On My Radar - Debt Misconceptions

Written By Steve Blumenthal

June 27, 2025
By Steve Blumenthal

“You are going to see a crack in the bond markets. It is going to happen. I am telling you its going to happen, and you're going to panic. I'm not going to panic."

Jamie Dimon, Chairman and CEO, JPMorgan Chase,
June 7, 2025 Source

Edward Chancellor’s The Price of Time: The Real Story of Interest is a historical and economic exploration of interest rates, why they matter, how they've evolved, and the consequences of keeping them artificially low.

Chancellor argues that interest is the price of time, shaping everything from investment decisions to economic cycles. Drawing on centuries of financial history, he contends that prolonged periods of ultra-low interest rates distort markets, encourage excessive debt and speculation, and ultimately lead to instability. The book is both a critique of modern monetary policy and a call to reappreciate the crucial role interest plays in maintaining financial and societal balance.

The king of banking, Jamie Dimon, couldn’t be more blunt. “You are going to see a crack in the bond markets.”

I’ve peppered you with many On My Radar posts about debt. It is the issue. It is essential.

This week, I dispel some common objections I frequently hear and share some additional thoughts.

Grab coffee, find your favorite chair, let’s go!

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Common Debt Misconceptions

With deficits rising and interest costs ballooning, debt remains front-page news. But there’s a lot of confusion out there - some voices calling for imminent collapse, others waving it off entirely. I want to dispel the common misconceptions.

Lyn Alden, a sharp macroeconomic thinker, recently addressed three common misconceptions about U.S. debt. Her framework cuts through the noise, and I believe it’s worth sharing.

Here’s a simplified take on the key points she makes, with a few of my own thoughts layered in:

3 Debt Misconceptions That Investors Need to Understand

1. “We Owe It to Ourselves”

  • This idea sounds comforting, but it’s misleading. The debt isn’t equally shared; it’s owed to specific bondholders: foreign governments, banks, pension funds, and individuals.

  • While some households own millions in Treasuries through retirement accounts, many own none at all. Yet all taxpayers are ultimately responsible for servicing that debt.

Can the U.S. default? Technically, no, because we borrow in our own currency. But the government can debase the value of that currency through inflation by printing more currency. That’s a form of stealth default.

  • We've done it before - against gold in the 1930s, 1970s, and again in 2020–2021 when bondholders suffered the worst bear market in a century due to money printing, QE, and inflation.

Some argue that we could selectively default—perhaps on foreign creditors, stop paying interest to the banks, or even default the Fed’s Treasury holdings—but any default would cause ripple effects, harming retirees, insurers, banks, and eroding trust in Treasuries. That loss of trust means a loss of investors, which in turn means that higher interest rates will need to be offered to attract new investors.

  • Bottom line: the debt isn’t just owed to “ourselves.” It's owed to someone specific, and defaulting hurts everyone, especially us.

2. “People Have Been Warning About This for Decades”

Yes, debt concerns go way back - remember Ross Perot and the original debt clock in the '90s?

  • But back then, interest rates were falling, globalization was surging, and inflation was tame. Deficits were more manageable.

Today’s backdrop is very different.

  • Globalization has peaked. Baby Boomers are retiring in large numbers, drawing down their Social Security benefits.

  • Interest rates are no longer in a state of structural decline.

  • The U.S. is running persistent deficits of 7% of GDP, and interest costs are ballooning.

We’re not on the edge of collapse, but the game has changed. Fiscal policy now plays a significantly larger role in determining economic outcomes and investment performance.

Ignoring it today is a mistake.

3. “The Dollar Will Collapse Soon”

This one sells headlines but misses how currency systems work. There’s over $18 trillion in foreign dollar-denominated debt. That creates massive, inflexible demand for dollars. Everyone who owes dollars needs dollars - often desperately.

Could the value of the dollar decline over time? Yes.

  • Could it collapse tomorrow? Highly unlikely.

  • Think of it as a dial, not a light switch. We’re already turning that dial toward fiscal dominance, rising inflation pressures, and long-term currency debasement—but we’re still a long way from Argentina or Turkey.

  • The U.S. dollar is a global reserve currency with network effects and deep liquidity. It won’t collapse overnight unless we implode politically. More likely: it gradually degrades, moving from a strong, developed currency to one that behaves more like those of emerging markets.

My comments:

First, what is fiscal dominance in lay perso’s terms: Fiscal dominance occurs when government spending and deficits become so large that they effectively dictate central bank policy. Instead of the central bank independently managing inflation and interest rates, it becomes pressured, directly or indirectly, to keep borrowing costs low to help finance the government. In this regime, monetary policy serves fiscal needs, often at the expense of controlling inflation or maintaining currency stability.

I’ve been talking about a “Debt Death Spiril.” This is what I mean:

A debt death spiral occurs when a government's debt and interest costs become so large that it must borrow more to pay the interest on its existing debt. As borrowing increases, so do interest expenses, especially if lenders demand higher yields to compensate for rising risk. This leads to even larger deficits, necessitating further borrowing, perpetuating a vicious cycle.

