In my book How Countries Go Broke: The Big Cycle, I laid out in detail the classic mechanical dynamic that serves as a template to explain how countries go broke, and I gave my projections for what would likely happen so that one could compare both of those with what is actually happening. My hope was that doing so would help people understand what is happening and anticipate what would likely happen and would motivate policy makers to make beneficial changes. Since June 2025 when I published that book, the progression of the actual numbers and the bond market has been broadly consistent with the template and projections. Because of the seriousness of what is happening, I am compelled to lay it out again by conveying the linkages and the numbers.
In one sentence, countries “go broke” when:
- The supply of debt to be sold is much larger than the demand for it and/or
- Debt service payments (i.e., interest and principal payments) rise relative to incomes to levels that painfully squeeze out other spending. [1]
Both of these things are now happening and are projected to happen increasingly to the extent shown in this report.
Classically, these circumstances a) raise interest rates, tighten credit, hurt equity and other markets, and reduce borrowing and economic activity and/or b) lead governments to accommodate more money and credit creation to temporarily alleviate the debt, which devalues money and pushes the problem down the road.[2] Most typically, debt and debt service payments are reduced relative to incomes through a combination of debt restructuring and debt monetization, and as a result, money and debt decrease in value. In any case, this dynamic is bad for the holders of debt assets. If and when things get really bad, there is a typical series of events that comes along only about once in a lifetime that leads to big crises and countries going broke. I won’t digress into that now, but if you really want to understand that dynamic, I recommend reading my book, especially the sequence of events shown on Pages 100-103 and comparing it with how events are now progressing.
By comparing what is now happening with what typically happens in that cycle, we can see that we are now in the part of the cycle when interest rates have risen a lot but haven’t yet led to stocks and risky assets going down, credit spreads increasing materially, and economic weakness, so we are in the mid-cycle when real rates rise and central banks tighten before these moves bite.
In this article, I am going to walk through how the numbers are tracking the template and show what the projected numbers mean for the future. I warn you that you will be getting a lot of numbers and this is pretty long, so if you’re not a numbers person and you want to cut through this quickly, you should just scan the major points, which I put in bold.
I will start by showing the supply/demand of US Treasury securities, then look at the growing debt service payments and how they relate to tax revenue to show how they are squeezing out spending, then broaden the analysis to include a look at other US debt, then non-US debt, and ultimately the supply/demand of financial assets as a whole, including equities.
The punchline is that it appears very likely that there is and will be much too much supply of financial assets (both debt and equity) relative to the demand for it.
The Supply of US Treasuries
At the end of September 2026, there were about $32 trillion of marketable Treasury securities outstanding, 8% more than a year earlier.[3] Through September, Treasury already issued approximately $1.5 trillion of net new marketable debt and is expected to issue $2.1 trillion of net new marketable debt over the full year of 2026. That is a huge amount of debt to sell at a time when the government’s debt and debt service burdens are extremely high relative to its income. The charts below show where the government’s debt level, maturing debts, interest payments, and total debt service payments stand today and where they are projected to go over the next couple of years. As you can see, the debt burdens are at their highest level since WWII and are expected to worsen.
The amount of short-term debt that has to be sold has been rising in an unusual way for two reasons: the size of the Treasury debt is rising at a fast pace and the share of debt that is short-term is rising at a fast pace because the demand for Treasury’s long-term debt has been falling relative to the supply. In an attempt to deal with this worsening supply/demand balance for bonds, Treasury has been shortening the maturities of the debt it has been selling. Issuing bills rather than bonds[4] reduces the supply of longer-term debt, which is where the buyer’s risks are greater and the demand is softer, is easier for the Fed to control, and typically is a bit cheaper because the yield curve is normally positive. But it also raises the debt rollover risks and, in a period of rising interest rates, makes debt service more expensive, which intensifies the squeeze.
