Global Debt Crisis and Rising Interest Rates (October 2026)

United States: $2 Trillion Deficit and Interest Rate Spiral

These decisions were a response to the return of inflationary pressures, particularly in energy markets. The consequences were immediate: yields on U.S. Treasury bonds reached levels not seen in years. The 10-year U.S. bond exceeded 5.29% at the end of September — the highest since 2007 — while the 30-year bond reached 5.62%, a level not seen since 2002.

The U.S. federal deficit reached about $2 trillion in the first 11 months of fiscal year 2026. The CBO estimates that the annual deficit will be around $1.9 trillion, or about 5.8% of GDP. Even more concerning: public debt service costs will exceed $1 trillion in 2026.

Yields above 5% have a direct impact on the entire economy. Higher borrowing costs translate into mortgages, business financing, commercial real estate, and municipal loans. CBO analysis shows the sensitivity of the situation: if rates are 1 percentage point higher than forecast, U.S. public debt could reach 222% of GDP by 2056, compared to 175% in the baseline scenario.

Japan, Italy, and France: Debt Exceeding the Economy

The global debt crisis is not limited to America. Japan has public debt at 203–204% of GDP — the highest among major economies. The Bank of Japan faces a difficult choice: maintaining low rates risks weakening the yen and a return of inflation, but raising them increases the costs of refinancing its massive debt.

In Italy, debt stands at 138% of GDP with a deficit rate of 2.9% of GDP. France is in an even more difficult situation: debt at 118.5% of GDP, a deficit of 5.2%, and growth of only 0.6%. This combination of high debt, large structural deficit, weak growth, and rising refinancing costs makes France the most vulnerable in the eurozone.

China, Brazil, and India: Extreme Rates and Currency Risk

In emerging markets, the situation is even more precarious. Brazil maintains a monetary policy rate of 14% — the highest among major economies — with public debt close to 100% of GDP. This combination means gigantic debt service costs.

China has kept its LPR (Loan Prime Rate) at 3.00%, but the economy has been slowing — growth slowed to 4.3% in the second quarter. Debt in the Chinese version, which includes local government obligations, significantly exceeds official statistics.

India faces a combination of inflation at 4.82% (above the central bank's target of 4%) and increasing pressure on the rupee. Importing 90% of its oil makes the Indian currency extremely sensitive to energy shocks, and high U.S. yields attract capital from poorer economies.