Why America’s $40T debt load is unlikely to cause a fiscal Armageddon

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Key points

• But go back a bit further, say to 2002, and both the 10 year and 30 year were trading in the same range.
• Interest rates on the 30-year bond are well above 5%, and those on the 10 year seemingly heading toward the dangerous 5% marker.
• And Uncle Sam now competes with Open AI, Anthropic and every tech firm involved in the AI rollout for financing.
• For the record, I'm no fan of deficits, particularly ones that run more than 100% of GDP.
• And yet, the debt at the time was just $6.41 trillion; we basically had a balanced budget.

If you're worrying regarding a pending fiscal Armageddon over the country's debt, it's time to waste your cortisol spikes on something else.

True, the country hit a couple of seemingly scary milestones this week that no one really wants to brag regarding: A total debt load of $40 trillion and interest rates spiking to levels not seen in two decades.

On its face, the debt situation appears pretty bad. The US can't stop spending (neither side, Democrats or Republicans, seem interested in entitlement reform) and buyers of our debt want a higher interest or risk premium "yield" to be compensated for administration profligacy.

Meanwhile, the higher yields suggests inflation is regarding to spike as well. Bonds are long term fixed income investments, meaning they obtain hit hardest when inflation eats away at their principle.

For context, the Iran war is stoking higher gas rates; Trump's tariff schemes don't assist. As one top bond investor informed me "Given what's going on, (the spike in yield) underestimates" the challenge.

For context, the doom and gloom scenario is that the US is facing a debt crisis, one that will spur crippling interest-rate hikes and a massive sell-off in stocks. But sources tell me that's unlikely.

For the record, I'm no fan of deficits, particularly ones that run more than 100% of GDP. In theory, there's only so much capital to go around. The individuals with the capital – foreign investors (a k a the Chinese), hedge funds, US pensions – can't keep buying our debt forever.

And Uncle Sam now competes with Open AI, Anthropic and every tech firm involved in the AI rollout for financing. There are other places to park your funds.

Meanwhile, who wants the Chinese to own so much of our debt and have the ability to press the sell button and send rates soaring?

By contrast, it's exactly since of AI and those investment options that our economy is humming along. The United States is still an innovator.

Plus I'm not convinced – and neither are my market sources, individuals like my "Risk and Return" podcast partner Bob Sloan of S3 Partners – that long yields are historically high.

They may be the highest since 2007. But go back a bit further, say to 2002, and both the 10 year and 30 year were trading in the same range.

Charlie Gasparino has his finger on the pulse of where business, politics and finance meet.

And yet, the debt at the time was just $6.41 trillion; we basically had a balanced budget. Our debt-to-GDP ratio was half of what it is today, around 57%. So bond yields then weren't an indicator of economic disaster.

Meanwhile, the Chinese could sell all their holdings of US treasuries, but they purchased them for a reason: The dollar is still the world's reserve currency. Selling them would cause massive losses, not just their holdings, but to world-wide markets, hurting Chinese export-driven economy.

Notably, the administration needs to produce smarter choices, that's certain. In the meantime, though, don't panic. A $40 trillion debt is nothing to crow regarding. But at the end of the day, it's a figure, not a harbinger.

For now, why America's $40T debt load is unlikely to cause a fiscal Armageddon remains the part of the story worth watching, and further updates are likely as more details are confirmed.