USA Debt & Deficit Going Out of Control?

[marcus]

From https://finance.yahoo.com/economy/policy/articles/mohamed-el-erian-says-30-160000225.html
Title : Mohamed El-Erian says 30-year Treasury yield at 5.27% signals a structural shift that will make America more expensive
By Eric Esposito , August 2026

... "This is no ordinary bond-market sell-off," El-Erian announced ... The former PIMCO CEO argued that, if selling pressure on bonds continues, "it could mark the beginning of a structural economic shift more enduring and more globally consequential than most previous episodes of market volatility."...

Along with the intense capital demand from AI tech corporations, traditional U.S. bond buyers aren't showing up due to their own internal issues. El-Erian pointed to Japan (the largest foreign holder of American debt) as a prime example ...

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From https://finance.yahoo.com/economy/policy/articles/forget-ai-debt-become-main-192531991.html
Title : Forget AI, debt has become the main character on Wall Street as markets just now decided that it’s gotten out of control after years of warnings
By Jason Ma , August 2026

The enormous mountain of debt (#$40 trillion, having quadrupled since 2008) hanging over the US economy has overshadowed the AI boom as the center of attention on Wall Street.

For years—decades even—the spiraling trajectory of U.S. debt fueled dire warnings, which investors consistently brushed off as low borrowing costs helped turbocharge epic stock gains ...

Debt worries weren't limited to the U.S., with yields in other top economies like the U.K., France, Germany, and Japan also surging... See https://www.expatindo.org/community/threads/soaring-debt-in-many-big-economies.8375/

"Given that public debt is already so high for many countries, it's only been a matter of time until markets run out of patience," ... "It looks like that's happening now."

Yields (in US) went up so quickly that the Treasury Department suddenly announced it will increase buybacks ... The move briefly lowered yields, but they went back up again ...

bond investors are demanding greater compensation for fiscal, geopolitical and policy uncertainty, describing it as a shift that will prove persistent.

While the pace of the bond selloff isn't justified by recent events, the market's concerns are rational as governments show little indication of curbing deficits (#about 6% of GDP in US, a historically high ... rarely seen outside of wartime or deep recessions) ...

# from https://finance.yahoo.com/economy/policy/articles/bond-market-sending-distress-signal-190122262.html

 

[Balifrog]

Just roll it over.
Forever....

In France the cost (interest only) of the debt is equivalent to the national education budget....

 

[marcus]

Just roll it over.
Forever....

If there are buyers .

As per Harryopal1 post no.6 @ https://www.expatindo.org/community/threads/soaring-debt-in-many-big-economies.8375/, US debt is owned mostly by domestic investors + ~20–25 % by foreign countries (Japan, China, others) . Countries are decreasing or will decrease buying American bonds and so (I believe) will Americans do so too , unless the bond's yields increase significantly .

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a) Historically, the U.S. stock market delivers roughly 10% annually for the S&P 500 than U.S. government bonds, from 2% to 5% (Google AI) ;

b) We humans are naturally impatient , we want to retire as soon as possible , so I guess most will prefer choosing the riskier 10% than the safer 5% ;

c) Warren Buffett has famously called long-term bonds a "terrible investment" and a "terrible mistake" in low-interest-rate environments, warning that fixed-income investors face a bleak future. However, he does advocate for holding short-term government bonds like T-bills as a safe cash equivalent ...
For individual personal investing, Buffett recommends a 90/10 rule: put 90% of money in a low-cost S&P 500 index fund and 10% in short-term government bonds (Google AI) .

Note : Warren Buffett is a famous American investor (known for "value investing") and became, one of the richest people in the world - he saved the equivalent of $53,000 by age 16 and hit a net worth of $1 million when he was 32. (Wikipedia) . He now has over $140 billion . From https://www.investopedia.com/articles/financial-theory/08/buffetts-road-to-riches.asp .

 

[pantaiema]

b) We humans are naturally impatient , we want to retire as soon as possible , so I guess most will prefer choosing the riskier 10% than the safer 5% ;

While humans are naturally impatient and drawn to higher returns, the claim that 'most will prefer choosing the riskier 10% than the safer 5%' is certainly not true because:

The global bond market is bigger than the global equity market. When this bonds combined with, money market funds (mmf), and standard bank savings, deposits, they will outweighs equity investments, stocks, index funds, mutual funds, etc by a substantial amount.

