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The Withdrawal Phase Has Begun

Time to Change the Incentives

Still from the Concrete Blonde video Joey

The 30-year Treasury yield just punched above 5.1 percent: levels we haven’t seen since the desperate days right before the 2008 financial crisis. The 10-year is ripping higher in real time. Mortgage rates are barreling toward 7 percent again. And the bond vigilantes aren’t whispering anymore; they’re shouting.

This isn’t random market noise. It’s the market reasserting reality after years of Washington treating tomorrow’s income like an unlimited credit card. As Governor Ron DeSantis pointed out in a recent post, we’ve only gotten away with these massive deficits so far because the U.S. dollar remains the world’s reserve currency. That “exorbitant privilege” let politicians borrow cheaply and kick the can down the road. The can has now reached the end of the street.

This is exactly the “withdrawal” phase I wrote about last week: the painful morning after a fifteen-year monetary binge of quantitative easing, zero rates, and endless borrowing. The euphoria is over. The shakes have started.

The Bond Market, Explained Like You’re at the Kitchen Table

Think of buying a Treasury bond as lending money to the federal government. You give them cash today; they promise to pay you back with interest over time. The yield is basically the interest rate they have to offer to get you to lend.

When yields rise, it means bond prices are falling. Investors are demanding higher returns because they smell more risk: bigger deficits, more debt issuance, sticky inflation, or geopolitics messing with energy prices. Right now, the government is flooding the market with new Treasuries to fund trillion-plus deficits, and buyers are pushing back.

That matters to you even if you don’t own bonds. Higher Treasury yields pull up mortgage rates, car loans, business borrowing, and eventually the interest on the national debt itself. We’re already spending more on interest payments than on national defense. This is how the bill comes due.

Credit spreads (the extra yield demanded for riskier corporate or junk bonds versus super-safe Treasuries) tell the same story. When spreads widen, the market is saying: “We’re not so sure about the future.”

The Political Game Everyone Quietly Agreed To

Nobody wanted a debt ceiling fight in an election year. That’s why the big $5 trillion raise in the 2025 “One Big Beautiful Bill Act” was designed to push the next crisis into 2027, safely after the midterms.

Congress has turned the debt limit into predictable theater: threaten shutdown, grandstand on cable news, raise the ceiling at the last minute, repeat. The reserve currency status has let them do it for years without immediate catastrophe. Foreign governments and investors keep buying our debt because the dollar is king.

But the bond market is losing patience. Persistent deficits near 6% of GDP, a $39+ trillion debt pile, and structural spending pressures mean the free lunch is ending. This is the incentive problem DeSantis nailed: politicians face no real discipline when borrowing feels painless.

The Fed’s Role: And Why It Can’t Save Us This Time

During the binge, the Federal Reserve printed trillions and bought bonds hand over fist to keep rates artificially low. That’s how we got the malinvestment: zombie companies, overbuilt projects, and governments addicted to cheap money.

Now the Fed is in quantitative tightening (QT) mode: it’s letting bonds mature without fully replacing them, slowly draining excess liquidity. New Chair Kevin Warsh, fresh off confirmation, inherits this mess with a reputation for favoring discipline over easy fixes. The bond market is doing the tightening work anyway.

Preemptive rate cuts or fresh QE would be another hit of monetary crack. It would delay the necessary correction and guarantee a worse crash later.

The Article V Solution: Force Discipline from the States

Here’s where Governor DeSantis’ push for an Article V balanced budget amendment comes in.

Article V lets the states bypass a reluctant Congress and call a convention to propose constitutional amendments. Thirty-four states apply, thirty-eight ratify. It’s the Founders’ built-in pressure valve for when Washington won’t restrain itself.

A well-designed balanced budget amendment would require the federal government to live within its means most years — spending no more than it takes in, with sensible exceptions for declared wars or severe recessions, and perhaps supermajority votes to run temporary deficits.

What would this do to the bond market?

In the short term, some volatility as markets test whether it’s real or symbolic. But over the medium to long haul, a credible constitutional guardrail would reduce long-term fiscal risk. Less expected debt supply. Lower term premiums. Cheaper borrowing costs for the government — which ultimately means cheaper rates for families and businesses.

States with strong balanced budget rules already borrow more cheaply than those without. A federal version, if enforced seriously, could deliver the same discipline on a national scale. It changes the incentives permanently instead of relying on annual debt ceiling kabuki.

Critics will warn about rigidity in crises. Fair point — the design matters. Good versions include flexibility for emergencies and capital budgeting. The alternative, though, is continuing the current path: endless can-kicking until the bond market forces much harsher austerity.

The Hard Truth for Laymen and Leaders Alike

The economy is like that crack addict I described last week — fifteen years of free rocks from the dealer (the Fed and easy-money politicians). The shakes hurt, but they’re the price of getting clean. Or picture the forest after years of fire suppression: deadwood everywhere, until the lightning strike clears the way for new growth.

The bond market vigilantes are that lightning strike. They’re refusing to finance fantasy pricing anymore.

A constitutional balanced budget amendment via Article V wouldn’t solve every problem overnight. But it would force Washington to operate more like the 49 states that already balance their budgets every year. It would restore real accountability and give markets confidence that the binge is truly over.

The gale of creative destruction is blowing. The withdrawal is painful but necessary. Real prosperity returns only on sounder foundations: once we stop pretending infinite borrowing has no consequences.

The choice belongs to us, through our states and our voices: endure the short-term discomfort for long-term health, or reach for the pipe again and make the eventual crash far worse.

Let the market work. The creative phase is coming.

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James K. Bishop

James K. Bishop is a conservative writer and raconteur hailing from Texas, known for his incisive and often provocative takes on political and cultural issues. With a staunch commitment to originalist constitutional principles, he emphasizes limited government, individual liberties, and traditional American values. Active on X under the handle @James_K_Bishop, he frequently engages his audience with sharp critiques of progressive policies, media narratives, and overreaches by the federal government. His style is direct, often laced with humor and wit, which resonates strongly with his conservative followers.