Tag: economics

$40 Trillion in Debt and the Interest Bill Keeps Growing

The United States has crossed $40 trillion in gross federal debt, and Washington will treat it as another unfortunate milestone before returning to the business of spending money it does not have. The more immediate problem is what it costs to carry that debt. Treasury’s figures show approximately $1.17 trillion in gross interest expense through July, just ten months into fiscal year 2026. That works out to roughly $117 billion a month, or $3.85 billion every single day over that period. These are interest costs, not repayments that reduce the principal. Washington incurs this expense while the debt itself continues climbing.

There are two different interest figures, and they should not be confused. Treasury’s gross interest expense includes interest credited to government accounts holding Treasury securities. The federal budget’s net interest measure excludes those internal payments and includes other offsets. The Congressional Budget Office’s February outlook placed net interest at approximately 3.3% of GDP in 2026, implying more than $1 trillion for the full fiscal year. Even on that narrower measure, Washington is devoting roughly one dollar in five of projected federal revenue to interest. The distinction matters for accounting, but neither number describes a government bringing its finances under control.

The issue was never simply that government had borrowed a large sum. It was that borrowing had become a permanent arrangement, with interest added to budgets already running deficits. Politicians take credit for the original spending, while the cost of financing it survives long after they leave office. Their successors inherit the bill and issue more debt rather than confront the promises that created it.

Consider what refinancing actually means. When a Treasury security matures, its holder must be repaid. If Washington finances that redemption by selling another security, the creditor has changed, but the government has not eliminated the obligation. It has renewed it at whatever rate the market will accept. Borrowing to refinance principal is separate from the interest bill, yet both require continued access to willing buyers. This is why a government can make every payment on time while its underlying financial position deteriorates.

The mathematics of higher rates becomes brutal at this scale. Every additional percentage point on $1 trillion of debt means another $10 billion in annual interest once that debt carries the higher rate. Apply that to successive waves of refinancing and the expense builds year after year. The entire $40 trillion does not reset overnight, and it would be misleading to suggest otherwise. Existing fixed-rate securities retain their coupons until maturity. That delay, however, can conceal the developing burden and give politicians another excuse to postpone action.

There is no magic number at which a country automatically collapses. Confidence, borrowing costs, economic growth, and the ability to raise revenue all matter. The danger is that higher interest expenses require more borrowing, while concerns about that borrowing encourage investors to demand still higher yields. A deteriorating fiscal position can then begin reinforcing itself.

CBO projects net interest costs reaching $2.1 trillion in 2036, or 4.6% of GDP. That is a projection under its stated assumptions, not a guaranteed outcome, but it demonstrates that the problem does not disappear even in an orderly baseline. Washington is not merely struggling with a temporary expense left over from an emergency. It is carrying an interest burden expected to grow while elected officials continue making commitments against future revenue.

War makes this arithmetic harder. Military operations require resources today, while the interest on borrowing to finance them can remain for decades. If conflict also raises energy costs or disrupts production, it can complicate the Federal Reserve’s inflation problem. Higher rates may be necessary to restrain inflation, but they also increase the cost of new federal borrowing. Demanding that the Fed cut rates does not repair that conflict, especially when long-term investors remain free to demand compensation for inflation and fiscal risk.

Republicans cannot explain this away by blaming Democratic spending while defending every unfunded commitment of their own. Democrats cannot promise an expanding government without confronting the cost of financing it. Both parties have constituencies they refuse to disappoint and obligations they prefer to leave to the next administration. The interest bill does not recognize party affiliation, and the bond market does not have to accept a campaign promise as repayment.

The $40 trillion figure should therefore be understood through the income required to sustain it. America possesses enormous productive capacity, but that is not permission for Washington to claim an ever-larger portion of future revenue before the public receives any new service. More than a trillion dollars in annual net interest is already a substantial claim on that income. The question is how much further government intends to mortgage the future before admitting that borrowing has become its substitute for governing.

