The U.S. has long been the lender of last resort to the world. During the emerging-market panics of the 1990s, the global financial crisis of 2007-09 and the pandemic shutdown of 2020, it was the Treasury’s unmatched capacity to borrow that came to the rescue.

Now, the Treasury itself is a source of risk. No, the U.S. isn’t about to default or fail to sell enough bonds at its next auction. But the scale and upward trajectory of U.S. borrowing and absence of any political corrective now threaten markets and the economy in ways they haven’t for at least a generation.

That’s the takeaway from the sudden sharp rise in Treasury yields in recent weeks. The usual suspects can’t explain it: The inflation picture has gotten marginally better, and the Federal Reserve has signalled it’s nearly done raising rates.

Instead, most of the increase is due to the part of yields, called the term premium, which has nothing to do with inflation or short-term rates. Numerous factors affect the term premium, and rising government deficits are a prime suspect.

Deficits have been wide for years. Why would they matter now? A better question might be: What took so long?

That larger deficits push up long-term rates had long been economic orthodoxy. But for the past 20 years, interest-rate models that incorporated fiscal policy didn’t work, noted Riccardo Trezzi, a former Fed economist who now runs his own research firm, Underlying Inflation.

That’s understandable. Central banks—worried about too-low inflation and stagnant growth—had kept interest rates around zero while buying up government bonds (“quantitative easing”). Private demand for credit was weak. This trumped any concern about deficits.

“We had a blissful 25 years of not having to worry about this problem,” said Mark Wiedman, senior managing director at BlackRock.

Today, though, central banks are worried about inflation being too high and have stopped buying and in some cases are shedding their bondholdings (“quantitative tightening”). Suddenly, fiscal policy matters again.

To paraphrase Hemingway, deficits can affect interest rates gradually or suddenly. Investors, asked to buy more bonds, gradually make room in their portfolios by buying less of something else, such as equities. Eventually, the risk-adjusted returns of these assets equalise, which means higher bond yields and lower price/earnings ratios on stocks. That has been happening for the past month.

Sometimes, though, markets can move suddenly, such as when Mexico threatened to default in 1994 and Greece did default a decade later. Even in countries that, unlike Mexico or Greece, borrow in currencies they control, interest rates can become hostage to deficits, such as in Canada in the early 1990s or Italy in the 1980s and early 1990s.

The U.S. isn’t Canada or Italy; it controls the world’s reserve currency, and its inflation and interest rates are mostly driven by domestic, not foreign, factors. On the other hand, the U.S. has also exploited those advantages to accumulate debt and run deficits that are much larger than those of peer economies.

There’s not much sign that this has yet imposed a penalty. Investors still project that the Fed will get inflation down to its 2% goal. At 2.4%, real (inflation-adjusted) Treasury yields are comparable to those in the mid-2000s and lower than in the 1990s, when the U.S. government’s debts and deficits were much lower.

Still, sometimes bad news accumulates below investors’ radar until something brings their collective attention to bear. Could a point come when “all the headlines will be about the fiscal unsustainability of the U.S.?” asked Wiedman. “I don’t hear this today from global investors. But do I think it could happen? Absolutely, that paradigm shift is possible. It’s not that no one shows up to buy Treasurys. It’s that they ask for a much higher yield.”

It’s notable that the recent rise in bond yields came as Fitch Ratings downgraded its U.S. credit rating, Treasury upped the size of its bond auctions, analysts began revising upward this year’s federal deficit, and Congress nearly shut down parts of the government over a failure to pass spending bills.

The federal deficit was over 7% of gross domestic product in fiscal 2023, after adjusting for accounting distortions related to student debt, Barclays analysts noted last week. That’s larger than any deficit since 1930 outside of wars and recessions. And this is occurring at a time of low unemployment and strong economic growth, suggesting that in normal times, “deficits may be much higher,” Barclays added.

Abroad, fiscal policy has clearly begun to matter. Last fall, a proposed U.K. tax cut triggered a surge in British bond yields; the government scrapped the proposal, then resigned. Italian yields have risen since the government last week delayed reducing its deficit to below European guidelines. Trezzi said that for the past decade the European Central Bank had bought more than 100% of net Italian government bond issuance, but that’s coming to an end.

