jenga

[ergophobe]

Jenga comes to mind.

The bottom of the tower is getting more and more sketchy as government debt grows and as more and more of it is held by hedge funds. Those two things combined make things really fragile if we have a crisis and need government intervention like during the pandemic or the housing crash.

At a certain point, the government doesn't have adequate credit to respond in the way it has to every economic crisis since the Great Depression (and as it eventually did respond to the Depression once FDR took office).

MALONE: Puts our fiscal finances at risk because other people hold our debt. We don't generally control who. And we're kind of subject to their whims. Like, for example, we don't get to pick how much we pay in interest. They decide. And if they all suddenly stop liking us and sold all the Treasuries they had, well, we would have a big problem.

CHILDS: And this is something that Daleep and a lot of other economists and regulators and policymakers and academics, they have all been talking about this. It's a whole debate. Some people are pretty worried because in recent years, someone less predictable has been buying up more and more of our trusted IOUs, our Treasuries. And that someone is hedge funds.

https://www.npr.org/transcripts/nx-s1-5565181

Short version - the US Treasury is such a reliable debtor, that people all over the world want to hold their debt in return for pretty modest interest. If they get cold feet or if hedge funds dump a lot of that debt, the Treasury has to increase interest rates in order to attract lenders. If that goes from 4% to 6%, then the debt service goes from being slightly more costly than all military spending combined, to being vastly more expensive than the most expensive military on the planet. At that point, things start to unravel and the government might lose its ability to respond in a crisis.

Basically the same as if you start paying your mortgage with a cash advance on your credit card and it's going okay until your car breaks down and you don't have enough credit limit left to repair the car and you lose your job then your house. That level of extension is fragile.

People often say that we are "borrowing from our children" but it's not really true. The composition of the US debt is

 - 22% T Bills with terms of less than one year.
 - 50% is in T Notes with terms of less than 10 years

In other words 72% of debt is payable within 10 years. The average term on US debt is 71 months, AKA six years.
https://www.jec.senate.gov/public/index.cfm/republicans/debt-dashboard

We are NOT borrowing from our children. This is not a can we've kicked 30 years down the road like a mortgage with predictable interest rates for the long-term and that our kids will inherit.

One fifth of this can has been kicked only into next year like credit card debt. Literally over 25% of our debt (all Bills, more than 10% of Notes and some Bonds) has to be paid off in 2026. It will get paid off by taking out loans (new Bills and Notes and Bonds) to pay it and that new debt will be at prevailing interest rates. So if investors lose faith and need to be cajoled into taking US debt, our debt gets vastly more expensive in a year even if we don't continue to borrow.

It's like climate change in that respect except in the case of climate change it is a certainty that CO2 in the atmosphere will continue to warm the planet even if we cut all emissions tomorrow. With government debt, it's more a question of the story people tell about that debt, which means the calculations are much more volatile and unpredictable than climate calcs. But fundamentally it's a similar princple.

This means that just a few shocks to the market for Bill and Notes, some dumping by hedge funds and things *might* spin out of control depending on the story people tell.

The good news there is that one of the savviest and most careful investors in history is apparently not worried about T Bills having an issue any time soon. Buffet's story is that T Bills are a safe haven when the stock market is overvalued.

Inside Buffett's Strategy: Berkshire Hathaway Owns More Treasury Bills Than the Federal Reserve
https://www.investopedia.com/inside-buffett-s-strategy-berkshire-hathaway-owns-more-treasury-bills-than-the-federal-reserve-11850030

When we have discussions about Crystal Ball - AI Bubble, I really feel like thinking 1-2 years ahead, I have absolutely no idea. I think it is unlikely that the jenga tower will fall over in 2026. It might wobble, but I doubt it will collapse.

But when I look at these huge structural issues and the deadlocks in American politics, I don't see how current trends can go 10 more years which is nerve wracking for those of us who are early in our retirement at that point - on the one hand our main working/earning years are behind us. On the other we need our savings to last a long time. So the idea of a huge shock in the 5-10 year time frame is pretty concerning.

[rcjordan]

US job openings decline more than expected in November | Reuters

https://www.reuters.com/business/us-job-openings-decline-more-than-expected-november-2026-01-07/?link_source=ta_bluesky_link