Keep reading

Treasury Sec. Scott Bessent Schools Elizabeth Warren – Offers Her ‘Foreign Exchange for Dummies’

Treasury Secretary Scott Bessent recently smacked down Massachusetts Senator Elizabeth Warren and it was a thing of beauty.

Apparently, Warren sent Bessent a letter a few weeks ago claiming that she had ‘serious questions’ about foreign exchanges happening under Trump.

From Warren’s letter:

U.S. Senator Elizabeth Warren (D-Mass.), Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Secretary of the Treasury Scott Bessent pressing for more information regarding the Trump Administration’s decision to deploy its Exchange Stabilization Fund (ESF) to boost financial markets and inflate the Japanese yen after it rapidly dropped to a 40-year low. Warren noted that the Administration has yet to provide a detailed justification for its intervention, nor has it officially disclosed how much taxpayer-linked funds were spent purchasing yen.

“The mechanisms through which Treasury executed the yen purchase raise serious questions regarding the costs to American taxpayers,” wrote Ranking Member Warren.

Bessent’s response was EPIC. He posted it on Twitter/X. Here it is in full:

In her latest sciolistic letter to me, @SenWarren made it clear that she knows even less about foreign exchange markets than she does about banking.

What is equally shocking, but not surprising: not a single member of the media mob has a rudimentary-enough level of financial market literacy to spot her remedial error.

To reiterate: under @POTUS, the United States delivers for America’s trusted partners.

For a fuller explanation, I recommend Senator Warren take any entry level course in international finance for her and her staff, or I can personally give her a tutorial on Foreign Exchange for Dummies. Although I am not holding my breath, I hope her next letter will demonstrate that she has learned the difference between a currency purchase and a swap or a loan.

Keep reading

Bessent Suggests Economic Warfare Against Iran Could ‘Blow Up the Global Financial System’

With the United States unable to militarily defeat Iran in President Donald Trump’s illegal US-Israeli war of choice, Treasury Secretary Scott Bessent on Monday escalated the administration’s economic attacks on Tehran, warning countries and companies around the world that continuing to do business with the nation could expose them to punitive sanctions.

“Let there be no ambiguity as to the position of the United States,” Bessent said during a news conference unveiling what the Trump administration is calling Operation Economic Outcast. “An economic engagement of any kind with this murderous regime will expose those responsible to the full reach of American power.”

The “economic D-Day” campaign targets five sectors – technology, gold, aviation, shipping, and digital assets – and is intended to choke off virtually every remaining source of hard currency for Iran.

Bessent warned that it is “no longer acceptable to operate in the gray spaces” of US policy. The secretary said he anticipates the announcement of sanctions against a major financial institution as soon as next week.

Asked if Chinese banks that do business with Iran would be sanctioned, Bessent replied that “no one is above the reach of US sanctions.”

While Bessent did not say which countries would likely be targeted, China, Türkiye, and the United Arab Emirates are Iran’s biggest trading partners.

The secretary was also asked why sanctions aren’t being imposed immediately.

“Well, we are giving everyone the opportunity to remedy bad behavior,” he replied. “Why would I want to blow up the global financial system?”

“We believe that it is important to level set and give people a cure period, but they should know that that will move very quickly and that we are serious,” Bessent added. “So we believe that a warning shot and a level set of expectations is appropriate, and if people do not want to meet our expectations, then we expect – and they should expect – that they will leave the dollar system.”

Iranian officials largely scoffed at Bessent’s “economic D-Day” threat. Deputy Iranian Foreign Minister Kazem Gharibabadi asked on social media, “Is this a victory or an admission of America’s failure!?”

“You say Iran’s military capability has been ‘dismantled,’ 100% of its military factories ‘destroyed,’ and its nuclear program ‘buried’; but for this very Iran, the ‘largest financial assault in history’ and the mobilization of ‘all US institutions and authorities’ have been necessary!” he mocked.

