They Only Have One Option to Lower Rates
The host explains three ways policymakers could lower interest rates: reduce government borrowing, allow economic hardship to drive rates down, or use money creation to buy Treasuries. He concludes that a severe recession and major spending cuts appear unlikely, so he expects some combination of lower oil prices and increased money-printing measures, including expanded bank Treasury purchases and limited Federal Reserve QE.
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Read the Full SummaryKey Points
The host says the federal government’s $2 trillion year-to-date borrowing gap adds to Treasury supply, putting downward pressure on Treasury prices and upward pressure on yields.
The host argues that the government can collect only about 15% to 18% of GDP in taxes, and that higher tax rates can slow GDP growth and reduce revenue.
The host says recessions can lower interest rates as investors buy bonds and inflation expectations fall, but he does not think a major recession is very likely.
The host says U.S. households have the lowest debt-to-asset ratio in 50 years, which he sees as evidence that there is limited household leverage to unwind in a severe downturn.
Three Ways Interest Rates Can Come Down
The host frames elevated interest rates as a challenge for investors, businesses, households, and the government, then introduces three possible ways policymakers could bring them down.
Government Spending Is the Biggest Lever
The host identifies government spending as the biggest policy lever, arguing that lower spending would reduce borrowing and Treasury issuance.
How Deficit Borrowing Pushes Rates Higher
The host explains that deficit spending requires Treasury borrowing, and that expanding debt supply amid weaker lender demand can push Treasury prices down and yields up.
Spending Cuts Would Lower Rates
The host says spending cuts could reduce annual borrowing, but argues that meaningful cuts appear unlikely after DOGE failed to produce material spending changes.
Why Higher Taxes Cannot Fix the Deficit
The host argues that federal tax receipts have stayed near 15–18% of GDP for decades, so higher tax rates are unlikely to raise enough revenue to meaningfully lower rates.
What Started Driving Rates Higher in February
The host notes that 10-year Treasury yields began rising after bottoming in February, using irony to suggest that developments since then contributed to higher borrowing costs.
Regulation, Tariffs, and War Raise Costs
The host argues that regulations, tariffs, taxes, and overseas interventions can constrain business activity, raise input costs, and weigh on economic growth.
Option 2: Economic Trouble
The host introduces economic hardship as the second way rates can fall, while acknowledging that recession-driven declines would come at a significant cost.
Why Recessions Push Interest Rates Down
The host says recessions lower rates as investors seek the perceived safety of government bonds and lenders become less concerned about future inflation.
Why Another Major Crash Is Unlikely
The host doubts another major crash is imminent, arguing that real median household income has recovered to its 2019 peak and may continue growing.
Real Household Income Is Recovering
The host argues that recovering real median household income suggests the United States may have years of strong income growth ahead, if historical patterns continue.
US Households Have Record-Low Leverage
The host says a severe recession typically requires a forced liquidation, but US households now have a historically low debt-to-asset ratio after years of deleveraging.
What Credit Card Debt Really Shows
The host argues that inflation-adjusted average household credit-card debt is below its 2008 peak, despite the large total balance nationwide.
The Cost of Waiting for a Crash
The host notes that fewer than half of households carry credit-card balances, and says waiting for a crash may have meant losing purchasing power to inflation instead.
Option 3: Print Money
The host presents money creation to buy Treasuries as the most likely route to lower rates, since major spending cuts and a deep recession both seem unlikely.
How Quantitative Easing Lowers Rates
The host explains that quantitative easing involves the Fed creating money to buy Treasuries, raising bond prices and lowering yields.
Yield Curve Control Is Unlimited QE
The host describes yield curve control as a commitment to buy however many Treasuries are needed to hold yields at a target, making it effectively unlimited QE.
How Banks Could Create More Treasury Demand
The host says banks could create more Treasury demand if regulations limiting their lending were loosened, citing a temporary 2020 example.
The Most Likely Rate-Cutting Plan
The host expects a combination of lower oil prices and money-creation measures, including expanded bank Treasury purchases and somewhat more Fed QE.
They Cannot Afford to Keep Rates This High
The host concludes that policymakers cannot afford to let rates keep rising, then promotes his portfolio class and signs off.
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