Ten years ago, I began charting the implications of rising US debt and interest rates. The first chart I put together in 2016 contemplated what would happen if falling interest rates ever stopped falling in the midst of increasing debt levels.

By the time I started posting these, it wasn’t a hypothetical any more.  From Inflation Games in 2019:

Little did we know that rates would fall even further in 2020 due to the pandemic. Here in 2026, the drop seems almost insignificant as rising rates, debt levels and interest expense subsequently went vertical.

Taking two very mild CBO forecasts into account, the 2036 picture looks bleak.

Another way of looking at the problem of rising rates and increasing levels of debt: the share of the federal budget consumed by interest expense.

Interestingly, interest rate increases in this scenario are no longer the problem. The problem is the rising debt, required in order to pay the interest on the very same rising debt. It’s a problem that every consumer who ever took a cash advance from VISA to pay their AMEX bill can appreciate.

If there’s a canary in this particular coal mine, it’s probably the falloff in official foreign ownership of US treasuries.  As Bloomberg pointed out yesterday, US-friendly nation slashed their ownership by 60% as of August 2026.

Countries and regions most aligned with the US bought a net $174.3 billion of Treasuries, excluding bills, in the first eight months of 2026, according to an analysis of Treasury and State Department data. That was the lowest for the period since 2021 and down more than 60% from a year earlier.

The shift is noteworthy in Asia, where economies running large surpluses are putting less of that money into US debt. Japan, the biggest foreign holder of Treasuries, bought just $389 million in the first eight months — down 99% from a year earlier. South Korea sold $23.8 billion, the most for the period in records going back to 1977. Taiwan was also a net seller.

While past dips in foreign ownership was attributable to countries defending their currencies, the latest has come amid US dollar weakness. Some countries have diversified into gold, driving holdings to $4 trillion, exceeding US treasuries ($3.9 trillion) for the first time in 30 years. Others have moved their treasury holdings from the NY Fed to Euroclear in Brussels, beyond US reach. But, a significant share represents net selling by foreign central banks in the wake of Trump’s tariffs and, just maybe, their justifiable concerns about the explosion in US debt.

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Futures are off sharply this morning.

continuing…

Lots of economic data out this morning…

The PCE price index increased at 0.5% MoM and 3.6% YoY.  Excluding food and energy: 0.3% and 3.1%. GDP grew at 3.4% and consumer spending grew 3.8% in the third quarter. All in all, the data calls into question yesterday’s Fed decision to sit on its hands.

Meanwhile…

GOOGL and CAT are both weighing on the futures.

Stay tuned…

Pretty much according to script except for the two dissents calling for a rate hike.

Futures are backtesting the SMA10, which has now passed below the SMA50 in addition to the SMA20. It’s normally a clear sign of an impending downturn. With tomorrow’s FOMC decision expected to be a non-event and the midterms just one week away, this is likely the calm before the storm.

WTI futures are similarly pausing after news of a diplomatic sit down involving Iran, Saudi Arabia, Turkey and Pakistan.

DXY continues to firm ahead of tomorrow’s FOMC decision. It will be interesting to watch Warsh repeatedly deny that the Fed is pausing another rate hike for political purposes.

As we’ve discussed in the past, the Trump administration obviously wants a smooth next week with all-time highs in the stock market to engender the kind of warm and fuzzies that will enable Republicans to retain control of Congress. This means a pause in the war on Iran, followed by an all-out, punishing blitzkrieg as soon as the midterms have passed.

Iran, which has maintained effective economic pressure through higher oil/gas prices, would rather not be annihilated by an angry, vengeful Trump who will most certainly blame them (and virtually everyone but himself) for his party’s losses. So, it makes sense that Iran would quickly pivot to a less combative stance that appeals to their regional counterparts.

Of course, a renewed assault on Iran, in itself, would put upward pressure on oil prices – increasing the war’s economic fallout all the same. Trump, never one to let peace, harmony and economic propserity get in the way of his lust for revenge, would thus ensure a worsening of the stagflation the US has been flirting with since he was reelected.

Warsh et al can do little but sit back and hope that the economy won’t be broken by this prolonged inflationary spike. It’s hardly transitory any more.

Tomorrow’s charts will be posted after the Fed press conference and potentially after the close.

GLTA

Futures are modestly higher in the final week before the midterms.

Futures are off sharply on AI fears and increased attacks in Saudi Arabia that are keeping the pressure on oil prices.

The 10Y is off a bit, but not for “good” reasons.

UPDATE: 4:00PM

Hmm…I wonder who might be trying to keep a $100 lid on WTI?

The struggle to maintain the narrative continues.  The administration is doing a good job of keeping oil prices below $100/bbl…so far.

It hasn’t been easy, as the situation in the Middle East is far from resolved, with reports indicating that Trump will unleash hell after the midterms.

As hard as the Iranisns are pushing to get oil back over $100, Trump et al are working to get it back down. You can see it in the daily volatility with prices being hammered after the close every day.

The same thing is happening with stocks, with most bounces coming during the low-volume after hours.

Futures are up moderately, backtesting the SMA50 following last week’s tumble.

Futures are modestly higher following yesterday’s roller coaster market action. Early weakness was offset…

…by aggressive VIX action as the day went on.  VIX almost kissed its SMA200…

…and the TL from Jun 9 before being hammered.

CL also came under selling pressure that really only amounted to avoiding another higher high.

While TNX made a more definitive pullback from its 1.272 extension.

Warsh spoke at an IMF meeting in Bangkok, promising to tame inflation but not shedding any new light on the Fed’s plans for its Oct 27-28 meeting even though yesterday’s PPI print was quite concerning.

GLTA