While Trump has said the war is “over” or nearly over dozens of times, Iran currently appears to have the upper hand, as shipping has overwhelmingly avoided the US-supported route through the Strait of Hormuz, with most vessels using a course set by Tehran or avoiding the waterway altogether.

Trump’s war on Iran is proving costly not only in Iranian lives and US taxpayer dollars, but in the increasingly strained budgets of American families. Disruptions to oil shipments through the Strait of Hormuz have pushed gasoline prices above $4 a gallon nationally – roughly a dollar more than a year ago. Trump has dismissed Americans’ concerns about high fuel prices, saying $4 is “not very high” and vowing to “never apologize” for the economic pain his actions are inflicting.

That pain doesn’t stop at the pump. More expensive gasoline and diesel ripple through the economy, raising the cost of transporting food and other goods while keeping inflation elevated.

The pain is far worse for the people of Iran. Trump administration’s escalation comes as Iran’s currency, the rial, has plunged to record lows amid an economic crisis largely caused by the war and years of preceding US-led sanctions.

Keep reading

Functional Unemployment in USA Reaches New High

The government claims unemployment stands at 4.1%, yet a new analysis cited by CBS News found that 24.9% of American workers were functionally unemployed in July. Functional unemployment includes those who cannot find employment, people forced into part-time work because full-time jobs are unavailable, and workers earning less than $26,000 annually before taxes. Washington can call these people employed, but try paying rent, food, insurance, utilities, transportation, and medical expenses on barely $2,000 per month before the government takes its share.

The Bureau of Labor Statistics is not measuring whether people are prospering or even surviving. If you worked as little as one hour during the survey period, you can be classified as “employed.” If you have searched for months, become discouraged, and finally stop looking, the government simply removes you from the labor force. You did not find a job and your circumstances did not improve, but you cease to exist statistically. Politicians then point to the lower unemployment rate and claim their policies are working.

Functional unemployment has now risen for four consecutive months while workforce participation has moved lower. Employers reportedly eliminated 23,000 jobs in July, consumer prices rose 3.4% year over year, and wages increased only 3.2%. Therefore, the average worker lost purchasing power even after receiving a nominal raise. This is why people become angry when politicians lecture them about a strong economy. The statistics say they are employed, inflation is under control, and everything is wonderful, yet the paycheck no longer covers the monthly bills.

This is how the political establishment disguises economic decline. Inflation statistics do not reflect the actual cost of maintaining a household, GDP rises when government borrows and spends money it does not have, and unemployment declines when people surrender and stop searching for work. Every major statistic has been constructed to make government appear competent while the standard of living steadily deteriorates. They measure whether money changed hands, not whether society became wealthier.

Americans have been forced to replace income with debt. They have depleted savings, increased credit-card balances, postponed major purchases, and begun cutting necessities because discretionary spending was already eliminated. Consumer spending may represent roughly two-thirds of the economy, but consumers cannot continue spending indefinitely when prices rise faster than wages and employment becomes increasingly unstable. Credit can postpone the reckoning, but it cannot replace real economic growth.

Functional unemployment explains why Washington can proclaim prosperity while millions of Americans feel trapped in a personal recession. The economy has produced millions of positions that satisfy the government’s definition of employment but cannot provide an independent life. The political class counts the number of people receiving paychecks while refusing to ask what those paychecks can actually buy. That is poverty disguised by statistics.

Keep reading

The World’s Biggest Shell Game

In 2001, Enron’s collapse revealed that a corporation could manufacture the appearance of financial health by creating thousands of shell companies, the purpose of which was to buy the real corporation’s toxic assets, keeping them hidden from investors and regulators. Enron created more than 3,000 such shell companies, officially dubbed “Special Purpose Vehicles” (SPV). When the shell game unraveled, $30 billion in hidden debt materialized overnight.

Lehman Brothers used this principle with “Repo 105,” temporarily moving $50 billion in assets off its balance sheet at quarter-end to SPVs, then retrieving them days later after reporting deadlines passed. Lehman’s bankruptcy examiner documented the fraud across 2,200 pages. No one went to prison.