In the past, Treasury typically targeted issuing about 20% of outstanding debt in bills, shifting issuance toward bills during recessions when spending needs to spike and away from them later in the cycle. The current pace of bill issuance (which is also the projected pace in 2027) is about 50% of total expected issuance. This is unusual except in periods of recessions and periods when long-term debt is difficult to sell.
Looking ahead, the supply numbers are pretty well known under the assumption of economic conditions that are relatively “normal” so that tax and spending assumptions pan out. Those supply numbers are shown below. They show the estimated new borrowings for 2026, 2027, and 2028 and what that does to the debt stock. In the next two years, the amount of federal debt is expected to rise from about $240,000 per American household to about $270,000 per American household, which when combined with the private debt and total debt it has, brings the average American family’s total debt burden to about $430,000.
These are the projections for “normal” conditions. The supply of borrowing will increase faster if there is economic weakness as the government typically steps in with counter-cyclical borrowing and spending. For example, a moderate to severe recession (e.g., -4%) would probably roughly double the deficit.
So, under normal conditions, the supply of Treasuries will have to increase a lot in 2027 and then again in 2028 and much more beyond—and the supply will be even greater if there is economic weakness and less if there is strength in the economy. By any measure, these debt burdens are large and increasing fast.
The Demand for US Treasuries
The table below shows who owns the Treasuries and their recent net purchases and sales. What matters most for pricing isn’t who already owns the debt but rather who is willing and able to increase their holdings from here to fund the increasing supply, and at what yield they are willing to do so. To help give you perspective, I am showing the amount of dollar holdings and, more importantly, the share of them starting five years ago and today in 2026. Then I will look into the future.
As you can see, foreigners as a whole are the largest holders of the stock of debt, with 32% of the debt, and the Fed is the next largest holder at 14%. Together, they own nearly half while Americans of all sorts own a bit more than half. You can see by comparing the percentage of holdings with the recent percentages of their purchases in 2025-26 that the support for the Treasury market has been shifting away from foreigners to domestic buyers. In 2025, the Fed let a bit of its holdings decline and has recently picked them up again; also, the American public’s ownership and purchases have picked up, which they typically do when interest rates rise. Clearly, it is the American public who are most exposed and are now experiencing losses in their bond holdings.
The Fed has been the swing buyer of bonds; it bought a lot to push money and credit into the system when the economy was weak and there wasn’t enough private demand relative to the supply of Treasuries, which prevented interest rates from rising and dealt with otherwise uncontrollable credit problems. That was quantitative easing. Then, when there was a rebound in the economy and private market demand for Treasuries, it let some of the debt roll off and had its balance sheet shrink, which is called quantitative tightening. The Fed recently started buying again with purchases overwhelmingly in Treasury bills, reflecting the change in policy and for “reserve-management” purchases. At the same time, Treasury shifted a lot of its supply to the short end of the curve, and, to meet that supply, the Fed has become a source of demand, particularly for bills. While this is not the same thing as a new QE program, it is aimed at alleviating upward pressure on longer-term yields by shifting its buying to the short end of the curve where Treasury is shifting its supply to because there isn’t enough demand on the long end of the yield curve. Notably, the composition of demand is changing because the demand for longer-duration debt is clearly weakening. As explained above, foreigners and the Fed together hold nearly half the debt. That’s not a healthy mix for two reasons: 1) such a large amount of debt bought and held by foreigners raises risks, and 2) the Fed’s large role in the Treasury market to bring about balances indicates that the bond market is not in a healthy free market/balanced state. Let’s now look at what the foreign demand looks like.
Foreign Holders of US Debt
It is officially estimated that foreign investors currently own about $9.3 trillion of Treasury securities, making them the single largest broad category of Treasury debt holders. It is also notable that their rate of buying Treasuries is slowing while the supply of Treasuries is increasing. The official June 2026 country breakdown is shown below, but these numbers are a bit misleading because some of them are from offshore financial centers through which the money of the real beneficial owners passes rather than the nationalities of those who really own and control the purchases and sales of these assets. This is particularly important for the UK, Belgium, Luxembourg, Ireland, and the Cayman Islands. Also, China’s numbers are substantially understated for reasons I will explain below. While my Dalio Family Office research team and I have our own rough estimates of who owns what, I won’t digress into that and will use these numbers as broadly indicative, which are as follows.
