Debt, inflation and yields.

The U.S. is closing in on $40 trillion in debt, and the pace this month is worth a special mention. Please take a look at the top chart below: as of July 1, 2026, total debt was $39.39Tn. By July 30th, it was $39.84Tn. That’s roughly $452 billion added in just 29 days, about $15.6 billion per day. Interestingly, the debt actually ticked down slightly in the first week of July before accelerating sharply in the back half of the month. Let’s do an exercise that probably has little value in itself, mostly because we will likely be short va reality. Let’s project this pace into the future. If that same daily pace (~$15.6B/day) holds for the rest of the year, total public debt would land around $42.2 trillion by December 31, 2026, an increase of roughly $2.85 trillion for the full year. And for June 30th 2027, it will be roughly $45Tn, of the trend continues. Now, that’s a linear extrapolation, and if you look at the bottom chart below, IS debt is following an exponential curve. In other words, the pace will accelerate. The chart tells it well: debt stayed under $8T for the first ~230 years of U.S. history, then roughly quintupled in the ~18 years since the 2008 financial crisis. When you look at the long end of the U.S. curve, this is the reason why yields are going up. More debt begets more liquidity, which begets inflation, which diminishes the value of the U.S. dollar, which forces investors to demand. More compensation on the bonds; hence higher yields. How can the Fed hike rates in this context? And more importantly, what happens to the world economy if they do?

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