Market alarm as US fails to control biggest debt in history
US Treasuries last week suffered their biggest two-day sell-off since the collapse of Lehman Brothers in September 2008. The borrowing costs of the government of the world’s largest economy have now risen by a quarter over the past four weeks.
Such a sharp rise in US benchmark market interest rates matters a lot – and it matters way beyond America. The US government is now servicing $13.8 trillion in declared liabilities – making it, by a long way, the world’s largest debtor. Around $414bn of US taxpayers’ money went on sovereign interest payments last year – around 4.5 times the budget of America’s Department of Education.
Debt service costs have reached such astronomical levels even though, over the past year and more, yields have been kept historically and artificially low by “quantitative easing”. Now borrowing costs are 28pc higher than a month ago, with the 10-year Treasury yield reaching 3.33pc last week, an already eye-watering debt service burden can only go up. The reality is, though, that the market is increasingly alarmed at the rate of increase of the US government’s already massive liabilities. America’s government debt is set to expand by a jaw-dropping 42pc over the next few years, reaching $19.6 trillion by 2015.
The pool of money available to finance Western government borrowing is, in relative and maybe even in absolute terms, starting to shrink. This is extremely worrying – not least because of the industrialised world’s demography. Our ageing population means that higher future borrowing requirements are practically guaranteed.