US DEBT CROSSES $40 TRILLION FOR THE FIRST TIME

🔴 US total debt just crossed $40 trillion for the first time.

Fortune reports that two of Wall Street's most-read economists looked at that milestone in the same week and reached the same conclusion from opposite directions: Washington will not fix the deficit, so the bond market will.

First, the number behind the number. Roughly $7.8 trillion of that $40T is money the government owes its own trust funds. The measure economists watch is debt held by the public, which J.P. Morgan projects ends this fiscal year at $32.3 trillion — 100.5% of GDP.

In fiscal 2000 that ratio was 34.7%, and the federal government ran a $236 billion surplus.

J.P. Morgan's David Kelly traces the reversal to four things: tax cuts, wars, an aging population and crisis spending. Add them up and it's $32.7 trillion before interest costs.

Apollo's Torsten Slok points forward. Since 2006 gross federal debt has grown $32 trillion while nominal GDP grew $19 trillion. CBO projects debt held by the public climbing from 100% toward 175% of GDP. OMB sees deficits near 5% of GDP, against a current run rate closer to 6% — in a fully employed economy.

📈 Kelly's evidence that this is a supply problem, not an inflation problem: 10-year yields are up 0.51 points since January, TIPS yields up 0.44. That leaves 0.07 points for inflation fear.

Stanley Druckenmiller, per Fortune, went further in a WSJ op-ed, calling the long Treasury yield "the only fiscal disciplinarian the U.S. has left" after Treasury doubled long-dated buybacks from $2 billion to at least $4 billion per operation on Aug. 19, right after the 30-year hit a 19-year high.

Does a 5% long bond change how you'd invest, or is that just a number on a screen?

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