$40 Trillion Debt Bomb: US Market Reactions Mixed Amid Rising Interest Rates

The United States has reached a record high of $40 trillion in government debt, accounting for 126% of its gross domestic product. This is a stark contrast to New Zealand's debt level, which stands at 49% of GDP.

Peter Nicholl, a former Reserve Bank policymaker, notes that while the US has historically been seen as a strong economy, with the dollar being the world's main trading currency and many foreign reserves held in US government securities, this doesn't necessarily mean it is immune to market pressures. In fact, Nicholl argues that the gap between looking strong and panicky can be very narrow.

The US has taken no significant actions to reduce its debt level since 2016, when Donald Trump promised to eliminate the national debt within eight years. Despite this, interest rates on US government securities have been rising steadily, with a recent increase of 0.7% in just a few weeks.

Nicholl suggests that the market will ultimately decide whether the US's actions make it look strong or panicky. He notes that each time the Treasury takes measures to try and reduce pressure on long-term interest rates, the market reacts positively - at least initially. However, Nicholl expects this trend to end badly.