Citigroup ran $80 billion through off-balance-sheet structured investment vehicles. When the commercial paper market froze in 2008, Citigroup had to re-absorb $58 billion, requiring a $45 billion government bailout. Bear Stearns created hedge fund SPVs housing toxic mortgage securities. When they imploded in 2007, they served as the canary in the coal mine for the entire financial system.

Bigger Than Corporations

The crucial question is: Does the same architecture operate at the level of nation-states? It does, through the mechanism of dollar reserve requirements and Treasury market structure.

Here is how it works. The United States issues Treasury bonds to finance deficit spending. Under the post-Bretton Woods dollar reserve system, central banks worldwide are expected (and in practice effectively required) to hold significant portions of their foreign exchange reserves in U.S. dollar-denominated assets, primarily Treasury securities. The Bank for International Settlements and International Monetary Fund frameworks for reserve adequacy create structural pressure on smaller countries to accumulate Treasuries as a demonstration of financial stability and as insurance against currency crises.

The result: Japan holds approximately $1.1 trillion in U.S. Treasuries. China holds approximately $760 billion. The United Kingdom, Luxembourg, the Cayman Islands, Belgium, and Ireland each hold hundreds of billions. Together, foreign countries hold approximately $8.5 trillion of the $36 trillion U.S. national debt.

The Carrot and the Stick

These countries are not freely choosing to hold American debt the way a private investor chooses a stock. Many are incentivized, and in some cases coerced, into doing so by the international monetary system.

Countries that attempt to de-dollarize their reserves face currency instability, reduced access to dollar swap lines, and in some cases direct U.S. diplomatic and financial pressure. Iraq announced it would price oil in euros in 2000. Libya’s Moammar Gadhafi proposed a gold-backed African currency to replace the dollar for oil transactions. Both countries experienced U.S. military intervention shortly thereafter. Correlation is not causation, but the pattern has not gone unnoticed by smaller nations.

Without foreign central-bank demand structurally supporting the Treasury market, the interest rates required to attract voluntary buyers would be considerably higher. Foreign reserve requirements effectively subsidize American borrowing costs, suppress Treasury yields, and support the dollar’s reserve status in a mutually reinforcing cycle that benefits the issuer enormously.

Enron’s SPVs kept toxic assets off the balance sheet, allowing rating agencies such as Moody’s and S&P to maintain investment-grade ratings until days before the collapse. The structural foreign demand for Treasuries similarly influences how sovereign debt markets evaluate American creditworthiness. When Moody’s downgraded the United States from Aaa to Aa1 in May 2025, it cited the $36 trillion debt and deficit trajectory. But that downgrade was decades late relative to what the raw numbers would suggest.

Loss Is Inevitable

The difference between Enron’s SPVs and the sovereign SPV system is that Enron collapsed suddenly. The dollar reserve system is unwinding slowly — through BRICS de-dollarization efforts, bilateral currency swap agreements between China and trading partners, Saudi Arabia’s acceptance of yuan for oil sales, and the gradual diversification of central bank reserves away from Treasuries toward gold, which global central banks purchased at record rates in 2022, 2023, and 2024.

When enough of the SPV network decides to stop absorbing the parent’s liabilities, the parent’s true balance sheet becomes visible. What happened to Enron in 2001, and to Lehman in 2008, will eventually happen to any entity that has confused the appearance of solvency with its substance.

The shell game always ends the same way.

Keep reading

The Reason Socialism Appeals to the Youth

The establishment continues to dismiss the growing support for socialism among young people as nothing more than college indoctrination. That is only part of the story. If we refuse to understand why an entire generation is losing faith in capitalism, then we are destined to repeat the very mistakes that gave rise to socialism throughout history. The Fox News analysis citing Heartland Institute and Rasmussen polling noted that 53% of Americans aged 18 to 39 said they would support a Democratic Socialist for president, while 76% favored nationalizing industries such as health care, energy, and big tech. The overwhelming motivation is not ideology, it is economic despair.

