Posthaste: America’s debt could come home to roost as early as 2028, warn strategists

Skip to Content News Archives Economy Defence Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Defence Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Defence Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeNewsPosthaste: America's debt could come home to roost as early as 2028, warn strategistsInterest rates exceeding growth could trigger debt spiralA classic trigger of a debt spiral is when interest rates on debt exceed an economy's nominal growth. Photo by Getty ImagesTHIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an Account“There’s no such thing as a free lunch.”That’s according to BofA Global Research after tallying up the rising costs of America’s debt.“Clients are concerned about U.S. fiscal deficit risks. We are too,” wrote the team of strategists led by Meghan Swiber.The federal deficit itself hasn’t changed much, closing the fiscal year 2026 at US$1.99 trillion or 6.2 per cent of gross domestic product, they said. That’s in line with consensus, but a fair ways from the White House’s goal of three per cent.This advertisement has not loaded yet, but your article continues below.It’s the interest on the nation’s debt that’s the real killer.Breaking business news, incisive views, must-reads and market signals. Weekdays by 9 a.m.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Posthaste will soon be in your inbox.We encountered an issue signing you up. Please try againAmerica’s annual interest bill has more than doubled since 2021 to more than US$1.2 trillion, and rising yields will only raise those costs.With 10-year Treasury yields currently 100 basis points higher than the Congressional Budget Office’s (CBO) February baseline, BofA calculates that interest costs could rise by roughly $4 trillion over the next 10 years. And every 100bp the Federal Reserve hikes adds another US$95 billion a year.“Even if primary deficits remain largely unchanged, the growing interest burden materially increases the government’s financing needs,” said the strategists.A classic trigger of a debt spiral is when interest rates on debt exceed an economy’s nominal growth, and according to the BofA team that could occur as early as 2028.“At today’s interest rate levels, r could surpass g in just a few years. That makes the fiscal backdrop much worse than the CBO expected in February.”So far nominal growth, supported by inflation and the surge in artificial intelligence investment, is running well above 4 per cent, but the strategists say both of these forces could be temporary unless AI adoption delivers substantial productivity gains.This advertisement has not loaded yet, but your article continues below.If that happens, worries about fiscal sustainability would ease, “even so, we believe it is optimistic to assume the United States can simply grow its way out of its mounting debt burden,” they said.At the same time as AI demands more capital, the global savings glut appears to be diminishing, said the strategists. As debt-to-GDP climbs even higher, investors will demand higher compensation for holding Treasury securities.“Together, these forces suggest that fiscal deficits could become a more important driver of higher-for-longer interest rates than they have been in the past,” they said.The United States Treasury can use bills and buybacks to reduce costs, but both would depend on a favourable yield curve.The bottom line, according to the strategists, is that higher interest rates are turning the U.S. deficit into a bigger financing problem.“As elevated yields feed through to the debt stock, interest expense compounds, financing needs rise and the fiscal trajectory becomes less sustainable,” they said.Sign up here to get Posthaste delivered straight to your inbox.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below. BMO Capital MarketsOwning a car in Canada is getting more expensive.Since 2021, the costs of buying and driving a vehicle have risen sharply, with gasoline climbing 56 per cent, repairs 28 per cent, insurance 24 per cent and purchases 18 per cent, said Sal Guatieri, a senior economist at BMO Capital Markets.Buying the actual car was the only expense that has moderated in this past year, rising just 2.1 per cent while fuel shot up almost 28 per cent and insurance rose 5 per cent.The costs of public transport, on the other hand, have risen much more slowly, he said. Since 2021, taxi fares are up 8 per cent and bus and subway fares just 4 per cent. All of these have declined in the past year.Earnings: PrairieSky Royalty Ltd., Celestica Inc., Verizon Communications Inc.Cancelling a credit card so you’ll stop using it is an understandable step, but closing the account to new purchases does not cancel the balance you owe. Credit counsellor Mary Castillo says to move forward, it helps to focus on three things: understanding your remaining payment obligations; moving the recurring payments to another account and creating a repayment plan that fits your budget. Read on to find out more.This advertisement has not loaded yet, but your article continues below.Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on one of the country’s most important sectors.Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).McLister on mortgagesWant to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.Financial Post on YouTubeVisit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff and Bloomberg.Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com.Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters hereThis advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.