Dr. Mark Thornton: The Bond Market Is Flashing a Warning Nobody in Washington Wants to Fix

Thornton links roughly $40.2 trillion in federal debt and annual deficits of $2 trillion, or 6% of GDP, to rising borrowing costs and compounding federal interest payments, which he says now exceed $1 trillion. He argues that if higher rates lead the Fed to buy government debt with newly created money, that could add further inflationary pressure.

Thornton argues that government borrowing competes with entrepreneurs for savings that could fund businesses, equipment, software, and expansion in fields such as AI, oil, and the electrical grid. He says private investment that raises productivity can support labor demand and wage growth, while shifting resources from government to the private sector could increase goods and services and reduce price inflation.

Thornton says credit expansion and deficit spending can push up stocks, bonds, land, and real estate, benefiting existing asset holders while leaving many people with few assets or net debt behind. He also describes a long-running stock-market boom dating back to 2009, despite setbacks.

Thornton estimates that home prices have risen roughly 300% to 400% over a long period, and argues that credit- and deficit-driven increases in real estate prices have benefited existing asset holders. He says high mortgage rates and taxes further complicate home buying.