The nation's unemployment rate as measured by the Labor Department vastly underrepresents the number of Americans actually out of work, hedge fund manager Kyle Bass told CNBC Wednesday.
Earlier this month, the government said the nation's unemployment rate fell to 6.1 percent in August, while job growth cooled with just 142,000 nonfarm payrolls added.
"Look at unemployment, the way it's calculated is it's semi-rigged," he argued in a "Squawk Box" interview. "It will trend down to the 5 percent range just because people stop looking for a job."
"If you take everyone that has dropped out of the workforce since the beginning of the financial crisis," he continued, "the unemployment number would be 11 percent."
That's one of the reasons the founder of Hayman Capital Management thinks concerns about borrowing costs going back to pre-financial crisis levels are unfounded.
Another reason? He said it would cost the U.S. government too much.
"If we were to go back to 'normal rates,' fed funds would be 4 percent, 4.25 percent. I don't think we can afford that. With every 100 basis points, it costs us fiscally about $150 billion in interest."
In other words, for every 1 percent increase in short-term interest rates, the federal government's cost of paying down debt would skyrocket.