Foreign investors, worried about inflation and deficits, have been selling Italian bonds, while Italian households have been buying, Trezzi said. “With a weakening economy, it is unclear for how long…households can offset the selloff of foreigners.”

Investors looking for U.S. political will to rein in deficits would take note that both former President Donald Trump and President Biden, their parties’ front-runners for the 2024 presidential nomination, have signed deficit-busting legislation and that both of their parties have pledged not tocut the two largest spending programs, Medicare and Social Security, or raise taxes on most households.

They would also notice that the Republican speaker of the House of Representatives was just ousted by rebels in his own party because he had passed a bipartisan spending bill to prevent the government from shutting down. True, the rebels wanted less spending. But shutdowns, Barclays noted, represent “erosion of governance.” This isn’t how a country trying to reassure the bond market acts.

It’s one thing to work long hours. It’s another to surrender your free time to swirling thoughts of office predicaments and projects hanging over your head.

Many of us can’t let work go. It’s sinking our mental health and damaging our relationships. We need to shift the approach in our heads.

Joe Mellin thought maybe a week alone in the woods would do it. He journeyed by plane, bus and minivan to a remote pocket of Colorado for a program that coordinates solo wilderness excursions. Armed with a toothbrush, a journal and some dried split peas, the 41-year-old hunkered down to meditate and find out who he was.

Turned out, he was someone who really liked obsessing about his job.

“I was literally saying, Joe, you’re in Colorado, you’re off work, you’re in the middle of a forest, stop thinking about work,” the Washington-based tech worker recalls. By hour 36, in the quiet of his sleeping bag under the moon, he gave in. Soon he was sketching PowerPoint presentations in his journal, filling 20 pages with notes before he was finally able to let go.

Whether you’re on a spiritual quest in Colorado or at the playground with your kids, internally troubleshooting next week’s client pitch or entertaining revenge fantasies about a colleague, there’s a cost.

“You’re getting aggravated anew each time,” says Guy Winch, a psychologist and author who fashioned a TED Talk on the subject.

We often think we have to fix our jobs to relieve our work stress. “You might,” he says. “But fix you first.”

Break the cycle

Start by tracking how much time you’re spending ruminating about work, Winch says. For many of his patients, that’s 10 to 20 hours a week—after-hours. (At the office, we’re generally too busy doing the job to perseverate about it, he says.)

To stop the cycle, tax your mental capacity with something more complex than Netflix or a walk. Try a memory task like naming all 50 state capitals or recalling the items in your fridge, Winch suggests. Two to three minutes is often enough for a reset.

Then, channel what you had been obsessing about into something useful. Ask yourself: What’s the actual problem to be solved? If you’re worried about workload, can you delegate to teammates or decline meetings?

If there’s nothing to be done about the situation—some co-workers are just annoying—try to find the silver lining, Winch adds. Maybe this is the spark you finally need to find a new, better job. Maybe you’re building skills that will help you in the future.

When you are your job

We’re bombarded with emails, Slack messages and back-to-back Zoom calls during the day, so it’s no wonder we can’t turn off our brains when we shut the laptop. We mentally brace for pings of all kinds, even when they’re not coming.

And some of this is on us. So many employees have tied their identities to their jobs.

“They’ve defined their whole value this way, so it makes it that much harder to let go of things,” Rebecca Zucker, an executive coach, observes of some of her clients. “Something that goes badly at work can feel annihilating.”

Lauren Orcutt, a 36-year-old in Sacramento, Calif., loves being a copywriter. Some of her friends and family don’t love constantly hearing about it, she says.

“I think about it so much, it just comes out,” she explains.

She’s often up at 3 a.m., galvanised by an idea for a new blog post or needled by the realisation she messed up an email. “I kind of felt like I was working all night” for months, she says. Her sleep suffered.

To reclaim her brain space, Orcutt started jotting down her thoughts in a lavender notebook she now keeps on the nightstand. Mistakes that are plaguing her get their own page, which she rips out in the morning.

“I am going to throw it away and move on with my life,” she says. Even capturing the good ideas calms her, helping her drift back to sleep.

Reprioritise your life

Ruminating about work can make it hard to fall and stay asleep, and damage our mood and mental health, says Verena C. Haun, a professor at the Julius Maximilian University in Würzburg, Germany, who studies psychological detachment from work. Depleted, we often perform worse at work the next day.

