tl;dr
Rising US government bond yields amid declining inflation risk point to deeper structural economic issues linked to fiscal deficit, tariff uncertainty, and Congressional inaction. Economist Steve Hanke attributes increasing bond yields to concerns over sovereign credit risk and fiscal mismanagement ...
Rising US government bond yields amid tariff policy uncertainty and declining inflation highlight deeper structural economic issues tied to the fiscal deficit and Congressional inaction. Economist Steve Hanke attributes these increasing yields to concerns over sovereign credit risk and diminished confidence in US fiscal management rather than inflation pressures.
The return of the so-called “bond vigilantes,” investors who sell government bonds to punish unsustainable spending, reflects worries about the mounting $36 trillion national debt and a $1.8 trillion budget deficit. A recent Treasury auction’s poor demand signals growing investor unease over America’s fiscal situation.
Beyond bond market fluctuations, a significant slowdown in commercial bank lending and reduced money supply growth—currently at a sluggish 2.3% annually—foreshadow a broader economic downturn. This slowdown restricts credit availability, curbing consumer spending and business investment, compounding fiscal concerns.
Despite challenges, the US dollar maintains dominance in global markets, supported by its historical resilience and the absence of viable alternatives, countering narratives of imminent “de-dollarization.” This resilience stems from the dollar’s entrenched role and the complexity challengers face in displacing it.
Addressing persistent US fiscal deficits requires decisive Congressional action. Hanke advocates for establishing a statutory Fiscal Sustainability Commission tasked with proposing enforceable spending cuts and tax reforms to stabilize debt-to-GDP levels. Furthermore, he underscores the need for a Constitutional Amendment to impose long-term fiscal discipline and overcome political gridlock.
In summary, the intersection of rising bond yields, tariff uncertainty, fiscal mismanagement, and money supply contraction points to a fragile US economic outlook. The path forward demands bold legislative reforms to restore confidence and ensure sustainable fiscal health, placing the onus squarely on Congress to steer the nation toward stability.