Of that $9.3 trillion total held, approximately $3.8 trillion was classified as foreign-official holdings, leaving roughly $5.5 trillion held by foreign private investors and institutions. That’s notable because their motivations are different. For example, official holders of debt tend to be more politically and geopolitically motivated.
Even though the numbers aren’t precise, the picture is clear: there are huge amounts of money in debt assets that are held by the Chinese and Japanese in unbalanced, unsustainable ways. Rectifying these imbalances would cause great disruption, so there are reasons to worry about that happening.
In other words, China and Japan (which are two of the largest beneficial holders of US Treasuries) are the most important holders to watch because their incentives have shifted from accumulating to reducing their holdings of that debt.
The actual ownership of US Treasuries and other assets by the Chinese is very hard to determine because these securities are held by various entities through intermediaries. The official accumulation of dollar assets has decreased due to concerns over a) US debt and other conditions, b) the government’s diversification toward other reserve assets including gold, and c) the increased risks of the US weaponizing debt (i.e., deciding not to pay its debt, as happened to the Japanese prior to World War II and has recently happened to current US enemies). Additionally, the official numbers greatly understate Chinese holdings because Chinese companies with foreign sales, especially those operating offshore, have accumulated huge amounts of US short-term debt assets (as well as other assets) that are difficult for Chinese banks and other entities to account for. I very roughly estimate that Chinese companies and individuals hold about $1 trillion in US bonds and $4 trillion in total US financial assets. And Chinese reserves include another $2 trillion in US bonds. Even though these numbers are not precise, it is certainly a lot.
As a result, Chinese owners of US debt have a huge long dollar exposure. This is a risk for the dollar debt market especially as the RMB is strengthening, which is leading them to have foreign exchange losses because the RMB has been rising faster than the higher US rates are compensating them for. This position can have a very big influence on the credit and currency markets. For example, a decision to hedge or convert just 10% of the private dollar holdings would lead to $400 billion of dollar selling, which is big enough to significantly affect the RMB and the dollar markets.
Japan’s holdings have been relatively stable and have more recently started to decline. Before I get into what is now happening and what might happen, I will explain what happened starting in 2012 to create the current set of circumstances that are now affecting the markets. In response to there being a deflating depressed economy, the Japanese government started pushing policies in 2012 to encourage Japanese financial institutions to buy US debt. At the same time, its central bank (the BoJ) bought a huge amount of JGBs to push its currency and its interest rates to artificially low levels. As a result, over the last 14 years, Japanese holdings of US debt rose to be $1.1 trillion, about $600 billion of which are Japanese government reserves and about $230 billion of which are held by GPIF. Because these Japanese holdings are so big and dominant, they are the ones to watch, though life insurance companies, banks, trusts, other pensions, and corporates are also noteworthy. The great yen currency weakness and very low yields that occurred through the post-2012 period negated deflationary forces and stimulated the economy while depreciating the yen and leading Japanese government bonds to have terrible returns, which fell hard on the Japanese public and the BoJ. To the extent that the Japanese government wants to reverse—or at least control—these market excesses, it has big incentives to guide its institutions to sell and/or run down Japanese holdings of US Treasuries to repatriate money, which would help to curtail the yen’s slide and support the JGB market. Also, reducing its financial dependence on the performance of the US markets and reducing its vulnerability to the US weaponizing its financial positions have all been privately discussed as considerations.
