interest-income-channel

July 25, 2026

The traditional interest rate transmission mechanism has structurally inverted in a high-debt regime. Rate hikes redistribute demand rather than compress it — sovereign interest expense flows to private Treasury holders, private legacy debt remains insulated by duration lock-ins, and the strain relocates to the term premium and the refinancing wall rather than disappearing. Fiscal-monetary interaction, collateral repricing, and state capacity now override private credit cycles.