The US govt debt crisis is getting UNREAL

This won’t end well

A thread 🧵

13/ With projections showing a possible 50% increase in debt-to-GDP over the next 10-15 years

We could see a 2% rise in long-term interest rates, pushing rates to around 7%

This could lead to a severe valuation correction in the stock market

12/ Higher debt often leads to higher interest rates as investors demand more return for increased risk

A 1% rise in the debt-to-GDP ratio typically increase rates by 0.04%, based on academic research

11/ With debt forecasts trending higher for the coming decades

Interest rates face upside risks in the long-term

10/ The inverted chart of valuations reveals a strong positive correlation with interest rates

Currently, at 4.6%, rates aren't a worry for the market

However, crossing the 5% threshold starts to spell trouble for valuations

9/ Despite US economic growth slowing, the market remains near ATH

Why? A key factor has been the falling interest rate trend over the last 40 years

Historically, as rates fall, market valuations expand

8/ This shows us the strong correlation between rising debt and slowing growth

And in our opinion, is a major concern for the future of US economic growth

7/ Looking back, US economic growth has steadily declined since the 1970s

The average 20-year real growth has halved from 4% to about 2%

6/ High debt levels typically slow down economic growth

With a debt-to-GDP ratio above 90%, growth slows to below 2%

A big contrast to the 4% growth when the ratio is below 30%