Let’s remember that Japan is a big creditor country with a big domestic debt problem and that its central bank has chosen to deal with that position by buying a lot of Japanese debt and foreign (especially US) debt, which the BoJ and Japanese institutions have big losses in. This has weakened the currency more than the Japanese like, especially with inflation being too high, causing concerns. So, things are changing, most importantly government and central bank policies, to reverse these excesses. In addition to today’s policy in favor of capital repatriation, JGB yields rose relative to US Treasury yields, lessening the disincentives of holding JGBs with both low relative yields and a falling currency. These influences favor further Japanese selling of US debt and the repatriation of money into Japanese yen debt assets. Since a bit more than half of the Japanese holdings of US debt duration have been currency-hedged using short currency forwards (even against long-term bonds), a big duration mismatch exists. That is how the ”carry trade” works. A capital repatriation would lead to an unwind of those carry trade positions, which could be very disruptive to the markets.
Looking elsewhere, other countries’ financial needs—e.g., those of Middle Eastern oil exporters—have also changed to favor less buying of US debt and more borrowing or selling of it.
In summary, I wouldn’t expect foreign buying to adequately support US bonds.
Adding all this up, the expected changes in supply of new debt and the demand for it have for a long time made it—and still make it—easier to be short than long US Treasuries.[5] And we haven’t yet looked at…
…The Biggest Risk: The Big Rollover Risk
While most discussion about the US Treasury supply focuses on the deficit and therefore on new debt issuance, which of course is a huge amount, the quantity of maturing debt that has to be rolled over is much larger. Because the numbers are huge, this is a big potential negative that is not well understood, so I believe it is worthy of a quick illustration.
While debt rollovers typically don’t cause a problem because owners normally reinvest most of their maturity proceeds, that can’t be assumed, especially nowadays. Rollovers can have a big impact on the supply/demand picture. The table below shows the connection between the reinvestment rate and the amount of demand shortfall that could result from reduced reinvestment in billions of dollars. From a supply/demand perspective, these reduced rollover rates are the equivalent of increases in the budget deficit.
That pretty well covers the supply/demand picture for US Treasuries. We will now look at the second reason countries “go broke,” which is because of debt servicing costs intolerably squeezing out spending.
Debt Service Costs Rise Relative to Revenues, Which Painfully Squeezes Out Spending; Rising Interest Rates Make the Picture Worse
As I mentioned, there are two reasons countries have big debt crises late in the Big Debt Cycle: the supply is too great for the demand, and debt service costs rise to high levels relative to revenues, so that they unacceptably squeeze out other spending.
Debt service payments = principal payments + interest payments.
As we looked at principal payments before, let’s look at the interest payments, which, very simply, can be estimated by multiplying the change in the interest rate by the amount of debt. With approximately $32 trillion of marketable Treasury debt, if the average interest rate paid on the entire stock eventually rose by one percentage point (as bond yields have done over the last seven months), the ultimate annual interest expense would rise by roughly $310 billion per year, which over 10 years would add about $3 trillion of supply and debt to the US government balance sheet.[6] (This doesn’t happen immediately because existing fixed-rate notes and bonds continue paying their old coupons until they mature.)
The typical debt squeeze dynamic that leads to overindebted countries “going broke” occurs when more debt leads to higher yields, which leads to higher interest expense, which leads to larger deficits, which leads to more debt, etc. When debt levels and interest rates go up together, it is a double debt service whammy. The increased debt service costs lead to further decreases of demand for the debt; credit market players call that a “death spiral.” It certainly is a killer for the debtor encountering it. That is happening now. When that is extensive in the credit markets, it hurts markets and economies as it normally leads to bear markets, financial problems, and economic problems.
In the current case, interest cost increases have been significant. More specifically, Treasury reported that net interest outlays through the third quarter of FY2026 rose by $78 billion, or 10%, compared to the same period last year. This is principally because of the higher level of debt. As far as the actual interest rate effects on debt service payments, they have thus far been more modest because most of the existing debt still is at the lower interest rate that has not yet expired. When it does, it will need to be rolled forward at the higher existing rates, which will increase its effect.
