Debt and deficits
As the highly partisan debate about US economy rages on - has President Biden (if indeed Biden is in charge of anything) achieved a brilliant soft-landing, or destroyed living standards with several years of rampant inflation? - the federal Budget deficit in the meanwhile quietly flames out towards $2.1 trillion.
US interest payments on the national debt alone passed $1 trillion this month.
As the brilliant analyst Charlie Bilello highlighted with his graphic below, all of this is going on when the economy has been powering along with some extremely low rates of unemployment.
How far is the deficit going to blow out next time there's a recession or a deep downturn?
It makes one think...
US reserve currency
To be fair, I've not really been one of those "death of the US dollar!" types.
I remember watching some documentary or other when flying long haul as a backpacker concerning the looming demise of the US dollar...but come to think of it that doco must've been about a quarter of a century ago now!
However, a US national debt topping $35 trillion probably does mean that the decades ahead will be locked into low interest rates, ongoing inflation, and probably a good deal of money printing for good measure.
Perhaps not too surprisingly, given this context, money markets are pricing for a Federal Funds rate falling to 3 per cent by the back end of next year.
Interest rate cycle turns
The global narrative around interest rates is now shifting in a dovish direction.
Australia's 3-year bond yield - having topped out at around 4.35 per cent in October 2023 - fell back to 3.44 per cent today.
This week the European Central Bank cut interest rates for a second time in this cycle, despite the core rate of inflation remaining significantly above target.
One of the speaking reps noted that there could be a "series" of interest rate cuts to follow, depending on how things play out with the return to the target inflation rate.
You could see the real-time reaction in markets, with the price of gold spiking to a new record high.
Source: Bloomberg
Inflation-busting investments
How to protect yourself from more decades of the same?
Owning gold and other commodities is one popular inflation hedge, and a stocks/bonds portfolio is another proven method over the long term.
Farmland, commercial property with inflation-linked leases, residential property, and a manageable level of mortgage debt which will be inflated away over time are some others.
Australia is certainly somewhat better placed than many other countries from a government debt perspective, although there's a decent amount of indebtedness at the state level and the country also tends to run very high levels of net immigration.
In all eventualities, the purchasing power of the currency looks likely to get smoked.
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