🚨 How high are the interest payments on U.S. debt? — For every dollar of tax collected, 23 cents go towards paying interest on past debts!
This is also why the market is increasingly convinced that the Federal Reserve will cut interest rates in September, and that 25 basis points is just the starting point, with a possibility of a direct cut of 50 basis points.
Why? Because the fiscal capacity has been pushed to its limits:
Interest payments alone have already exceeded an annualized $1.1 trillion, which is higher than the entire defense budget;
Tax revenue is declining amid an economic slowdown, while the cost of debt refinancing is accelerating;
The average duration of debt is only 5-6 years, meaning a large amount of old debt needs to be rolled over at higher interest rates every year.
In such a structure, cutting interest rates is not merely a stimulus for the economy, but an inevitable action for fiscal sustainability.
As the past becomes increasingly expensive, the future market will become more financialized—
1⃣ Bond Market: Term premiums will react more intensely to fiscal pressures, leading to greater volatility in long-term interest rates.
2⃣ Dollar Assets: Periodic trust discounts will emerge, diminishing their safe-haven attributes.
3⃣ Risk Assets: Liquidity cycles will be shorter and more urgent, with market movements potentially occurring in pulses rather than a steady slow rise.
4⃣ Crypto Assets: BTC/ETH will be viewed by more people as hedging tools in the face of fiscal dilemmas; stablecoins and RWA will play an extended role in fiscal financial engineering, acting as on-chain distribution channels for U.S. Treasuries.
Watch closely, what we are witnessing may be a historical moment where the limits of the fiat currency system begin to reveal themselves!
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