The charts below show the current interest expense and how it is projected to grow at current interest rates and if interest rates rose more than is currently priced in the curve. The average interest rate on existing debt is roughly 3.5%, while market interest rates are 4–5.5% across the curve. So, you can see that even if interest rates don’t rise further, the interest bill will keep increasing from debts rolling into the new, higher interest rates.
The first chart shows interest expense in trillions of dollars now and in 2027 at current rates and if rates rose by 1%. The second chart shows those numbers as a percent of government revenue. You can see that a 1% rise in interest rates from this level would raise the interest expense from about 21% to about 23% of revenue. The danger of shifting issuance toward bills (as Treasury is doing now) is that it makes the interest expense more volatile and creates increased debt rollover risk. The charts below convey that.
The next chart shows government debt principal rollovers as a percent of federal government revenue (mostly taxes) rising to about 185% of revenue. You can see and imagine how a squeeze could result from that.
The next chart below shows government total debt service payments as a percent of government (tax) revenue. Notably it is around 200% and rising.
In summary, it appears to me that we are in the part of the cycle that follows relatively big interest rate increases but before the previously mentioned adverse impacts on markets and interest-rate-sensitive parts of the economy occur. At this stage, interest rates tend to continue to increase until the supply/demand imbalance starts to shrink toward sustainable levels, which shows up in the weakness in interest-rate-sensitive markets and economic sectors. As the supply/demand picture isn’t improving and neither the markets nor the economy appear to be weakening to improve the imbalance, the bond bear market probably has a long way to go, and we should be alerted to the other markets’ possible weakness. In this part of the cycle, policy makers typically tighten monetary policy in order to try to tap the brakes without popping the bubble. That is now happening in a pretty classic way. If the past is prologue, higher interest rates will 1) produce increasingly severe capital losses for bondholders that will continue until they produce bad equity markets and a bad economy, 2) raise financing costs that will ripple through the economy, and 3) lead other borrowers and sellers of competing financial assets (like equities) to compete harder for money, so money will become tight, reducing the demand for goods, services, and financial assets.
While that is the picture of the US Treasury and Treasury debt, that debt picture is not the complete financial picture because the US Treasury debt market affects, and is affected by, other debt and financial markets like equities. Let’s now look at the total US debt picture.
The Supply of US Debt and Equity Beyond US Treasuries
Treasury isn’t borrowing in isolation. It is competing for money and credit with every other borrower and issuer. To start with the punchline, it is expected that there will be large increases in the supplies of corporate debt and equities. The table below shows the amount of debt outstanding for each of the other major players in the US.
The following table shows the estimated net new bond issuance that will have to be absorbed. You can see that the federal government needs roughly $2.1 trillion of additional financing and corporations need roughly $1.4 trillion (across bonds and loans), with AI becoming a very large part of it. Other borrowing from households and state and local government is about another $0.7 trillion and $0.2 trillion, respectively, so that will put 2027 total net fixed-income financing needs at around $4.4 trillion, which doesn’t include maturing debt that has to be resold.
Let’s now focus on 2027. The next table below shows my rough estimates for the total gross sales of US debt by type and with new borrowing and needed rollovers shown. As you can see, the increases are big across the board.
In other words, we should expect big increases in corporate debt to accompany the big increase in Treasury debt. More specifically, it is estimated that corporates will have $2.0 trillion refinancing and about $1.4 trillion net new debt, equaling about $3.4 trillion gross 2027 corporate financing. To give you perspective, the following chart shows these numbers going back to 1950.
The corporate debt picture is especially interesting. Outstanding total US corporate debt is approximately $15.7 trillion, while gross issuance of corporate bonds in particular has risen almost 30% this year fueled by the AI capital investment boom. We know that there will be a pickup in corporate debt and equity issuance, mostly because of increased issuance to fund AI capex.
