⚠️ The US Treasury is now in a state of interest rate captivity—

Interest payments already account for about 14% of federal spending, but the current yield on government bonds is only 3.7%.

What if it goes back to the 6% levels of the 1990s? The fiscal situation could blow up completely.

This is the so-called precursor to Fiscal Dominance: monetary policy is no longer independent, but has to revolve around fiscal sustainability.

The next new chairman, Hassett, advocates for rapid rate cuts, and the bond traders on Wall Street are getting extremely anxious.

Because in bond market logic, rapid rate cuts only mean one thing—the fiscal situation is unsustainable and the Fed is ready to give in.

Once this expectation takes hold, long-term interest rates will rise as the market demands higher yields to compensate for possible future inflation, money printing, and policy uncertainty.

We might see this particularly surreal scenario:

Short-term rates go down,
Long-term rates are pushed up by the market,
Fiscal pressure not only doesn't ease, but actually gets heavier.

We may be facing several years of a chaotic market!