Young Americans have entered adulthood during one of the most distorted economic periods in modern history. Housing has become unattainable for millions. According to the same polling, 74% of young voters believe America is facing a housing crisis, 62% say the economy is unfair to young people, and 36% describe themselves as struggling financially or in outright crisis. When asked why they supported democratic socialism, the most common answer was simple: housing costs. This is precisely what governments never want to admit. People do not abandon free markets because they suddenly become Marxists. They lose faith when the system no longer appears to reward hard work or provide a realistic path toward owning a home, raising a family, or building wealth.

This is hardly unique to the United States. Across Europe, Canada, Australia, and much of the developed world, younger generations face soaring rents, stagnant real wages after inflation, enormous student debt, and some of the weakest housing affordability on record. Many graduates cannot find careers matching their education, while others remain trapped in temporary work or are forced to live with their parents well into adulthood. Governments spent decades inflating asset prices through endless debt expansion and artificially low interest rates. Those who already owned homes and financial assets became wealthier, while those entering the workforce found themselves permanently priced out. That is not capitalism functioning properly. It is the direct consequence of governments manipulating markets and accumulating unsustainable debt.

Keep reading

Japan’s Keynesian Mirage: How Debt, Inflation, & A Collapsing Yen Expose A Failed Model

Japan’s yen crisis exposes the long‑running failure of the Keynesian strategy that has dominated the country’s economic policy: chronic deficits, exploding public debt, and engineered inflation are now eroding Japan’s purchasing power, competitiveness, and monetary stability.

For decades, many mainstream analysts pointed to Japan as proof that a rich, “monetarily sovereign” country could keep an extremely high public debt without relevant consequences. The argument was simple: as long as the state can issue its currency, it can always print whatever is needed to cover deficits, refinance debt, and support public spending.

In reality, that has meant public debt soaring to around 250% of GDP, one of the highest levels in the developed world, while repeatedly increasing government expenditure and leaving large, persistent deficits. Even the IMF notes that, even after several years of moderate growth, prudence is “key to keep debt‑to‑GDP on a firmly downward path,” admitting that the current level is a structural vulnerability.

Japan’s apparent stability depended on a crucial external factor, the country’s enormous exporting capacity.

As a leading exporter of cars, technology, and capital goods, the country attracted a continuous inflow of US dollars and foreign capital that supported a stable currency and kept inflation low, despite fiscal excess. That protective layer is eroding fast. Headline inflation has edged up from 1.4% in April 2026 to 1.5% in May, while core inflation has held at 1.4%, still below the Bank of Japan’s 2% target but clearly positive after three decades of near‑zero price growth.

A key factor of the Japanese model was its export engine and the “golden goose” of capital inflows.

These two factors allowed the country to live with large debt and deficits without immediately triggering high inflation. However, that mirage is vanishing as external performance falters and inflation, though moderate, bites into real incomes.

Keynesianism did not spur growth or improve Japanese citizens’ lives. It just bloated an unsustainable government machine.

Recent data show that price increases are now broad‑based, not confined to a few categories. In May 2026, overall CPI inflation was 1.5% year-on-year. However, food prices rose 3.5% year-on-year, which is a heavy burden for households. Goods inflation stood at 2.0%, while services inflation was around 1.0%.

Underlying inflationary pressures, particularly in services and wage‑sensitive sectors, are now embedded in the system rather than an isolated energy shock. Meanwhile, real net wages are stagnant or declining. Japanese citizens face an affordability crisis.

Keep reading

Deflation Is Not The Villain – The Overleveraged Fiat System Is

It is important to clarify something here.

While mainstream economists, the financial media, academia, and other gatekeepers of the rotten fiat currency system howl about the dangers of deflation, it is worth taking a moment to consider whether it is really such a bad thing.

First, it is important to define our terms.