She suggests marking the transition from work with a simple ritual, like washing out your coffee cup or changing clothes. Find a hobby, or three, that make you truly forget about work while you’re doing them. Set a goal, say, an hour spent gardening, especially on stressful work days.

You can’t think about work when you’re trying not to crash a boat, Jackie Hermes, the chief executive of a marketing firm, says she discovered. When the onset of the pandemic caused her business’s revenue to drop 40%, she rethought her relationship, once all-consuming, with her job.

“Is this really what I’m dedicating my entire life to?” she asked herself.

She doesn’t work less hours now, but she has changed how she thinks about work, allowing herself more flexibility and trying new things in her personal life. During the day, she’ll sometimes pop into the boating club she recently joined or catch a Milwaukee Brewers game at the ballpark.

“Work isn’t the only priority anymore,” she says, noting that so much about our jobs is out of our control anyway.

Now she tells herself, “I’m not behind. It’s always going to get done.”

Our future looks increasingly robotic—whether we like it or not. But the investment craze in robotics stocks may already be getting ahead of itself.

The latest example: South Korea’s Doosan Robotics, whose shares nearly doubled in value on their first day of trading Thursday. The company, which is part of the conglomerate Doosan Group, raised around $300 million from an initial public offering, making it Korea’s biggest IPO this year so far.

Doosan makes collaborative robots, or cobots, designed to work together with humans on factory floors. Such robotic helpers are most suitable for smaller companies that may not be ready to automate their whole production line but use cobots to automate processes better done by machines. Apart from its heavy-duty industrial robots, Doosan also makes variants that can serve coffee—and beer.

Doosan isn’t the only robotics company looking frothy of late. Shares of its smaller peer Rainbow Robotics, which is backed by Samsung Electronics, have more than quadrupled this year. Samsung raised its stake in Rainbow to 15% in March.

To be fair, there are plenty of good reasons to be optimistic about industrial robots. Poor demographics and poisonous immigration politics in most advanced economies will mean weak labor-force growth in the future. Robots rarely go on strike. And in the U.S., the enormous surge in manufacturing investment—courtesy of the Inflation Reduction Act and other industrial policy bills—means demand for manufacturing workers could remain strong for quite a while. Reshoring to advanced economies is another tailwind for robotics.

In 2022, almost 60% of Doosan’s sales came from North America and Europe. Though cobots are still a small part of the overall robot market—accounting for 7.5% of industrial robots installed in 2021, according to the International Federation of Robotics—shipments have been growing faster than the market as a whole. Installations for all industrial robots grew 5% year on year to a record high in 2022.

The company is the seventh-largest maker of cobots globally, according to its prospectus. But since the top two companies, Denmark’s Universal Robots and Japan’s Fanuc, dominate the sector with nearly half of the market, Doosan’s market share amounted to only 3.6%.

Doosan has been growing fast: Its sales more than doubled to around 45 billion won, the equivalent of $33 million, in 2022 from 2020. But it isn’t cheap. With a market capitalisation of around $2.5 billion, Doosan now trades at 74 times last year’s revenue. Fanuc trades at just 4.7 times revenue. Doosan is also unprofitable, though its chief executive expects it to move into the black next year.

The robot craze, like the artificial-intelligence craze, is grounded in real technological trends—and demographic ones too. But like human workers, not all robot firms are created equal. Jumping aboard the robot stock bandwagon at any price might not serve investors over the long run.

There are conflicting stories to tell about investing in Japan at the moment, and annoyingly both appear to be correct.

The first is that the stock market is on fire, producing the best returns of any major developed country since the start of last year as foreigners wake up to the new shareholder-friendly approach of government, stock exchange and corporate boards.

Billionaire Warren Buffett’s visit and positive comments in the spring highlighted the value of venturing to the country, and stocks are up more than 20% since late March as foreign cash poured in.

The second is that all the work has been done by the collapsing yen, and in dollar terms Japanese stocks have performed almost exactly like the S&P 500.

I’m convinced by both stories, which is tricky. Under the first, I’ve long thought that Japan is shifting more toward market capitalism (even as the U.S. appears to be moving away from it).

