Introduction to Economic Trends
The trend of increasing deficits and total debt is leading to a decline in gross domestic product (GDP) annually. This is not a topic of debate, but rather a generational trend that is affecting economies worldwide.
The Impact on GDP
The 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. The U.S. Department of Government Efficiency (DOGE) has proven that it is not politically or publicly desired, and more needs to be done to address this issue.
Solutions to the Problem
Some potential solutions to this problem include implementing term limits in Congress, getting money out of politics, and reforming entitlements. However, these changes are not unique to the U.S. and are needed in many countries around the world, including China, Japan, and weaker economies in Europe, where changing demographics are driving poor growth outcomes.
Global Economic Comparison
Japan is a prime example of a country that has been struggling with these issues, but has managed to "muddle through" in recent decades. The country’s central bank owns a huge part of public market debt and equity, which has helped to support the economy.
U.S. Treasury Secretary’s Focus
U.S. Treasury Secretary Scott Bessent has recently focused the market and the U.S. president on the 10-year rate. 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.
Manipulation of the Treasury Market
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 seems to want to turn it into a profit and loss (P&L) for the government, rather than following its mandate. This approach has been criticized in the past, but now that it’s being implemented, it’s clear that manipulation for political reasons is a policy tool of choice.
Investment Strategies
We believe that the U.S. Treasury market, and thus the rest of the world’s government debt, should not be considered safe money investments in the current era. While it’s likely that the debt will be paid back, the liquidity being sought is inflationary, and yields are not high enough to compensate. Instead, we recommend investing in private credit markets, which can generate a much better after-inflation yield compared to government debt.
Education on Private Markets
In the coming months, we will be spending more time educating viewers on investing in private markets. This is likely to be the fastest-growing area of investment in the years to come for individual investors.
Conclusion
In conclusion, the economic trends of increasing deficits and total debt are leading to a decline in GDP annually. To address this issue, radical changes are needed, including term limits in Congress, getting money out of politics, and reforming entitlements. Investors should be cautious when investing in government debt and consider alternative options, such as private credit markets. By educating ourselves on these issues and taking a proactive approach to investing, we can work towards a more stable and prosperous economic future.
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