This government is in fiscal disarray and faces a difficult road ahead. Our debt/GDP At around 120%, emerging market levels in crisis, the U.S. dollar remains the primary reserve currency and trading currency, as well as the importance and relative stability of our economies and financial markets.

Our government continues to run huge deficits—the kind of deficits you might encounter during a recession or a war, not during a period of gross domestic product expansion. Our national debt interest payments now exceed defense spending. As historian Niall Ferguson said in his eponymous book Ferguson’s Law, “Any great power that spends more on debt servicing than on defense is likely to cease to be a great power.”

Given that higher interest rates lead to higher debt service costs and that the amount of our financed debt is increasing, with trillions of dollars of debt that will need to be refinanced this year, the President Donald Trump You are right to worry about interest rates.

But there is no free lunch.

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Former Federal Reserve Governor Kevin Warsh speaks during the Spring Meetings of the International Monetary Fund and World Bank at the International Monetary Fund Headquarters in Washington, DC, on Friday, April 25, 2025. (Tierney L. Cross/Bloomberg via Getty Images)

Although the Fed lowered its target interest rate, this is more directly related to interest rates at the short end of the yield curve (i.e., short-term Treasury bills). The market controls the long end of the curve (i.e., longer maturities such as the 10-year, 20-year, and 30-year bonds). We’ve seen these yields continue to remain elevated.

Eventually, some form of yield curve control (measures to pull down long-term bond yields) may be needed. If we continue to see interest payments rise, that will lead to larger deficits. That means more debt financing, which will push yields higher, making interest more expensive again and creating a debt spiral until U.S. and global bond markets are in disarray.

But, as we’ve seen with Fed intervention and government overspending, this comes at a cost. Fed intervention. The price paid may continue to inflate the asset (nominally). While we need to do this because falling stock and home values ​​over time can directly and indirectly lead to lower government revenues (aka taxes), it can have the same effect on rising deficits and exploding debt costs. This again means that some action will be taken.

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That’s why it doesn’t matter whether the Fed chairman named Kevin Warsh is a hawk (prefers tighter Fed policy) or a dovish (prefers looser monetary policy). Our fiscal situation and basic math will force him and the Fed to intervene in the markets and lower interest rates in some way.

The cost of keeping our fiscal institutions united Inflation may occur. This will continue to erode the purchasing power of the dollar and exacerbate divisions between the rich and middle-class Americans.

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but Intervention is only a temporary solution. It buys time, but doesn’t solve the problem.

Unless government spending is reduced, not just by lowering interest payments but by reducing spending across all categories, the increase is so large that in either case, deficit eliminatedthe core problem has not disappeared. It’s only blocked for a short time and then we’re stuck in the same situation again.

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Our government continues to run huge deficits—the kind of deficits you might encounter during a recession or a war, not during a period of gross domestic product expansion.

And, if you’re familiar with Congress, neither major party seems to have any political will Spend within actual budget.

So, yes, interest rates are an issue, as is government spending. Wash will be forced to help, whether he wants to or not, and there will be a price to pay.

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