Fiscal Dominance
Fiscal dominance 4 of 14: net interest takes 19.6% of federal receipts
The fiscal dominance traffic light scores 4 of 14 (low dominance). Net interest takes 19.6% of federal receipts over the 12 months to Aug 2026 (above the 1991 record of 18.4%); red: net interest / receipts; amber: GFN / GDP, bills share.
The snowball condition is off: the average rate on marketable debt (3.52%) is 2.1pp below 3-year average nominal growth (5.6%), and debt held by the public is 99.6% of GDP.
In the rollover engine (CBO primary deficit of 2.7% of GDP, 4% nominal growth), refinancing at today's 10Y (5.21%) pushes interest above 20% of receipts in 1 year and turns the snowball on in 2 years; the highest sustained rate that keeps interest under 20% of receipts for 10 years is 3.00% (3.75% with a balanced primary budget).
For gold this is the structural bull case (the escape valve is inflationary); criterion C4 of the gold bull thesis reads a fall of 3 points or more in 12 months as evidence against it, and the score moved +0 over the last 12 months.
Traffic light today
Score 0 green / 1 amber / 2 red per indicator; total 4 of 14 (0-4 green, 5-9 amber, 10-14 red). There is no standard fiscal dominance index in the literature: this is the notebook's own construction, after the aggregation of the IMF Medium-Term Index (SRDSF).
| Indicator | Value | Green | Amber | Red | Score | State |
|---|---|---|---|---|---|---|
| Avg rate - g (pp, g 3y avg) | -2.10 | < -1 | -1 to 0 | > 0 | 0 | GREEN |
| Net interest / receipts (12m, %) | 19.56 | < 14 | 14-18.4 | > 18.4 | 2 | RED |
| Real net interest / GDP (%) | -0.47 | < 1 | 1-2 | > 2 | 0 | GREEN |
| Debt held by the public / GDP (%) | 99.64 | < 120 | 120-175 | > 175 | 0 | GREEN |
| GFN / GDP (12m, %), see note | 38.10 | trend | trend | trend | 1 | AMBER |
| Bills share of marketable (%) | 22.36 | 15-20 | 20-25 | > 25 | 1 | AMBER |
| 10Y bid-to-cover (10y percentile) | 91.06 | > 25 | 10-25 | < 10 | 0 | GREEN |
Real net interest subtracts the inflation erosion of the debt (Furman-Summers: i·B − π·B); it can turn negative when inflation is high, which is the inflationary escape valve already at work. US GFN/GDP (~35-40%) sits structurally above the IMF emerging-market threshold (20%) because of the weight of bills and the reserve-currency privilege, so it is watched as a trend and scored 1.
Score history
The same thresholds each month for the indicators with history; GFN fixed at 1. Starts when every input exists (Treasury MTS from 2015).
Uses today's revised data, not what was known at each date (quarterly GDP is forward-filled from the start of the quarter).
Average rate on debt vs nominal growth
While the average rate is below nominal growth, (r − g)·b works in favor and debt only grows with the primary deficit.
Net interest / federal receipts
The indicator that bites politically first. Treasury MTS, 12-month sums.
Debt held by the public / GDP
Treasury Debt to the Penny (monthly mean) over nominal GDP (FRED, forward-filled). 175% is the Penn Wharton plausible limit.
Gross issuance vs redemptions
The refinancing machine: auction issuance by class since June 2023 and marketable redemptions from the Daily Treasury Statement since 2024.
Auction bid-to-cover
Nominal 10Y and 30Y auctions. The last four 10Y auctions average at the 91th percentile of the last 10 years.
Term premium and convenience yield
Early-warning signals of a break: the term premium rising and the convenience yield (Moody's AAA minus the 10Y) falling.
Years until each breaking point
If the Treasury refinances everything at the sustained rate with the CBO baseline primary deficit (2.7% of GDP), the threshold breaks in this many years. >30 = holds beyond the horizon. Debt profile: MSPD of Sep 2026.
| Snowball (avg rate > g) | Interest/receipts > 20% | Interest/receipts > 25% (CBO 2036) | Debt/GDP > 120% | Debt/GDP > 175% (PWBM) | |
|---|---|---|---|---|---|
| Sustained refinancing rate | |||||
| 3.0% | >30 | 13 | >30 | 13 | >30 |
| 3.5% | >30 | 4 | 16 | 11 | >30 |
| 4.0% | 26 | 2 | 8 | 9 | 30 |
| 4.5% | 4 | 2 | 5 | 8 | 25 |
| 5.0% | 2 | 1 | 4 | 8 | 22 |
| 5.5% | 2 | 1 | 3 | 7 | 19 |
| 6.0% | 2 | 1 | 3 | 7 | 17 |
| 7.0% | 1 | 1 | 2 | 6 | 15 |
| 8.0% | 1 | 1 | 2 | 5 | 13 |
Simplified CBO method: annual buckets of maturities from the MSPD, bills and FRN repriced every year, new debt split by tenor with TBAC-like weights, flat curve, TIPS as nominals plus 2% inflation, Fed remittances ignored, 4% nominal growth and receipts at 17.3% of GDP.
Resistance frontier
Years until each threshold breaks against the sustained refinancing rate (30 = holds beyond the horizon).
Pass-through of market rates to the average rate
About 35% of the stock reprices within 12 months, so the maturity cushion buys a few years, not immunity.
Checks: +1pp sustained adds $3.59T of debt at 10 years (CBO/CRFB rule: about $3-3.5T); the largest gap against the geometric pass-through approximation is 0.44pp; the model average rate is 3.20% vs 3.52% from the Treasury.
r*: highest sustainable refinancing rate
Highest sustained rate (grid from 9% down to 3% in 0.25pp steps) that crosses neither interest/receipts > 20% nor debt/GDP > 175% before the horizon. — = no rate on the grid holds.
No feedback
| 10 years | 20 years | 30 years | |
|---|---|---|---|
| CBO baseline (deficit 2.7%) | 3.00% | 2.75% | — |
| Balanced primary (0%) | 3.75% | 3.75% | 3.75% |
| Primary surplus +1% | 4.00% | 4.00% | 4.00% |
| Primary surplus +2% (1990s) | 4.25% | 4.25% | 4.25% |
Debt-to-rates feedback (Laubach, +3.5bp per pp of debt/GDP)
| 10 years | 20 years | 30 years | |
|---|---|---|---|
| CBO baseline (deficit 2.7%) | — | — | — |
| Balanced primary (0%) | 3.75% | 3.75% | 3.75% |
| Primary surplus +1% | 4.00% | 4.00% | 4.00% |
| Primary surplus +2% (1990s) | 4.25% | 4.25% | 4.25% |
The binding constraint is the flow (interest/receipts), not the stock: in steady state interest/receipts = r·b / 17.3%, so with b near 100% the 20% line is crossed with an average rate around 3.5%, before debt dynamics turn explosive.
Debt/GDP trajectories
Debt held by the public under sustained market rates with the CBO baseline primary deficit.