Thesis 1: Fiscal Dominance → Financial Repression 2.0
Claim
Escalating debt dynamics will compel policymakers to engineer structurally negative real rates and episodic liquidity injections—via explicit or veiled "printing"—sustaining this regime through the decade to avert fiscal crises.
Mechanism
Ballooning interest expenses (~$1T+ annually by mid-decade) erode fiscal space for discretionary spending, tilting the political calculus toward inflation-fueled nominal growth to erode debt burdens (classic financial repression).
Reserve scarcity amid quantitative tightening (QT) exacerbates funding frictions, as evidenced by quarter-end spikes in fed funds above target, signaling the brink of policy pivots.
Global watchdogs like the Bank for International Settlements (BIS) and Financial Stability Board (FSB) highlight leverage-rate mismatches as macro-financial tinderboxes, amplifying calls for backstops. This dynamic locks in a low-real-rate bias, with central banks prioritizing debt sustainability over inflation normalization.
Current Evidence
Debt held by the public hit 118.8% of GDP in Q2 2025, up from Q1's 120.5%, with the Congressional Budget Office's (CBO) latest outlook now forecasting 135% by 2035 amid persistent primary deficits and recent fiscal expansions.
QT decelerated further in September 2025 to a $15B monthly clip (from Treasuries alone), down from June's accelerated pace, leaving the Fed's balance sheet at ~$6.59T after a cumulative $2.38T drawdown from peak—yet bank reserves have plunged 12% since mid-July, heightening liquidity strains.
Central bank gold buying rebounded sharply in August 2025 with a net 19t addition (led by Poland and Kazakhstan), pushing global holdings past U.S. Treasuries for the first time since 1996.
Investable Angles
Rates/Inflation: Position for 2s10s bull steepeners and TIPS breakeven wideners to capture reflationary policy turns.
Hard Money Hedge: Allocate to gold (or miners/royalty firms) and bitcoin where permissible, bolstered by ongoing central bank accumulation.
Real-Asset Cash Flows: Favor regulated utilities, midstream pipelines, cell towers, and private credit vehicles primed to index to nominal GDP surges.
Equity Style: Overweight cash-flow resilient cyclicals (e.g., materials, industrials) that thrive in "hot" nominal environments.
Falsifiers
Entrenched disinflation paired with real rate hikes and liquidity spillovers; credible fiscal consolidation via primary surpluses; or outright austerity pacts that tame deficits without repression.
Lead Indicators
CBO net interest outlays and deficit baselines; Treasury refunding announcements/TGA drawdowns; H.4.1 balance sheet releases; effective fed funds vs. target (quarter-ends); 5y5y forward breakevens; WGC/IMF gold reserve flows; bank reserve metrics (ONRRP drainage).