The reform process that began with the third of the “three arrows” of Abenomics a decade ago is finally bearing fruit, as directors increasingly focus on profitability, run down cash piles and put investors first. There is still a long way to go (the barbarians remain mostly outside the gate) but buybacks, hostile takeovers and pushy investors getting their way are no longer impossible.

It isn’t just that the government, takeover panel and stock exchange are trying to create a friendly environment for shareholders. As Peter Tasker, co-founder and chief strategist of Arcus Investment, points out, they are pushing at an open door.

Companies overall have net cash, freeing them from the obligations to banks that made them focus on their lenders rather than their shareholders.

Incipient inflation—still supported by negative interest rates at the Bank of Japan—makes holding cash less attractive. The aging population has created a permanent labor shortage. This makes layoffs politically easier since jettisoned workers can find new work quickly. And the desire of the U.S. and Europe to reduce dependence on China makes Japan’s manufacturing base and Pacific location attractive.

“I see a confluence of the incentives for investors put in place by the authorities and the position of Japan geopolitically as being very important, particularly as the yen is so cheap,” Tasker says.

The very cheapness of the yen is the problem, though. Since the start of last year, gains for Japanese stocks over and above the S&P have come only when the yen weakens—which it has done in high style. The currency is approaching 150 yen to the dollar again, worrying policy makers who intervened last year for the first time since 2011 to protect the level. This week, Finance Minister Shunichi Suzuki warned of possible intervention although insisted that it is sharp moves in the yen, not the currency’s level, that the government cares about.

It is natural that Japanese stocks should gain as the currency weakens, since the biggest are global companies such as Toyota Motor and Sony Group that earn much of their revenue overseas. The problem is that when the yen’s moves are stripped out, the Japanese market has matched the U.S. almost perfectly.

This makes it doubly hard to be bullish on Japan in the short run. If the currency strengthens, stocks should fall. And the currency is likely to strengthen if and when the central bank pulls back from super-easy policies in the face of rising inflation (core consumer prices are rising at the highest rate since 1992, before deflation set in).

Worse, it’s really hard to see why Japanese stocks have performed like the S&P, given the huge differences between the two markets. Investors shouldn’t invest in things they don’t understand, and the tight link between the performance of the broadly diversified Japanese market and the tech-dominated, top-heavy S&P is a puzzle.

Maybe it is driven by index and futures traders throwing billions around while ignoring individual stocks, thus creating great opportunities for stock pickers. But this is impossible to prove, and the alternative theory is blind luck, not a great basis for an investment.

One twist to my concerns is that perhaps it’s good that Japan has only matched the U.S. for the past couple of years, because it means many investors haven’t yet bought into the idea that Japan is fixing its stock market. For those of us who think there is a long-lasting change under way in Japan, that means there is still plenty of buyers out there who will eventually join in.

That shows up in stock valuations. Tasker calculates that almost half the benchmark Topix index trades at less than book value, while the index has a forward price/earnings ratio of 14 times, against 18 for the S&P.

True, it’s no longer the screaming bargain it was at below 11 times before Abenomics began, or around 12 earlier this year when Buffett visited Tokyo and said he might increase already-hefty holdings in the country’s trading houses (which have all outperformed the broader market since). But it is at least much cheaper than the U.S.

Japan has plenty of long-run economic challenges, not least a huge government debt load and among the world’s worst demographics, as well as a reliance on central-bank financing. The puzzling link between its stock market and the S&P gives me pause for thought, too.

But for the medium to long run, so long as macroeconomic disaster is averted, the shift toward market capitalism ought to lead to better-run companies that are worth more.

Consumers should be spending less by now.

Interest rates are up. Inflation remains high. Pandemic savings have shrunk. And the labor market is cooling.

Yet household spending, the primary driver of the nation’s economic growth, remains robust. Americans spent 5.8% more in August than a year earlier, well outstripping less than 4% inflation. And the experience economy boomed this summer, with Delta Air Lines reporting record revenue in the second quarter and Ticketmaster selling over 295 million event tickets in the first six months of 2023, up nearly 18% year-over-year.

Economists and financial advisers say consumers putting short-term needs and goals above long-term ones is normal. Still, this moment is different, they say.

A tough housing market has more consumers writing off something they’d historically save for, while the pandemic showed the instability of any long-term plans related to health, work or day-to-day life. So, they are spending on once-in-a-lifetime experiences because they worry they may not be able to do them later.

