Current unsustainable monetary and fiscal policies, along with rising inflation and bond yields, are likely to trigger a significant market correction of 30-50%.
Economic Outlook
The US is heading for $25 trillion more debt over the next decade under current policy, with Trump proposing $10 trillion and Harris $7 trillion more, on top of the current $36 trillion debt.
Total US public and private debt has reached $100 trillion (350% of GDP), up from $300 billion in 1970 (150% of GDP), leading to $60 trillion in excess debt.
Federal Reserve and Inflation
The era of massive debt monetization by the Fed (1987-2022) is over, potentially leading to a 30-50% market correction as yields rise and prices fall.
The 16% trimmed mean CPI, a better measure of inflation, is running at 3.7% year-over-year, compared to the Fed’s 2% inflation target.
Market Implications
The bond market is signaling the end of the Fed’s rate-cutting cycle, with the 10-year Treasury yield expected to rise significantly, causing a major downward adjustment in asset prices.
A corporate refinancing wave in 2025-2026, combined with higher interest rates, will lead to a massive liquidity drain from the market as companies refinance debt at much higher rates.
Investment Strategies
Short-term government securities (1-3 year) will provide a 4-5% yield with low risk, making them a good option for investors seeking returns without significant principal loss.
TIPS (Treasury Inflation-Protected Securities) and precious metals like gold are recommended as safe assets to protect against inflation, offering a fixed real return and store of value, respectively.