Deutsche Bank cites Wicksell theory to explain persistent demand for US debt

In a note from its chief investment office, Deutsche Bank argues that the gap between the Federal Reserve’s policy rates and the natural rate of interest, a concept introduced by Knut Wicksell in 1898, explains why investors still purchase US debt. The United States carries roughly $39.77 trillion in obligations, yet weekly interest payments remain modest because the natural rate—derived from overall economic returns—is far higher than official rates.

The bank’s authors, Ulrich Stephan, Dirk Steffen and Elena Ahonen, say this mismatch has allowed the US to enjoy near-risk-free borrowing costs. They highlight that booming returns in tech and AI-driven firms now bolster the appeal of US assets, supplementing traditional safety factors that have existed since World War II. While acknowledging that the fiscal situation reflects a nation “living beyond its means,” they caution that prolonged deficits could eventually shift risk assessments, a scenario previously warned about by JPMorgan Chase CEO Jamie Dimon. The analysis also references Ray Dalio’s view that the US’s fiscal stance remains fundamentally unsustainable, even as investors remain attracted by higher equity returns.