Ron Insana: The U.S deficit is on the rise, but Treasurys are holding up. Here’s why

Published Thu, Apr 4 20243:25 PM EDT

There have been growing concerns around America's annual federal budget deficits and growing debt – and it's understandable. The annual deficits in fiscal 2023 hit $1.7 trillion , and the Congressional Budget Office projects the deficit to total $1.6 trillion in fiscal 2024. At the same time, the national debt has topped $34 trillion . There appears to be a growing worry that at some point the U.S. will have trouble servicing the national debt. Indeed, the U.S. national debt is rising by $1 trillion every 100 days, according to a Feb. 29 note from Bank of America. The precipitous rise in official interest rates, engineered by the Federal Reserve in a post-pandemic economy, will raise the nation's debt service burden in the 2024 fiscal year to $870 billion, according to projections from the CBO. This comes at a time when the federal budget continues to rise as President Joe Biden's proposed budget for the 2025 fiscal year calls for spending of $7.3 trillion . If the proposal were to pass intact, the budget deficit would reach $1.8 trillion that fiscal year, according to the White House 's forecast. The nation's debt has ballooned in recent years owing to former President Donald Trump's 2017 Tax Cuts and Jobs Act, massive spending to fight the ill-effects of the pandemic – undertaken by both Trump and Biden – and by additional fiscal stimulus passed by the current occupant of the White House. A higher debt-to-GDP ratio Taken together, America's debt-to-GDP ratio has risen to 121.6% in the fourth quarter of 2023, according to the St. Louis Federal Reserve . That's down a bit from when it hit 132.9% at the very depths of the pandemic during the second quarter of 2020. While the number is eye-popping, it is not the largest disparity between debt and GDP in the world. China's debt-to-GDP ratio is nearly 288% . Consider all the debt the Beijing is responsible for, including its federal and municipal debts, as well as those of state-owned enterprises. Japan's debt-to-GDP ratio was 255% in 2023, according to data from the International Monetary Fund . Other countries have similarly large ratios but are smaller players on the global stage. What I find most interesting is that while all the chatter about debt and deficits points to problems, or future issues in the U.S. funding and servicing its heavy debt load, few talk about the burden facing two of the other largest economies on the planet. They have ample economic issues that could make them even more vulnerable to a funding crisis than the U.S. No real signs of strain for U.S. Treasurys I also find it quite telling that the U.S. Treasury market is not showing signs of strain amid all that concern. The yield on the 10-year Treasury note is currently around 4.3%. Though the rate on the benchmark note has been rising year to date, it's still off from when it surpassed 5% last October. It's true that bond yields in other heavily indebted countries are lower, but that's owing to much slower growth rather than the U.S. paying a significant premium to borrow money. Faster growth in the U.S., in both absolute and relative terms, has put a floor under bond yields. Given current concerns about the risk of inflation reaccelerating, or the Fed delaying expected interest rate cuts, the U.S. bond market is behaving surprisingly well. That's especially the case when considering all of the handwringing over U.S. debt and deficits. It is true that heavy issuance of U.S. bills, notes and bonds may have pushed rates up a bit, but they tend to drop back down after the Treasury finishes selling a pile of debt. This is not to say that I am unconcerned about the budget process in the U.S. or the unwillingness of our elected representatives to address the yawning budget gaps and the massive unfunded liabilities of the federal government. There needs to be a rational, bipartisan effort to rein in spending, narrow the gap between revenues and expenditures and carefully reform entitlement programs to ensure their viability for future generations. At some time in the future, there will be a day of reckoning for dealing with rising debts and deficits among heavily indebted nations. They key question though, in a world awash in debt, is who must pay the piper first? My guess is that the U.S. won't be first country to suffer a funding crisis. In fact, perversely, it may actually be the beneficiary of one as the world rushes to the relative safety of U.S. debt amid funding crises overseas. Hope springs eternal. One must hope that our funding capabilities are eternal as well. — CNBC contributor Ron Insana is CEO of iFi AI, an artificial intelligence fintech firm.