U.S. "Exorbitant Privilege" ended about a decade ago. . .

Robin Brooks, a senior fellow at the Brookings Institution, argues that U.S. fiscal policy is out of control, with the nation issuing debt at a rate of approximately 7% of GDP annually despite a healthy economy. 

 He contends that the U.S. “exorbitant privilege”—the ability to borrow cheaply as a global safe haven—ended about a decade ago, as markets now demand a premium for holding U.S. debt due to unchecked deficits. 

Brooks highlights three primary drivers for rising global long-term bond yields: the lingering effects of the global COVID debt binge, fiscal policy becoming unmoored with unusually wide non-crisis deficits, and elevated geopolitical risks increasing defense spending needs. 

 Although the U.S. currently benefits from being the “best of a bad bunch” relative to other major economies, Brooks warns that this dynamic masks a building risk premium and structural fragility in the Treasury market. 

He emphasizes that while short-term rates may fall due to recession fears, long-term yields are rising sharply, signaling a shift from a “good” to a “bad equilibrium” in debt sustainability.  

Brooks suggests that the current market stability is partly illusory, relying on a“best of a bad bunch” premium that could erode, potentially leading to a more severe debt crisis if fiscal discipline is not restored.  

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