Climate change and corruption are also driving up interest rates

The bond market recently charged 5.3% for its 30-year bonds, the highest level since 2007. Meanwhile, Australian government debt hit $1 trillion, and its 30-year bond rate reached 5.6%. These milestones reflect the competing demands for money between large-spending governments and AI companies. However, bond rates are also influenced by corruption and climate change.

In the US, government debt is now $US40 trillion, with a 30-year bond rate of 5.3%. The US government is spending $US1.2 trillion annually on interest, primarily due to the high demand for bonds. To lower interest rates, the US Treasury secretary purchased both 10 and 30-year bonds, but the effect was short-lived.

The increasing cost of government debt is partly due to deteriorating government budgets, which have worsened after the GFC and COVID-19 pandemic. Additionally, the global corporate sector is raising capital at an unprecedented rate to fund AI development. However, the revenue from AI may not justify the spending.

Trust in institutions, including governments, is declining due to corruption. Transparency International's corruption perception indices for 2025 show a decline in trust worldwide, including in Australia, which dropped from 10th to 12th place. The US ranks 29th, considered one of the most corrupt developed countries.

Corruption perception indices are linked to political polarisation and inequality, which are rising globally. In the US, V-Dem's Democracy Index has declined by 24% in the past year, with the country now ranked 51st out of 179 nations. Former Wall Street Journal editor Gerard Baker wrote an op-ed highlighting the growing dissatisfaction with American capitalism, attributing it to income and wealth inequality, corporate power, political corruption, and inflation. Higher perceptions of corruption lead to increased credit risk and higher interest rates.