Well, it was a banner week for debt.

Total government borrowing crossed $40 Trillion and the 30-year Treasury yield hit 5.3%, the highest since 2007.

Man, I want the confidence to hand wave $40 Trillion as “no biggie”.

I agree with Treasury Secretary Bessent that $40T isn’t a special number.

BUT… the markets are not loving this symbolic threshold and what it says about America’s finances.

This week we saw:

It’s pretty simple. Any real estate investor gets this immediately: you push leverage, you push rates.

Bessent says the bond market is “wrong” (in other words yields should be lower). But he also said…..we’re going to have to grow our way out of this debt.

Okay…but it’s hard to argue the markets are wrong in the same breath as admitting we need Hail Mary growth to get out of this.

And while it’s alarming to hear him say the quiet part out loud, he’s not wrong.

Yes, we should obviously cut fraud / waste, but we’re beyond salvaging this from the discretionary expense side of the equation. “Coupons” ain’t going to cut it at this point.

Neither party is close to having the political will to address soaring interest payments.

The U.S. is officially spending more in interest ($1.25T) than on defense ($1.2T).

Absent a lot of growth - or miracle fiscal discipline - this could become a reflexive doom loop. Think slow-moving wreck, not sudden crash.

This is partly why interest payments have tripled in 5 years. We’re borrowing just to pay interest on money we spent a long time ago.

Things have gone horribly wrong if you’re opening new credit cards to pay the interest on old credit cards.

That’s right up there with using Buy Now, Pay Later apps for your chipotle burritos.

It’s mortgaging our future to keep the good times rolling.

Case in point, we went on a real bender this summer - $650 billion added to the bar tab since July 1st.

It took the US 200 years to reach its first $1 trillion in debt. It only took (checks notes) 95 days to add its last trillion.

Bessent’s response to tame spiking rates last week was to issue short-term debt to buy back long-term debt.

This is goofy.

Yields are ultimately anchored by Fed policy, risk and long-term inflation, not Treasury balance sheet shenanigans.

If we want lower yields, half measures won’t work. The $2 trillion deficit is the problem.

Bessent’s been in the news a lot lately. A week prior he was buying Japanese yen so Japan didn’t dump our bonds (which would have spiked rates).

That’s like buying American Express stock so they don’t cut up your card.

And this is Japan, the poster boy for shooting yourself in the foot via excessive debt.

You can’t make this stuff up.

Raising taxes to a degree that would actually move the needle likely stifles growth (rock meet hard place / see Japan).

Entitlement reform might do it, but voters have made their view pretty clear on this point:

Okay… so not a lot of great options left. Yet, the bond market is telling us we can’t borrow trillions each year with cheap financing forever.

Few in Washington will get the message.

The government has throw up their hands on attempting to fix this. They’ll probably give themselves a pass and blow through another debt ceiling next year.

At this point I think they’re just hoping AI will bail them out before things get out of hand.

Yes, we’re all hopeful for massive AI-boosted GDP growth. I assume it will help at some point.

But hoping isn’t the government’s main strategy. Neither the Treasury, the Fed nor Congress will ever admit to it, but their primary tactic is to just keep kicking the can down the road by deflating the currency.

So what shall we do? How do we insulate our families from fiscal stupidity?

Own hard, cash-flowing assets (ideally supply-constrained with pricing power).

Or we can just hope the gamblers running the nation’s balance sheet know how to binge drink without a hangover.

Brad Johnson

Evergreen Capital