Why US Fiscal Hawks Have Almost Disappeared From Politics

what happened

The Wall Street Journal reports that debt has nearly vanished from political advertising ahead of the US midterm elections. According to AdImpact, 140 ads mentioned debt or deficits during the 2018 midterms, while only 30 did this year, ranking 52nd among campaign topics.

The underlying problem has grown worse. For the fiscal year ended September 30, publicly held federal debt reached 100% of GDP for the first time in 80 years. The deficit came in just under $2 trillion, or 6.2% of GDP, the seventh straight year above 5%. Interest costs have more than doubled in four years and now exceed military spending. Recent Treasury yields climbed to 24-year highs, a sign of what could be at stake.

The article argues that fiscal hawks lost their influence, as voters ignored them, markets have not panicked, and governments in the US, France, Britain and Japan keep spending more. Social Security is projected to become insolvent in 2032.

why it matters

For markets, the link between the debt trajectory and government bond yields matters most. If investors demand higher risk premiums over inflation or fiscal concerns, borrowing costs, the dollar and equity sentiment could all be affected. This is an analytical piece and contains no price forecasts.

market impact

US Treasuries and the dollar: rising debt and deficits add pressure on bond prices and yields

tags

instruments