The increasing trend of deficit and total debt is generating less gross domestic product (GDP) annually. It’s not a debate, it’s a generational trend.
Lower chart regression of real GDP shows a slow declining trend. The U.S. fiscal outlook is broken, and the only likely solution is a radical change to everything. We need more from the U.S. Department of Government Efficiency (DOGE), but it proved it is not politically or publicly desired.
Term limits in Congress would be a good start, getting the money out of politics is another, entitlement reform is essential, and the list goes on. But this is the case just about everywhere in the world whether it’s China, Japan or many weaker economies in Europe, as changing demographics are driving poor growth outcomes.
Japan has it the worst and they muddled through in recent decades, but Japan’s central bank owns a huge part of public market debt and equity to help them muddle through.
U.S. Treasury Secretary Scott Bessent focused the market and the U.S. president on the 10-year rate a few months ago. Policy decisions and recent rhetoric point to an increasing desire to lower the cost of debt financing.
The Donald Trump administration is looking to put significant influence on the Federal Open Market Committee (FOMC), which is nominating a new chairman soon. There have been rumblings about an active shadow FOMC and a policy of funding all new debt with bills until longer rates come down.
The hedge fund manager running the U.S. Treasury seemingly wants to turn it into a P&L for the government rather than its mandate. He was critical of former Treasury Secretary Janet Yellen doing this in recent years. It’s probably what got him the job to be fair. But now that it’s his turn, he sees that the manipulation for political reasons is a policy tool of choice.
We continue to believe that the U.S. Treasury market and thus the rest of the world (ROW) government debt too should not be considered safe money investments in the current era like they once were.
Yes, it will be paid back to be sure, but it seems to me the liquidity they are seeking is inflationary and yields are not high enough to compensate. We like the private credit markets as a way to generate a much better after-inflation yield compared to government debt as the credit quality slowly decays.
In the coming months, we will be spending more time educating BNN viewers on investing in private markets. It is likely the fastest growing area of investment in the years to come for individual investors.
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