Your Biggest Competitor for Capital Is the US Treasury

A client called me last month frustrated about mortgage rates. He’s trying to help his daughter buy her first house, and he couldn’t square the math. “The Fed has been cutting,” he said. “Why is she still looking at 7 percent?”

I told him the uncomfortable truth: she’s been outbid. Not by another homebuyer. By the federal government.

Eighteen Trillion Dollars Has to Come From Somewhere

This year, governments across the developed world will borrow roughly $18 trillion. That’s a record. The US alone is running a $1.9 trillion deficit, and the Congressional Budget Office projects it grows to $3.1 trillion within a decade. Net interest costs more than double over that stretch, from $970 billion a year to $2.1 trillion.

Here’s why that matters to a first-time homebuyer in Pasadena. All of that borrowing competes for the same pool of global savings that funds everything else. When the Treasury has to pay 4.5 to 5 percent to attract lenders, every other borrower in the economy prices above it. Mortgages, car loans, small business credit. The government goes to the front of the line, and the line behind it gets more expensive.

Economists call this crowding out. My client’s daughter calls it the reason she’s still renting.

The People Who Used to Buy This Debt Are Gone

For two decades, this math didn’t bite, because the biggest buyers of Treasuries didn’t care about price. Foreign central banks bought them to manage their currencies. The Fed bought them by the trillion as policy. During the financial crisis, foreign owners held over half the Treasury market.

Today that share is down to about 30 percent. The Fed has stepped back. The buyers who replaced them are hedge funds, money market funds, and banks. They buy bonds for one reason: to get paid.

That’s why the 10-year Treasury sits near 4.6% even with the Fed late in its cutting cycle. The Fed controls the short end. The market controls the long end, and the market is charging for fiscal risk. I don’t think the 2 to 3 percent world of the 2010s comes back. Something like 4 to 5.5 percent feels like the new neighborhood, with the occasional tantrum when investors question whether the borrowing ever slows. Ask the UK how that felt in 2022.

How This Story Has Ended Before

Now the part nobody puts in a headline. Debt this large almost never ends in default, at least not for a country that borrows in its own currency. It ends the way it ended last time.

The US exited World War II with debt over 100% of GDP. No default. No dramatic austerity. Instead, for roughly 35 years, the government held interest rates below inflation and let the debt shrink in real terms. Bondholders and savers paid the bill slowly, through eroded purchasing power. Economists call it financial repression. If you’ve ever heard your parents complain that their savings never kept up with prices in the 1970s, they lived it.

The IMF says global public debt will pass 100% of world GDP by 2029, breaking that postwar record. When interest costs eat 4 to 5 percent of GDP, the political pressure to keep rates low gets enormous, even when inflation says otherwise. That’s how you get a world where inflation trends near 3% instead of 2% and no one ever holds a press conference about it.

What We’re Doing With This

Not panicking, for starters. There’s a genuinely benign side here. A softer dollar lifts the value of international holdings and helps US companies that sell abroad. Stocks have historically done fine in nominal terms through these regimes.

But a regime shift this large touches every line of a portfolio, so let me walk through how we’re thinking about each one.

Bonds: get paid now, not in 2046. The core problem with long-term bonds in this environment is simple. You’re lending money for 20 or 30 years to the single largest borrower in history, at the exact moment its borrowing is accelerating, and the extra yield you receive for that risk is still below its historical average. Meanwhile, the front end of the curve pays you a competitive rate with almost no interest rate risk, because the Fed anchors it. So we’ve been keeping fixed income duration short. You collect real yield today and keep your powder dry. If long rates spike in one of those fiscal tantrums, short-duration investors get to reinvest at better prices. Long-duration investors get a statement they don’t want to open. And remember the lesson of 1945 to 1980: in a financial repression regime, the long bondholder is the one who quietly pays the government’s bill.

Real assets: own what inflation can’t dilute. If the endgame is inflation running nearer 3% than 2%, you want assets whose value is denominated in stuff, not promises. Commodities, gold, real estate, infrastructure. Gold deserves a specific mention because central banks themselves are telling you something: as the dollar’s share of global reserves has slipped to around 58%, they’ve been net buyers of gold. The institutions that manage sovereign money are hedging the very regime I’m describing. We think individual portfolios deserve a similar inflation anchor, sized sensibly, as ballast rather than a bet.

International equities: a hedge hiding in plain sight. Most American portfolios are heavily home-biased, which worked beautifully for fifteen years of dollar strength. But the dollar fell over 9% in 2025 and touched a four-year low this year. When the dollar weakens, foreign holdings get a tailwind twice: once from the assets themselves, and again from the currency translation back into dollars. A meaningful international sleeve isn’t a bet against America. It’s an acknowledgment that your liabilities are in dollars and it’s reasonable to have some assets that benefit when the dollar softens.

US equities: pricing power over promises. Stocks broadly can do fine in nominal terms through a fiscal-inflation regime, but not all stocks equally. The businesses that thrive are the ones that can pass rising costs to customers without losing them. Think of companies people pay regardless of the rate environment. The businesses that struggle are the long-duration stories, the ones whose profits live far in the future and need cheap money to justify today’s price. Higher discount rates are gravity for those names. We’d rather own cash flows we can see than projections we have to believe.

Cash: useful again, but not a plan. At today’s short-term rates, cash finally pays you to wait, and that’s genuinely valuable for near-term goals and dry powder. But don’t confuse it with safety in this regime. Cash is the asset financial repression is specifically designed to tax. If inflation runs at 3% and your savings yield drifts below that, you’re losing purchasing power on schedule. Cash is a tool here, not a destination.

What would change our minds. No framework deserves blind loyalty, so here’s what we watch. If deficits actually shrink through real fiscal reform, the term premium story fades. If foreign demand for Treasuries genuinely collapses rather than just softening, the adjustment gets faster and uglier, and you’d see it in a sharply steepening yield curve. Either signal would have us rethinking. Neither is flashing today.

Our job isn’t to predict which version of the future shows up. It’s to build plans that survive several of them.

The Bottom Line

The debt story isn’t a countdown to a crash. It’s a slow tide change: higher long rates, a softer dollar, warmer inflation. Portfolios built for the old tide will feel it gradually, then suddenly. The fix is unglamorous: revisit your assumptions before the regime does it for you.

If you’d like to walk through your own plan against this backdrop, you can grab 30 minutes on my calendar.

As always, keep calm and invest.

Nirav

Risk Disclosures: This general information is not to be considered investment advice. Past performance is no guarantee of future results.