International markets are rattled by global events. That was made clear by the Aug. 18 widespread global selloff of U.S. Treasury securities, raising 30-year yields to roughly 5.34%, the highest level since 2007.
There are several causes for the rising investor anxiety. This includes renewed conflict in the Middle East, along with a continued guessing game about the Federal Reserve’s intentions regarding interest rates.
Primarily, though, America’s bleak fiscal situation is quelling investor confidence. The U.S. Treasury bond selloff coincided with the nonpartisan Congressional Budget Office’s release of statistics that the national debt is about to cross the $40 trillion threshold. Put another way, existing national debt now consumes 3.3% of the entire U.S. economic output and 19% of every dollar Uncle Sam collects.
And of course, elevated borrowing costs have trickled down to ticked-off consumers; 30-year fixed mortgage rates remain above 6.7%, 70 basis points higher than they were six months ago.
An investor warning shot
Bond investors are correctly sounding the alarm that the federal deficit is no longer tenable. CBO has raised its deficit projection for fiscal 2026 by $200 billion to $2.1 trillion. The impending fiscal crisis is not the $40 trillion national debt itself; rather, it’s that deficit spending is growing so rapidly that buyers no longer have the appetite to allow Americans to finance it at the ultra-low rates we’ve relied on for the past 20 years.
Even if the flood of red ink seems an academic exercise to many, higher buyer costs are sure to get voters’ attention a bit over two months out from the Nov. 3 midterm elections. President Donald Trump‘s administration has a chance to limit the damage by making one final stab at a deficit-reducing bill on Capitol Hill. Big-spending congressional Democrats are never going to play ball legislatively. So, this would have to be done through the budget reconciliation process, which allows the Senate to skirt its normal 60-vote threshold to overcome a filibuster and pass legislation with a simple majority of 51 votes in the 100-member chamber.
The proposal would have to be large enough in spending cuts to actually move Treasury investors, politically palatable enough to garner the support of the MAGA base and a party-line vote in Congress, and limited enough in scope to pass muster with the Senate Parliamentarian. So, instead of spending energy on the SAVE America Act, rewriting the entire immigration system, or (as I would prefer) taking a hammer to Social Security, all of which are banned from being included in reconciliation packages, Reconciliation 3.0 ought to take a selective approach to reforms. Including targeting spending on noncitizens, Medicare waste, and inefficient visa allocation. Crucially, it cannot raise taxes on citizens and impede the economic growth that we’re relying on to avoid a debt crisis.
Debt-slashing reconciliation legislation
Let’s start with the most boring provisions of the bunch: healthcare. The CBO estimates that broad, site-neutral Medicare payment reforms could save $157 billion over the next 10 years. Modernizing Medicare cost-sharing, namely by consolidating the separate deductibles of Parts A and B and restricting Medigap from covering that deductible, would save $200 billion over the next decade. The Committee for a Responsible Federal Budget projects that allowing private Medicare Advantage plans to compete against traditional Medicare options would save another $450 billion, and reducing Medicare Advantage overpayments would save $780 billion.
Building on last year’s One Big Beautiful Bill Act and fully banning the use of provider taxes would save $600 billion, and freezing the income thresholds for Medicare premiums would save $290 billion. Include the Lower Health Care Premiums for All Americans Act, a priority of House Speaker Mike Johnson (R-LA) that has already passed the chamber, and we’ve saved another $35.6 billion. Without raising a single tax, these basic healthcare reforms, taken individually, combine to over $2 trillion.
Reconciliation may very narrowly allow Congress to reorganize visa allocations at the margins. But because not all immigrants contribute to the country equally, even minimal changes could net significant savings. As the Manhattan Institute has written about extensively, each adult immigrant parent of a U.S. citizen or holder of an EB-3 OW costs the federal government hundreds of thousands of dollars in the first 30 years after they arrive, whereas higher-skilled visa holders are net contributors. Reconciliation 3.0 could aim to replace EB-3 Other Worker visas with EB-2 visas, reallocating 10,000 annual green cards from low-skilled workers who are net drains on the federal deficit to high-skilled workers who reduce the federal deficit. Over a 10-year window, this would save about $10 billion.
While the Senate parliamentarian would be unlikely to allow a reconciliation bill to outright ban the allocation of green cards to the older parents of adult citizens, the Manhattan Institute has recommended imposing a fee of $260,000 to bring a parent to the country, equivalent to the net fiscal cost those older parents usually incur to the federal deficit. On a static basis, this would generate nearly $400 billion over the next ten years. Assuming that only a fraction of those citizen children would be able and willing to afford sponsoring their parents with the fee, the net savings would probably be closer to $100 to $200 billion over the decade.
HERE’S HOW HOMEOWNERS CAN LOWER THEIR ELECTRICITY BILLS
The Republican Study Committee has continued to tout two major cost-savers in its ongoing menu of reconciliation options: banning noncitizens from Medicaid, SNAP, housing assistance, and other federal benefits, which they estimate would save $231 billion. And requiring federal agencies to only consider citizens when allocating population-based funding streams for cities and urban centers, which they somewhat optimistically project would save $629 billion. Let’s round down to account for overlap and say that together these provisions would save closer to $700 or $800 billion.
All in all, this incredibly rudimentary framework would net trillions in savings without raising a single tax, touching Social Security, or meaningfully slashing benefits for working-class citizens. I’m willing to wager that short of blowing the Strait of Hormuz open and the ayatollah up tomorrow, only a deficit reduction this large will meaningfully save the bond market.
Tiana Lowe Doescher (@TianaTheFirst) is an economics columnist for the Washington Examiner.