When investors stop buying government bonds, the central bank is forced to print money to cover the debt. The market anticipates this, triggering a self-fulfilling prophecy of high inflation, which effectively devalues the debt and impoverishes citizens.
These two financial indicators moving in tandem are the key signal that capital is actively fleeing the United States. A rise in bond rates or a fall in the dollar individually can have other causes, but together they point to a fundamental loss of confidence.
MMT lacks the transparent, systematic framework of traditional economics. Instead of relying on models or testable hypotheses, its conclusions on debt and inflation are delivered as pronouncements from a small circle of proponents whose judgments change without a clear, replicable process.
There is no universal debt-to-GDP ratio that triggers a crisis. The actual tipping point occurs when investors collectively lose faith and stop buying bonds. This moment is driven by human psychology and expectations, making it impossible to predict with a formula and susceptible to a sudden stampede for the exits.
While taxing billionaires is popular and necessary, it alone cannot solve the national debt problem. A serious austerity plan requires raising taxes broadly, including on the middle and upper-middle class, to generate sufficient revenue. This is a political third rail that both parties avoid.
While being the world's reserve currency provides a buffer against debt crises, it also enables U.S. leaders to push fiscal limits further than other nations could. This cushion means that if confidence does eventually break, the resulting collapse will be far more catastrophic for both the U.S. and the global economy.
During the era of near-zero interest rates, the U.S. failed to extend the average maturity of its debt, which stands at a very short 4.3 years. This was a significant strategic error, as it left the country's finances highly exposed to the recent surge in interest rates, dramatically increasing rollover costs.