We are now seeing that higher capex via higher borrowing and equity issuance is leading to declining free cash flow, which is the classic first stage of a squeeze. This is starting to lead to higher credit spreads and funding costs, which push up required AI returns, which, if history is a guide, eventually leads to a funding shortfall and downward pressure on other financial markets. Right now, these changes are still relatively modest. It will be important to pay particular attention to AI hyperscaler bond issuance, which is accelerating: it reached approximately $220 billion in the first half of 2026 versus about $108 billion for all of 2025. This market is now beginning to tighten as investors are beginning to require larger concessions to absorb the supply. Net corporate debt issuance was about $700 billion in 2025 and is expected to be about $1.1 trillion in 2026 and about $1.4 trillion in 2027. This market should be viewed as the canary in the coal mine.
The way I would think about the 2027 challenge is that the supply of debt will likely rise from about $3.5 trillion annual net debt supply in 2025 to about $4.4 trillion in 2027, which is an incremental ~$0.5 trillion per year, not including debt rollovers. In other words, the American corporate piece—particularly the AI complex—is becoming very big at the same time as the Treasury piece is already enormous.
As we know through logic and from studying cycles, when the supply of bonds is greater than the demand for them, their prices go down and the interest rates rise, which curtail credit-financed purchases of goods and services.
Thus far, what we have seen is that:
- Gross refinancing requirements will be exceptionally large
- Net sovereign financing requirements remain exceptionally large
- Corporate and AI financing needs are accelerating
- Equity issuance is accelerating
- Some traditional buyers (e.g., some foreigners) have reason to reduce their allocations
- Supply of financial assets that will hit the market will be exceptionally large and steadily increasing
That produces lower prices and higher yields on financial assets when demand isn’t strong, which is the current case.
At the big-picture level, because the United States runs both a large government deficit and a large external deficit, there will have to be some mix of:
- Fiscal policy tightening to reduce its deficits and borrowing
- Domestic investors increasing their share of their money going into government debt
- Foreigners accumulating US assets at an increasing pace
- Other borrowers being crowded out
- Asset prices adjusting sufficiently to attract buyers
- Or monetary policy accommodating the financing in a way that devalues debt and money
Since sellers of US debt compete for buyers with sellers of non-US debt and sellers of equities, we need to look at them, too. Let’s do that now.
The Debt Supply and Demand Situation of the Rest of the World
The US isn’t competing only with other American sellers of assets—it is competing with all sellers, most importantly governments and corporations all over the world, for the same global pool of capital. How does this picture look?
The table below shows government debt stocks and issuance outside of the US.[7] In brief, the rest of the world’s debt picture, especially in the developed world, is similar to that of the US—i.e., many other countries are overly indebted, need to borrow a lot, and are being squeezed, all of which has become a political and social issue that is on the verge of leading to extreme actions that are not good for bondholders. Because these bond markets compete, the worsening of European and Japanese supply/demand balances and the higher interest rates that result hurt US bonds, just as the worsening of US supply/demand balances and the resulting higher interest rates hurt other countries’ bonds. The tables below show both the amounts outstanding and the issuance of debt of major countries both in trillions of dollars and as a percent of their GDP.
More specifically, OECD governments borrowed a record $17 trillion gross in 2025, of which approximately $13.5 trillion (nearly 80%) was refinancing existing debt. Gross OECD sovereign borrowing is projected to rise again to approximately $18 trillion in 2026, including roughly $14 trillion of refinancing and nearly $4 trillion of net borrowing. That is 17% more than in 2024 and roughly twice the amount a decade ago. Like in the US, many issuers have been shortening maturities because long-term borrowing has become too expensive as a result of the supply/demand forces that I have been talking about. While borrowing short term rather than long term reduces the cost today, it increases the amount that has to be refinanced tomorrow, which is a very classic risk that typically arises in this part of the Big Debt Cycle, as explained in my book. This is why 2027 looks more concerning than 2026 and 2028 looks riskier still.
