(The Wall Street Journal, Spencer Jakab, March 25, 2026)
There is never a good time for a war, but some are worse than others. While investors were focused on attacks on Middle Eastern energy infrastructure, another economic fact went almost unnoticed: the United States gross federal debt has just surpassed $39 trillion. The next milestone could be reached in record time, and the bond market may no longer appear bulletproof once the smoke clears.
America is called a superpower for its military strength. Another area where the United States has always been in a class of its own is the ability to accumulate large deficits during geopolitical or economic crises. The world has regularly responded by buying Treasury debt at lower yields thanks to its safe-haven status. The only exception occurred when the event was accompanied by an energy shock, as today.
The war bill arrives just as the fiscal effects of last year’s “One Big Beautiful Bill Act” come fully into play. The Pentagon has requested an additional $200 billion, and the government may have to repay over $130 billion for invalidated tariffs. Just last month, the Congressional Budget Office forecasted a deficit of $1.85 trillion, equal to 5.8% of GDP, already very high outside of a recession. Six weeks after that forecast, it already seems too optimistic. The jump in financing costs will further increase the interest bill, already close to a trillion dollars a year.
Spencer Jakab on Federal Debt.
“The United States gross federal debt has just surpassed $39 trillion. The next round number could be reached in record time, and the bond market may no longer appear bulletproof once the smoke clears.”
Spencer Jakab on the Energy Shock and Yields.
“Ten-year Treasury yields have risen from under 4% before the war to nearly 4.4% before Monday morning’s ‘TACO’ rally. The flood of red ink in Washington may have played a role in this jump in yields, and that is concerning.”
Spencer Jakab on the Cost of War.
“The war bill arrives just as the fiscal effects of last year’s ‘One Big Beautiful Bill Act’ come fully into play. The Pentagon has requested an additional $200 billion, and the government may have to repay over $130 billion for invalidated tariffs. The Congressional Budget Office forecasted a deficit of $1.85 trillion, equal to 5.8% of GDP. Six weeks after that forecast, it already seems too optimistic.”
Spencer Jakab on the Critical Moment.
“When does it become important for investors? There really isn’t a number beyond which federal debt suddenly appears unsustainable. Any sober analysis today foresees a judgment day. With the war having direct and indirect costs much higher than the White House imagined, including bond market jitters, ending it unconvincingly could be the moment future economic historians point to as a turning point.”
Spencer Jakab on the Final Lesson.
“America is showing the limits of both its portfolio and its military strength. This war could cost much more than government accountants imagine.”
(Excerpt from the newsletter by Giuseppe Liturri)