The correct and true meaning of inflation is an increase in the money supply. So the correct and true meaning of deflation is a decrease in the money supply. But that is not what most people mean when they refer to deflation, because the money supply rarely contracts in a fiat monetary system. When most people say deflation, they mean a general fall in prices.

One of the biggest popular misconceptions in economics is that a general fall in prices is a “bad thing.”

It is an enormous misnomer. Falling prices caused by increases in productivity are actually a good thing. Who does not want to see their money go farther?

Technology is naturally deflationary. It drives down costs, increases efficiency, and makes goods and services cheaper over time.

In an honest monetary system, that would mean falling prices and rising purchasing power. In other words, your money would buy more as technology advances.

But that is not how the current system is designed to work. In fact, it does the opposite. It is like running on a treadmill that keeps accelerating.

In a fiat currency system, deflationary increases in productivity are more than offset by inflation, which benefits people who own stocks, houses, and other assets that rise with inflation, and hurts those who depend on wages denominated in the debased currency.

In short, in a fiat currency system, the benefits of deflationary technology primarily accrue to asset holders, because the forced inflation created by central banks pumps up asset values.

Keep reading

The Myth Of Price Controls

The Cuban dictator Miguel Díaz-Canel’s recent admission that Cuba’s generalized price caps failed to contain inflation, generated shortages, encouraged illegal markets, and reduced tax revenues is another confirmation of a much older economic lesson: price controls do not solve inflationary pressures, and they intensify the distortions they are meant to prevent.

The Cuban case is especially revealing because the criticism comes not from ideological opponents but from the regime that imposed the controls and later conceded their failure.

According to Díaz-Canel’s own remarks, price controls in Cuba produced the opposite of their intended effect: instead of stabilizing prices, they encouraged product scarcity, illegal-market activity, higher effective prices, and falling tax revenues. The government’s decision to eliminate price controls therefore amounts to an empirical acknowledgment that administrative decrees could not keep pace with economic reality.

This episode matters beyond Cuba because it captures the core mechanism of price control failure. When official prices are fixed below levels that would clear the market, legal suppliers reduce availability, quality deteriorate, and transactions migrate to informal channels where the real market price reappears, often with a premium for risk and scarcity. Thus, inflation is not abolished by decree but only transferred from the official statistics into queues, shortages, and the underground market.

The Austrian School of Economics has long argued that prices are not arbitrary numbers but indispensable signals coordinating dispersed knowledge across an economy. Ludwig von Mises claimed that intervening against market prices does not eliminate the underlying forces of supply and demand but rather creates secondary distortions that generate demands for additional intervention. Friedrich Von Hayek reminded us that market prices transmit information that no planner can centrally aggregate in real time, making administrative price fixing structurally destructive.

Keep reading

Trump Will Slap French Wines With 100% Tariff Over France’s Digital Services Tax – Macron Is Defiant, But Wine Producers Are VERY Afraid

Tech versus Wine is the geopolitical arm-wrestle.

US President Donald J. Trump is in France for the G7 Summit and to meet French counterpart Emmanuel Macron, as you can read in 

Among the many issues that will be discussed, there is one economic war that is on the outing: Trump is demanding that France drop its tax on American tech firms or face a 100% tariff on its wine.

FOX Business reported:

“The U.S. will ‘have no choice’ but to apply the tariffs if French President Emmanuel Macron does not end its 3% levy on large digital services companies. ‘I asked him not to charge American companies, and if they do, I have no choice but to charge a 100% tariff on all champagnes and all wines coming out of France’, Trump told the New York Post in an interview. ‘All [Macron] has to do is get rid of the sales tax, and he wouldn’t have that kind of pressure’.

[…] ’The president has been unequivocally clear on digital services taxes and other forms of extortion against American tech firms’, a senior White House official told FOX Business on Monday, when reached for comment. ‘The administration is committed to using the many legal authorities at our disposal to defend American workers and businesses’.”

Keep reading