A budget deficit means Washington is spending more than it collects in taxes. At $1.97T, the gap is almost as large as the entire economies of countries like South Korea or Canada. August alone saw a $345B shortfall, equal to nearly 7% of GDP. That level hasn’t been seen since

Because of this shortfall, the government has no ability to pay down debt. Instead, it must refinance, which means replacing maturing Treasuries with new ones. Between now and March 2026, nearly $9 trillion will need to be rolled over. This mountain of refinancing comes on

Issuing that much debt at once creates what’s known as a supply shock. With too many Treasuries flooding the market, demand cannot keep up. As a result, bond prices drop and yields rise. A yield is simply the interest rate the government pays investors, and higher yields

Foreign demand for U.S. debt looks increasingly shaky. China, the 3rd-largest holder, dumped $25.7B of Treasuries in July, cutting its holdings to $730.7B, the lowest since 2008. Japan added $3.8B to reach $1.15T, and the UK boosted by $41.3B to $899.3B. But even with these

At the same time, the Federal Reserve is stepping back instead of stepping in. Through Quantitative Tightening (QT), it is selling about $60B of bonds each month. In its September statement, the Fed made clear it will “continue reducing its holdings of Treasury securities and

Investors now see two outcomes: the Fed cuts rates or steps back in to buy Treasuries. Both are inflationary, making markets cautious. This tug-of-war is visible in the yield curve, which steepens when short-term yields rise on rate expectations and long-term yields climb on

The concern is already visible in the term premium, which measures the extra yield investors demand for holding long-term Treasuries instead of short-term ones. That premium is now near its highest level since 2014. Rising term premiums signal that investors believe future

Yields are climbing across the curve, which directly raises the government’s cost of borrowing. Higher yields mean Washington must spend more of every dollar just to service existing debt. In August 2025 alone, out of $344.3B in tax revenue, $111.5B went just to interest.

This is the essence of the debt spiral: more debt pushes yields higher, higher yields raise interest costs, and bigger costs force even more borrowing. The U.S. debt clock now over $37.5T with debt-to-GDP above 120% is a stark reminder of how quickly this cycle can accelerate.

The bottom line is this we have a $1.97 trillion deficit, a $345 billion August shortfall, and $9 trillion in refinancing ahead create a historic test for U.S. debt markets. With foreign buyers looking shaky, the Fed pulling back, and investors demanding higher risk premiums,

If you liked this thread, I write more thoughts like this on my Substack. It’s where I take the time to dig into markets, policy, and the economy with more detail. Would love to have you reading along there. @stockmktnews class="text-blue-500 hover:underline" target="_blank" rel="noopener noreferrer">https://substack.com/@stockmkt...

@HighImpactInfo see what I mean from this morning?

@_Investinq Sounds like we need tariffs. Not sure it’s enough though — through most of FY2025 (to August), only about $165.2B has been collected. The bigger issue is that we simply can’t control how other countries choose to invest to cushion our reckless spending habits.

@_Investinq But the TARIFFS ..... 😂😂😂

@giorgio_house lol we borrowed 1.3 trillion in 79 days

@_Investinq Where are the bangers? 🌭🌭🌭 You are hoarding the updog. 🫵🆙🐕🥷

@_Investinq My strategy plan ⬇️Show more