Do not forget the accessibility & Financial Literacy. Direct stock market participation requires financial literacy, stock market & platform access, and understanding of risk tolerance. In contrast, basic savings accounts and term deposits are universal. In developing economies such as Indonesia, for example, the number of individuals holding bank deposits, savings far exceeds the small percentage registered to trade or invest on the Indonesia Stock Exchange (IDX).

Also Many everyday savers focus on nominal gains rather than real purchasing power. They prefer a guaranteed 5% nominal return for safety, often unaware that inflation may erode those gains or yield a negative real return. Some do not realise that in the long run equity will always beat bonds/savings, term deposit.

The chart below is just an example of illustration how the S&P 500 Index outperform U.S. 10-Year Treasury Bonds from 2000 through 2025. This scenario already taking into consideration the bond favourable scenario (e.g 10 years instead of a shorter period such as 5, 2 years term)

 

[marcus]

The global bond market is bigger than the global equity market ...

I was referring to US market .

"According to data from the Securities Industry and Financial Markets Association (SIFMA), U.S. equities have a combined market capitalization of roughly $62 trillion, while the total outstanding value of the U.S. bond market is around $58 trillion" (Google AI)

Direct stock market participation requires financial literacy, stock market & platform access, and understanding of risk tolerance ...

You don't need to participate directly .

"Roughly 58% of U.S. adults own stock (either directly or via mutual funds and retirement accounts). Data tracking individual bond ownership separately is less common, but the Federal Reserve reports that only 37% of adults hold any mix of stocks, bonds, ETFs, or mutual funds outside of protected retirement accounts" (Google AI) .

 

[pantaiema]

I was referring to US market .

"According to data from the Securities Industry and Financial Markets Association (SIFMA), U.S. equities have a combined market capitalization of roughly $62 trillion, while the total outstanding value of the U.S. bond market is around $58 trillion" (Google AI)

You don't need to participate directly .

"Roughly 58% of U.S. adults own stock (either directly or via mutual funds and retirement accounts). Data tracking individual bond ownership separately is less common, but the Federal Reserve reports that only 37% of adults hold any mix of stocks, bonds, ETFs, or mutual funds outside of protected retirement accounts" (Google AI) .

You cannot simply compare the U.S. equity market with the U.S. bond market on a like-for-like basis and conclude that they represent equivalent economic exposures. Compared with the bond market, U.S. equities have a much more global exposure than the "U.S." label suggests. The U.S. equity market is dominated by large multinational companies whose revenues, profits, customers, employees, assets, buyers span around the world.

The Magnificent Seven, for example, are all U.S.-listed equities, yet they are genuinely global businesses with substantial operations, customers and revenues outside the United States. Their shares are also held extensively by international investors, global mutual funds and ETFs not just by U.S. investors or index. U.S. equities therefore form a substantial component of investment portfolios around the world, not just the US. Because of the enormous market capitalisation of these global companies, the size of the U.S. equity market will also look significantly big, but the equities are simply purchased by in the US but globally.

The U.S. bond market is different. while, it is also international in terms of foreign ownership and trading, but its underlying economic exposure is considerably more U.S.-centric. The U.S. Treasury securities represent debt issued by the U.S. federal government, while U.S. municipal and corporate bonds predominantly finance state and local governments and businesses in the United States. As a result, the underlying economic exposure of the U.S. bond market is considerably more U.S.-centric than that of the U.S. equity market. The fact that some foreign investors own U.S. bonds does not change the underlying economic exposure of those securities.

So, in simple terms:
U.S. equities = U.S.-listed securities representing a substantial amount of global economic activity.
U.S. bonds = U.S.-issued securities that are predominantly linked to the U.S. government, U.S. households and U.S. businesses.

Therefore, you are not really comparing two equivalent markets when you simply compare the headline size of the U.S. equity market with the U.S. bond market. You are comparing a market with substantial global economic exposure against one that is much more U.S.-centric. If the U.S. equity market were classified according to the global economic exposure of the companies it contains, rather than simply by where the companies are listed or incorporated, its effective economic footprint would be certainly considerably larger.

Also remember in the size of U.S. bond market the savings accounts, the savings, term deposits at commercial banks have not been counted. So if you include this the amount of money and number of people seeking the safer 5% than the the riskier 10% will be much more.