tl;dr
Macro strategist Luke Gromen warns that the US national debt, now at $36 trillion, threatens a sharp decline in the dollar's value. He believes the US will likely address the debt by printing money rather than allowing Treasury yields to rise, which would increase borrowing costs. Treasury bonds car...
Macro strategist Luke Gromen is sounding the alarm on the soaring US national debt, warning that it could trigger a dramatic decline in the dollar's value. Highlighting the $36 trillion debt burden, Gromen explains that the US is more likely to tackle this crisis by printing more money rather than allowing Treasury yields to rise, which would traditionally attract investors but also increase borrowing costs.
Gromen points out the unique nature of Treasury bonds, emphasizing that while they carry no credit risk—because the government can always print money to meet its obligations—they are exposed to inflation risk. He notes a growing recognition that a severe devaluation of US sovereign debt seems inevitable, reflecting a broader trend in Western debt markets. This environment makes corporate bonds, such as those issued by Apple or Microsoft, potentially more attractive to investors than US Treasury bonds, given expected low credit spreads.
The strategist draws a stark comparison between the US economic outlook and Argentina's historical struggles with high inflation and currency devaluation. He cautions that unless the US government allows a temporary dysfunction in the Treasury market—leading to rapidly widening credit spreads and soaring credit risks—this dire scenario might play out. Interestingly, in such turmoil, assets like gold could remain refuges.
Gromen frames this potential future as "Argentina with US characteristics," underscoring the political pressure on the Federal Reserve to keep interest rates low to manage the growing debt burden. This pressure is evident as stocks have risen in dollar terms but fallen against gold and Bitcoin, signaling underlying stress in the financial system. Overall, the strategist paints a picture of a precarious path ahead, driven by fiscal realities and shifting investor preferences.