US National Debt Nears $40 Trillion as Financial System Shows Strain

The US national debt is approaching $40 trillion and warning signs are becoming harder to ignore. Home sellers are cutting prices, long-term Treasury yields are pushing into uncharted territory, foreign governments are trimming their holdings, and central banks are buying gold at a record pace.

These developments indicate that the financial system is showing strain, which could eventually lead to a crisis. The warning signs are not as dramatic as an imminent economic collapse, but rather a slow build-up of pressure that can quickly escalate into chaos.

The housing market is one area where warning signs are evident. More than 40% of homes currently on the market have already taken price reductions from their original asking prices. This is above normal levels and indicates that buyers are resisting current prices, forcing sellers to adjust.

Price reductions in the housing market tend to happen before closed-sale statistics do, which means that official data may not accurately reflect the true state of the market. Existing-home sales have already dropped 1.7% in July, while the median sale price remains at a record $434,100 and mortgage rates hover around 6.7%. This combination is straining the market.

The bond market is also sending warning signals. The US recently sold 30-year government bonds at a yield of about 5.22%, the highest borrowing cost at a 30-year Treasury auction since 2001. Long-term yields have continued to climb, pushing the 30-year yield to roughly 5.29% on August 17.

This trend has significant implications for the US national debt, which is approaching $40 trillion. With higher interest rates, refinancing existing debt becomes more expensive, and future taxpayers will bear the burden of these increased costs.