“It’s not a regret-filled, spur-of-the-moment decision,” says Michael Liersch, who oversees a team of advisers as head of advice at Wells Fargo. “It’s the opposite of that, where I would regret not having done it.”

Liersch cautions that it’s too soon to say whether the spate of spending is a fleeting moment or a new normal. And consumers remain frustrated about inflation as the price of many goods remains significantly higher than a few years ago.

Ibby Hussain, who works in marketing for a financial communications firm, says the Brooklyn, N.Y., apartment he and his fiancée rent for $3,000 a month would cost a million dollars to buy. At current rates, that means around $5,000 a month after a $200,000 down payment, not including property taxes. “And it’s not even that nice of an apartment.”

So, instead of saving for a down payment like he expected to after turning 30 and getting engaged in the past year, he splurged.

First, he bought a $1,600 Taylor Swift Eras Tour ticket and then he spent $3,500 on a bachelor party trip to Ibiza, Spain.

“I might as well just enjoy what I have now,” he says.

A travel boom

Ally Bank, whose online platform started allowing customers to create savings buckets for different goals in 2020, says users create about one-and-a-half times more experience-oriented buckets such as travel and “fun funds” versus those associated with longer-term planning.

Lindsey and Darrell Bradshaw went into credit-card debt to finance a vacation to Maui this past spring. The couple booked the trip only a few weeks after Lindsey, 37, quit her job to be a full-time caregiver to their 8-year-old son, who has special needs.

“We did not have the money and we were like, ‘Let’s just do this anyway,’ ” says Darrell Bradshaw, a 39-year-old general contractor in Seattle.

The trip cost about $10,000, including three, $1,000 last-minute plane tickets, 10 nights at a $385-a-night 4-star resort and several elaborate meals.

Even though the family decided to cancel subscriptions and cut back on dining out to help offset the bill, they say they have no regrets—especially since they got to see Lahaina just a few months before it was decimated by deadly wildfires.

Fears about a changing climate are driving some people to try to see places before they’re gone. In a monthly Deloitte survey of 19,000 global consumers, climate change was the only topic among 19 different concerns that respondents reported feeling significantly more worried about over the past year.

Josh Richner says he greatly lowered his retirement contribution to afford a cross-country trip that included a $7,000 Alaskan cruise so his family could see the ice caps, which have been melting at a rapid clip.

“I’ve never spent that much on a trip before,” says the 35-year-old, who says the splurge was also motivated by the pandemic and a health scare.

About six months ago, Richner and his wife decided to sell their Columbus, Ohio, home to travel the country with their two young children. Working for National Legal Center, a law firm that helps consumers resolve debt, he knows the potential consequences of living in a way that gives priority to the present. But he isn’t worried.

“I just hit a point where the thing that we had been talking about maybe hopefully doing some day, we’re going to do it now,” he says. “I’m not going to worry about money anymore. I don’t have it in me.”

Splurge purchases

Consumers might not be able to keep splurging forever. Labour strikes and student loan repayments could both lead people to pull back. Rising gas prices could also deter travel.

For those who study spending, however, the robustness up to this point has been a surprise.

In the New York Federal Reserve Bank’s August SCE Household Spending Survey, households reported spending 5.5% more than last year. The share of households that said they made at least one large purchase in the previous four months increased to 64% from 57%, its highest reading since August 2015.

“Normally at a time when you have higher inflation, but also higher interest rates, you don’t expect spending to hold up so well,” says Wilbert van der Klaauw, an economic research adviser on household and public policy at the Fed.

Rather than funnel all their spare change into a house or retirement account, Candice and Jasmine Kelly started a bucket-list fund after attending back-to-back funerals a few months ago. The couple adds a few hundred dollars from their paychecks each month into the fund, which they have used to try fancy restaurant tasting menus and buy Jasmine her dream designer handbag.

Instead of waiting to have fun when they retire, Candice, a 26-year-old management analyst in Charlotte, N.C., says the couple is trying to do the opposite. They want to enjoy their money while they’re young—even if it means working longer.

“All the rules that exist around money and lifestyle are just things people made up, so we’re playing a different game, and honestly I think we’re having more fun,” says Candice.