Europe is increasing sovereign issuance to finance defense, infrastructure, and large fiscal deficits. Germany alone is expected to issue around €576 billion in gross debt in 2027, compared with €526 billion in 2026 and €425 billion in 2025, at the same time, the ECB is shrinking rather than expanding its government bond holdings.
As noted earlier, Japan has enormous government refinancing requirements, while China is also creating large quantities of government debt (though its situation is different because the government has much greater ability to direct domestic banks and institutions to hold that debt, and its debt does not actively compete with US debt).
Regarding corporations, borrowing globally is at record levels. As a measure of global corporate indebtedness, the OECD estimates that corporate borrowing through bond and syndicated loan markets reached approximately $14 trillion in 2025, while outstanding corporate debt obligations reached roughly $60 trillion.[8] Either way, as AI investment picks up globally, we should expect that corporate debt will continue to grow substantially to meet financing needs, as it is currently doing in the US.
Where Do Equities Come In? The Supply Is Increasing a Lot
Over the last year, corporates have shifted from big net buyers of assets to net sellers (issuers) of capital, requiring private investors to step in and fill the gap. The chart below shows the total amount of non-financial corporate equity being supplied to the market (before subtracting out any corporate purchases, e.g., buybacks or M&A). In the first half of this year, the amount of equity issuance surged to a $1.8 trillion annualized pace, largely driven by the big players in the AI build-out.
While we can’t be precise about how much equity issuance we will see in the future, it is clear that a lot more issuance is expected as these entities continue to try to raise capital in various ways (e.g., IPOs by the frontier labs), so this pressure is likely to persist. The chart below shows the total amount of equity issuance through 1H26 across public and private markets, with a rough estimate for next year.
The chart below shows the breakdown of that issuance by channel—across IPOs (e.g., SpaceX), secondary offerings (e.g., Alphabet), and private fundraising (e.g., by OpenAI and Anthropic). You can see that it has basically surged across all channels this year to finance the AI build-out
A few huge deals make up a lot of this, as is shown in the table below.
There is a lot more to look at in order to get a complete picture of the supply and demand for equities, which I will not do here because this note has already gone on too long. But suffice it to say that the supply of financial assets (both debt and equity) being offered appears much larger than can be absorbed by the demand for it.
[1] While debt-to-GDP is a popular measure, it is a poor measure of the riskiness of debt burdens. If you were examining the debt burden of a company, would you look at its debt relative to the entire market for the good or service it is selling? Of course not. Instead, you would look at the amount of its debt service relative to the cash flow it has to service its debts and meet its expenses. So, why would you look at the size of the government’s debt relative to GDP? The only difference between a company’s and the government’s abilities to service their debts is that the government can take money from others via taxes (which is politically unpopular) and/or it can have its central bank print money (which causes inflation).
[2] Some people say that the possible exception to this is when the incomes produced are more than enough to produce enough real returns to meet the cash-flow needs of those who invested in them. In these very rare cases, which have typically happened when there were great productivity and income booms, the incomes rose to reduce the previously mentioned supply/demand and debt service problems.
[3] The difference between the ~$32 trillion number that I am quoting and the more popular $40 trillion figure is because the $32 trillion number is the amount of debt held by the public (including the Fed), whereas the $40 trillion number is the amount of gross debt, which includes intragovernmental obligations and other securities not on the open market.
[4] A bill is a short-term debt security that matures in one year or less, usually sold at a discount and repaid at face value without periodic interest payments.
[5] To be clear, this is not investment advice because I don't give investment advice. My objective is to "teach you how to fish rather than give you a fish."
[6] Based on Congressional Budget Office estimates, if all Treasury rates were 1% higher than their baseline every year, additional interest costs would build up progressively as debt rolled over, totaling over $3 trillion cumulatively over 10 years (before allowing for second-round borrowing effects). That’s a lot of money that the government will have to come up with somehow.
[7] Using the IMF’s cross-country estimates.
[8] The OECD definition is broader than our US-specific figures above, so is not directly comparable.
