Cole Walmsley@Cole_Walmsley
“Inflation is back and higher rates are coming.”
The U.S. Dollar is screwed.
The Treasury must sell ~$2 trillion in new debt this year.
Not to cover new spending. *Just to keep the lights on* and roll over old debt coming due.
That old debt was issued at 1-2%.
It's refinancing at 4.5%+.
Interest expense on the national debt is approaching $1 trillion per year. It's now larger than the entire defense budget. Larger than Medicare.
It's the fastest-growing line item in the federal budget, by far.
Higher rates on rolled-over debt means bigger interest payments.
Bigger interest payments mean bigger deficits.
Bigger deficits mean more debt issuance.
More debt issuance means higher supply of Treasuries.
Higher supply of Treasuries means weaker demand.
Weaker demand means higher yields.
Higher yields means bigger interest payments...
People call it a debt spiral. They're wrong.
It's a death spiral.
The loop feeds itself. Every basis point higher on the 10Y makes next year's refinance worse, which makes everything worse.
The math compounds against the Treasury every single day yields stay here.
The Fed has three doors out. All three open into the same room.
Door 1:
Cut rates
Inflation re-accelerates *on top of* a 6.0% April PPI -- the hottest since 2022 -- and an April CPI that hit a near three-year high. Gasoline onto the fire.
The dollar weakens. Foreign holders of US debt -- a third of the entire market -- watch their real returns get eaten by inflation, then take a second hit on the FX conversion back home. They sell, or demand higher yields to keep buying.
The Fed cuts rates only to watch the market raise them. Their move backfires.
Door 2:
Hold rates.
The $2 trillion in debt rolling over this year keeps refinancing from 1-2% into 4.5%+. Interest expense compounds.
The deficit widens from interest alone, before a single new dollar of spending is approved.
The bond market demands more premium to fund a borrower that looks worse every quarter.
Yields drift higher even though the Fed didn't move.
Door 3:
Hike rates.
Mortgages crack 7%.
Auto delinquencies -- already at 32-year highs -- accelerate.
Regional banks holding underwater Treasuries from the cheap-money era get squeezed like 2023 again. The kicker: the emergency facility that bailed them out last time is closed.
Commercial real estate, sitting on hundreds of billions of debt refinancing in the next two years, gets repriced into a crater. Corporate borrowers refinancing from 2-3% into 7%+ start defaulting.
And the Treasury *still* has to roll $2 trillion in debt over. At an *even higher rate* than before.
The Fed crushes the economy *and* makes its own funding problem worse, in the same move.
All three doors go to the same room:
Impossible-math.
The math always comes due.
In fiat's case, the only historical route is currency debasement.
The Fed eventually monetizes — explicitly through QE, or quietly through yield curve control, or via some politely-named new acronym.
In other words, the purchasing power of the dollar gets destroyed to make the nominal debt serviceable.
That's why they need inflation in the first place. The Fed needs inflation to make the debt math work. You pay the difference. Every dollar you hold loses value to make the equation work.
It's the documented endgame of every fiat regime that has ever existed.
Romans clipped the denarius. The Bank of England suspended gold convertibility. Weimar, Argentina, Zimbabwe, Lebanon, Turkey, Venezuela.
Currency debasement, currency debasement, currency debasement.
Sovereign nations always sacrifice the currency over the bond market. Always. It is the most consistent pattern in 5,000 years of monetary history.
This is the future:
They will print. They will inflate. The dollar will be debased.
Your money will buy less, as it always has. The system will unwind through currency debasement.
Quietly.
Then loudly.
Then suddenly.
The bad news: if you're in the system, you will go down with it.
The good news: you can exit.
The exit strategy is simple.
You *don't* exit through some clever trade that gets you more of the worthless money.
You exit by shifting to a *different* monetary system. One that can't be printed, can't be debased, can't be voted on, and doesn't require trusting the people who built this trap to get you out of it.
You already know what it is.
Fix the money, fix the world.
