Introduction
Extra crises are emerging as the U.S. government seeks to refinance its soaring national debt. This situation is likely to be highly inflationary, setting the stage for what many traders would call a “mega bull run.” Before discussing how you might capitalize on this, let’s break down what’s happening behind the scenes.
U.S. National Debt Over Time
Over the past century, the U.S. government’s debt levels have grown substantially, with two notable accelerations: after the 2008 Great Financial Crisis (GFC) and again during the pandemic. Today, the debt stands at historic highs, making interest expenses a looming burden.
From this chart, you can see the rapid increase in federal debt, especially post-2008 and in the early 2020s. This mounting debt load forces the government to pay ever-increasing amounts of interest.
Government Interest Payments and Average Interest Rates
With more debt, even modest hikes in interest rates translate into outsized interest expenses. Before 2008, the U.S. could withstand higher rates because total debt was relatively smaller. Post-GFC, however, the Federal Reserve slashed rates near zero, allowing the government to borrow at historically low costs. A similar pattern was repeated during the pandemic.
Chart: Federal Outlays: Interest (FRED)
Chart: 10-Year Treasury Constant Maturity Rate (FRED)
As rates rise again, the government’s predicament becomes clear: over $35 trillion in debt with annual interest expenses potentially exceeding $1 trillion. That dwarfs spending on key programs like national defense.
Rising Rates and the Government’s Predicament
When inflation picked up recently, the Fed raised the federal funds rate as high as 5.5%. This immediately inflated borrowing costs. With such a colossal debt load, even a small uptick in rates means a massive new bill for Uncle Sam — one it struggles to pay without running even larger deficits.
Deficit Spending Over Time
Persistent deficits are exacerbating the government’s situation. Every year, the U.S. continues to spend more than it collects in revenue, forcing the issuance of even more Treasury bonds.
Contradictory Economic Indicators
Despite these fiscal headwinds, GDP growth has been solid (around a 1.5–3% annualized rate), and unemployment remains low (around 4.1%). Typically, strong growth plus low unemployment would have the Federal Reserve standing firm — or even raising rates further.
Chart: Real Gross Domestic Product (FRED)
Chart: Unemployment Rate (FRED)
Why the Rate Cuts, Then?
In an unexpected move, the Fed cut rates recently by 0.25% (0,5) (from 5.5% down to 4.75%), and according to the Fed’s Summary of Economic Projections, rates might trend toward 3.0% by the end of 2026. Many question whether 3.0% is even low enough given current debt levels.
A growing theory is that the government simply cannot afford higher rates — and is pressuring the Fed to push them down. Strong economy or not, the debt burden may be the real driver behind these cuts.
Anticipating a “Crisis” to Justify Even Lower Rates
If going from 5.5% to 4.75% isn’t enough, how do policymakers justify bringing rates back near zero? The suspicion: a new “crisis” will emerge that legitimizes aggressive monetary easing. Whether real or orchestrated, such a crisis could give the Fed cover to slash rates once again, flooding the system with liquidity and allowing the government to refinance cheaply.
Treasury Maturities and Strategy
Treasury securities come in a variety of maturities, but the largest portion are Treasury notes (2–10 years). These were issued at near-zero rates over the past decade. Now, as they mature, they must be refinanced at higher rates, driving interest expenses up dramatically.
When the Fed eventually cuts rates again, the Treasury will likely jump at the chance to issue long-term bonds — 20, 30, even 50 years — to lock in lower borrowing costs for decades. This is a playbook used both after the GFC and after the pandemic-induced rate plunge.
Historically, the Treasury has extended average maturities during low-rate periods and shortened them during high-rate periods. Expect more of the same.
Fed Purchases and Inflation
What if global investors are reluctant to buy these new bonds at low rates? The Federal Reserve might step in with another round of Quantitative Easing (QE) — essentially printing money to purchase Treasuries. This adds to the money supply and often sparks inflationary forces and asset-price bubbles.
From Steady Inflation to a “Mega Bull Run”
We’ve already witnessed a steady melt-up in housing, stocks, gold, silver, and everyday goods. Lower rates and another wave of QE could stoke an even larger bull run — pushing assets into hyper-inflationary territory. This may ultimately necessitate a financial “reset” if prices spiral too far.
The Trigger Event?
What crisis might serve as the catalyst? Possibilities include geopolitical conflicts, major credit events, or unforeseen “black swans.” Policymakers need a plausible rationale to slash rates back to zero. In turn, capital might flee cash and bonds in favor of equities, real estate, precious metals, and other tangible stores of value.
Conclusion
A massive debt load, rising interest costs, and a Fed caught between inflation and political pressure set the stage for a mega bull run fueled by easy money. While no one can predict the exact timing, the pieces are in place for a larger wave of stimulus — one that could drive asset prices to new heights before culminating in a significant restructuring of the global financial system.
Stay tuned for our future discussions on how to position yourself for this scenario. In uncertain times, understanding the macro forces at play is your best hedge against volatility and opportunity for outsized gains.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always conduct your own research or consult a professional before making investment decisions.
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