. It isn't a negligible chance.

[t420mom]

Not charity - they are paying tribute

[roenxi]

Even that argument is starting to fall apart. What are the theatres where the US is supposed to be able to put on a strong showing? It doesn't seem to be Europe, they've got war on their doorstep and if anyone thinks the US is helping they should reflect on their reasoning. It doesn't seem to be the Middle East, the US has made the region less safe. They're not going to be able to act effectively against China given the trouble Russia has been giving them.

The US can't afford to extract tribute from people. It isn't powerful enough, relatively speaking.

[SideburnsOfDoom]

> Even that argument is starting to fall apart.

Yes, that's what's happening. They were paying tribute, based on a mutually beneficial status quo. Now they're asking if they should continue to.

[AnimalMuppet]

They weren't (for the most part) paying tribute. They were putting their money somewhere safe - somewhere where the risks of default, inflation, and devaluation were lower than other places.

But I agree, now they're asking if they should continue, because those assumptions are starting to look invalid.

[pjc50]

> What are the theatres where the US is supposed to be able to put on a strong showing? It doesn't seem to be Europe, they've got war on their doorstep and if anyone thinks the US is helping they should reflect on their reasoning

I think you have this backwards: the US was helping considerably, and then got taken over by pro-Russian conspiracy theorists.

But the bond stuff isn't "tribute" or nationalism; remember, it's being made by private sector investors, not national governments. Fairly straightforward calculation: which way is the exchange rate expected to move? Interest rate? Risk of default?

Up till now the US offered moderate interest rates, favourable direction of exchange rate movement, and imperceptible risk of default. There's still no reason to default other than madness and a desire to strap on the suicide vest and become Argentina.

[roenxi]

> But the bond stuff isn't "tribute" or nationalism; remember, it's being made by private sector investors, not national governments.

Are you sure about that? Back in 2022 the US Treaury reckoned that most holdings were foreign governments [0] - they had Foreign Official at ~3.9 trillion and foreign total at ~7.5 trillion. That has been shifting towards the private sector since then but the market has heavy sovereign involvement.

> and imperceptible risk of default.

The US clearly has quite a high risk of default - there isn't a reasonable path to them paying the money back. It takes imagination to even come up with scenarios where they try. In real terms they are going to default, in nominal terms there is still a high chance that they call it a default. There is no guarantee that they'll print money for foreigners; it is already going to be farcical claiming that they're not defaulting as they devalue like mad; it is quite possible they won't bother with the act and just do the honest thing.

[0] https://ticdata.treasury.gov/resource-center/data-chart-cent...

[pjc50]

> there isn't a reasonable path to them paying the money back

Indefinite rollover is completely fine! Yes there are problems if the total interest payment gets too large, and there's scope for discussion about that, but there's no hard cutoff, it just becomes more and more uncomfortable.

People saying there will be a default: deadline please. Or is this just a general assumption that mortality is inevitable for states? The UK has never defaulted, for example.

[roenxi]

It isn't completely fine and the interest payments are too large.

Sure the US can afford its debts if it avoids paying fair interest and never returns the principle. The idea that is reasonable from a lender's perspective is fantasy and we live in reality.

> The UK has never defaulted, for example.

The UK has traditionally not been in a state of running up debts; they borrowed money for things like world wars then spent most of their time paying loans down. The US isn't behaving like a creditworthy country because they borrow to consume and they aren't attempting to shrink the debt.

If the US tended to be repaying the money it borrowed then it'd be plausible that they intend to avoid a default.

[aa-jv]

>the US was helping considerably, and then got taken over by pro-Russian conspiracy theorists.

This is such a nonsense conspiracy theory. Anything "non-American" isn't by default pro-Russian, ffs.

Come on people, this nonsense has to die. You can't be that dumb. Nobody believes this excuse any more.

Maybe America is in trouble because Americans are just shit at keeping themselves safe from real harm, and Russia has nothing to do with it.

[t420mom]

The Middle East is less safe because the US made an example of Saddam when he offered to sell oil for Euros instead of US dollars. That's a classic example of an empire ensuring the tribute continues to flow, at least until the current Emperor decides receiving tribute is a bad deal and demands every country in the world stops sending it.