Among history's most influential economists, Knut Wicksell rarely commands widespread recognition. The Swedish interest-rate specialist never achieved the cultural prominence of Adam Smith, nor did his likeness ever grace a banknote. Nevertheless, a framework he articulated over a century ago has regained sudden relevance.

In 1898, Wicksell proposed that inflation and economic instability arise from a specific imbalance: the divergence between market interest rates—those set by central banks and commercial lenders—and what he termed "the natural rate of interest." This natural rate, Wicksell argued, reflects the return investors earn by deploying capital across the broader economy, such as through equities, rather than the yield available on cash deposits or bonds.

The strength of the U.S. economy means its natural rate sits well above official borrowing rates, which helps explain why interest costs on American debt remain comparatively modest relative to its sheer scale.

Deutsche Bank contends that a modernized interpretation of Wicksell's theory accounts for why global investors continue channeling capital into the United States even as numerous indicators of fiscal health flash warning signs. The nation's economic might is matched by staggering liabilities: approximately $39.77 trillion in outstanding debt at the time of writing, a sum exceeding 120% of annual economic output—a level last reached in the immediate aftermath of World War II. Servicing costs run roughly $24 billion per week.

To date, creditors financing U.S. borrowing have not demanded sharply elevated yields, a reflection of the dollar's unparalleled position as the world's primary reserve currency and sustained confidence in the American economy. The Congressional Budget Office projects debt-to-GDP will continue climbing over the coming decade, yet Treasury yields, while notably higher than the ultra-low levels of the early 2020s, remain well below the returns available in U.S. equities. Still, if growth rates continue to trail deficit levels, risk perceptions could shift and trigger a broader market recalibration—a scenario JPMorgan Chase CEO Jamie Dimon has repeatedly cautioned about in his annual shareholder letters and public remarks.

In a research note issued by Deutsche Bank's chief investment office, Dr. Ulrich Stephan, Dr. Dirk Steffen, and Elena Ahonen observe that persistent deficits point to a nation "fundamentally living beyond its means." However, they note that America's central role in the international financial system has historically enabled it to "enjoy risk-free market interest rates that were below its estimated natural rate of interest."

That structural edge, the authors caution, is narrowing.

The Technology Factor

The calculus between investing in the United States versus holding deposits in the bank has shifted materially amid an AI boom spearheaded by American hyperscalers, the Deutsche Bank team contends. Companies including Microsoft, Alphabet, Amazon, and Meta have collectively committed hundreds of billions of dollars in capital expenditure toward AI infrastructure, reinforcing the productivity and return advantages that Wicksell's framework would identify as pushing the natural rate higher.

"The high return on equity (ROE) available on some U.S. sectors (e.g. tech) is now complementing or, to some degree, supplanting the structural/geopolitical factors which have so far supported inward investment in the U.S. during the post-WW2 period," the trio writes. "To oversimplify: you could argue that U.S. deficits are, in effect, being increasingly funded by its tech sector."

They elaborate: "In the last few years, investor interest in the U.S., and thus its ability to sustain deficits, has … been supported by the country's relatively high productivity growth and high return on equity, largely the result of the country's successful technology sector and dominant position in artificial intelligence."

Warnings from figures such as Bridgewater Associates founder Ray Dalio that the United States spends beyond its capacity remain "fundamentally true," the analysts acknowledge. Even so, they suggest investors willingly direct capital toward U.S. deficits because the country delivers higher investment returns than alternative destinations.

This technological dominance, however, produces a self-reinforcing fiscal loop. If the U.S. government curtailed its investment in AI, confidence in the sector would likely falter. Yet that very spending demands additional borrowing.

"The U.S. economy can therefore be seen, in some ways, as both a gainer and a victim of its own success," the team concludes.

This story was originally featured on Fortune.com.