Himothee Chalamet

This all makes sense when you consider that the United States faces a debt dynamic that can no longer be solved through orthodox policy. Federal debt held by the public is approximately 100% of GDP, interest expense is above $1 trillion annually, & the primary deficit is structurally running at around 5% - 6% of GDP. Under these conditions, achieving debt sustainability becomes a function of 3 variables only: the nominal growth rate, the effective interest cost of the debt stock, & the primary fiscal balance. Because the primary balance is politically locked, the remaining levers are nominal growth & the effective interest cost of the debt. Thus, we’re going to see negative real rates for a long period (explicit default is obviously not an option). “We’re going to grow ourselves out of the debt.” How? Using the combination of policy tools detailed in some of my previous posts. But, to rehash, we can consider 4 distinct mechanisms that will run in parallel: 1/ Rate suppression: policy rate at 2% - 2.50% versus structurally elevated inflation (core PCE likely to run 2.5% - 3.5% for the next several years), which delivers negative or near 0 short-end real rates. Thus reducing the value of the debt service. 2/ (forced) Private sector demand for Treasuries.. Stablecoin issuance mandates T-bill holding. Relaxed eSLR encourages bank absorption of longer duration Treasuries. Money funds continue to be a large bill buyer. All of this compresses front end yields below the “free-market” clearing price. 3/ Nominal GDP (hyper) acceleration via fiscal transfer: tariff dividends, targeted transfers, & ongoing defense & industrial policy spending will keep nominal GDP growth elevated (“run it hot!”), which mechanically erodes the real value of the debt stock. 4/ Central Bank Policy Coordination: Warsh will weigh growth & debt sustainability much more heavily relative to the “outdated” 2% inflation target. Study the 1942 - 1951 Treasury-Fed period, when the Fed was committed to supporting the Treasury market with pegged rates. This post war financial policy strategy compressed real yields to around -1.5% to -2.0% on average. This is the core mechanism that took Debt to GDP from 119% in 1946 to 47% by 1974. I’ll be tracking the 10 year real rate, which (in my base case) should move from the current 2.1% to approximately 0.5% by end of 2027 & potentially negative territory by 2029. Time to run it hot!

uPegs are becoming visible to a much larger world. and yet so much more lies beyond it. 🦄🌏

An Israeli military official says that if Iran’s stockpile of more than 400 kilograms of uranium enriched to 60% is not removed from the Islamic Republic, the entire recent war will be considered “one big failure.” Israeli officials have said that this stockpile is sufficient for 11 nuclear bombs. The senior officer says that if, as part of negotiations between the United States and Iran, no agreement is reached to remove the uranium stockpile and halt enrichment in the country, the achievements of the 40 days of fighting will have been for nothing. “If the nuclear objective is not achieved, then everything we did in Iran will be one big failure. The evil Iranian regime can pounce on the nuclear program,” the official says. The officer adds that “if the uranium is removed from Iran through diplomatic means, we have done our part.” However, if that does not happen, Israel would need to launch another operation in Iran to achieve the objective, they say.

Trump gave everyone a free 5x with unlimited size We can no longer bitch about the insider trading