Part 6/13:
The US Federal Reserve has been shrinking its balance sheet as it retires debt payments and unwinds quantitative easing policies. This reduces the amount of cash entering the system from the Fed, which previously acted as a backstop for government borrowing. Consequently, the US government faces increased difficulty in financing its deficit.
Waning Confidence and Rising Yields
Foreign investors' appetite for US Treasuries is waning due to eroding confidence in US economic stability. As foreign and domestic buyers purchase fewer bonds, the government must offer higher interest rates to attract new lenders. But as interest rates climb, the cost of servicing the debt increases further, creating a vicious cycle.