Eventually, investors may lose confidence in the government's ability to manage its finances, driving up borrowing costs further or drying up demand altogether. At that point, the government faces limited choices: default, aggressively print money (leading to inflation or currency collapse), or implement severe austerity, each with painful consequences.

The key trigger is when debt grows faster than the economy and revenues can no longer keep up. That’s when the spiral tightens.

“You are going to see a crack in the bond markets. It is going to happen. I am telling you it’s going to happen, and you're going to panic. I'm not going to panic."

What Jamie Dimon is saying is that, at some point, bond investors will stop buying U.S. government debt. Absent buyers of the debt, interest rates will move up, and bond prices will move down. We are in the early innings of a debt death spiral.

Conclusion:

The reality is we are far past “nothing to worry about” and shy of “brace for impact.” My best estimate on “impact” timing is 2027/28, but many factors can alter the timeline. It could be sooner or later.

Debt and deficits already matter, and fiscal dominance is shaping inflation, interest rates, and investment performance. But this isn’t a 2008-style cliff. It’s a gradual, yet significant shift with real consequences for how you allocate your capital and manage risk.

Staying informed, keeping flexible, and thinking globally are more important than ever. “Nothing stops this train,” as Lyn puts it. The track may be long, but it’s bending the investment landscape in ways we need to navigate.

Stay tuned, stay focused, and stay risk-minded.

Here is a link to Lyn Alden’s website. I see she is a Penn State grad. I’m to reach out to her. I do admire her work.

 

Investment Implications

As Paul Tudor-Jones said, “All roads lead to inflation.”

Higher interest rates and higher inflation remain a high probability. I hope I’m wrong, but I want to be positioned in case I’m right. Owning a 4.25% 10-year Treasury Note in a world that may see 5%, 6% or 7% yields is not going to help. The value of that investment will decline. Furthermore, 4.25% may not even keep pace with inflation. There are other ways to earn higher yields.

Given this long-view framework, here’s a high-level positioning playbook:

How to Invest in a Long, Slow-Motion Debt Crisis

1. Favor Real Assets Over Nominal Debt

Inflation is the path of least resistance in a high-debt, high-deficit world.

  • Equities with pricing power – Companies with strong margins, low leverage, tangible assets on their books, and the ability to pass costs on to consumers. Consider high-growth dividend stocks, but be selective in what you own.

  • Commodities and commodity equities – Energy, metals, and agriculture are natural beneficiaries of inflationary fiscal spending.

  • Precious metals – Gold and silver are historically reliable when central banks are behind the curve and currency trust erodes.

  • Select real estate, especially in tax-friendly or supply-constrained regions. Not all RE is equal - cash flow and cap rate spreads matter. Avoid CRE office space.

2. Own Scarce Digital Assets

Bitcoin fits this regime better than bonds.

  • In a world of aggressive fiscal expansion and financial repression, the argument for digitally scarce, non-sovereign money is gaining traction, especially among younger investors and foreign central banks.

  • I believe that some Bitcoin should be in every portfolio.

3. Be Cautious with Traditional Bonds

Duration is risk, not safety. Bonds lose value when interest rates rise. And low yields lose to inflation regardless.

  • The 60/40 portfolio is no longer a safe default. Long-duration Treasuries are vulnerable if interest rates remain elevated or drift higher due to persistent budget deficits. And, in general, stock market valuations are currently way too high.

  • If owning bonds, favor short-duration, defensive credit, and select private credit opportunities with strong balance sheets.

  • Consider barbell exposure: safe cash-like instruments on one end, real assets and select equities on the other.

4. Global Diversification Matters More

The dollar will degrade, but not disappear.

  • The U.S. is better off than most, but not immune to challenges. Consider diversifying with selective exposure to non-U.S. assets, particularly countries with trade surpluses, robust reserves, and commodity leverage (e.g., Latin America, India, select emerging markets).

  • Avoid high-debt emerging markets with weak currencies - don’t fight the foreign exchange rate tide.

5. Stay Liquid and Nimble

Volatility is opportunity—if you’re prepared.

  • Keep some dry powder—opportunities will come, especially if there’s a policy pivot or flash liquidity crisis.

  • Tactical flexibility will outperform rigid models. This is not a set-it-and-forget-it decade. This is a period more similar to the 1970s and early 1980s.

Bottom Line:

  • This is an era where the policy path matters as much as the fundamentals. We're not heading off a cliff, just yet, but we are on the road to the cliff’s edge.

  • I believe it will take a crisis for the U.S. and much of the developed world to restructure the system. Elected officials have evidenced that they are not prepared to take the necessary actions.

  • A crisis will bring them together.

Opinions are Steve Blumenthal’s and are subject to change. The information is provided for discussion purposes only. Carefully review your investment approach with your investment advisor. If you’d like to have a deeper conversation, please reply to this email and let me know.

 
 

Trade Signals: Update - June 26, 2025

“Stay on top of the current market trends with Trade Signals.”

“Extreme patience combined with extreme decisiveness. You may call that our investment process. Yes, it’s that simple.”

– Charlie Munger

Sharing this week’s Trade Signals Market Commentary with you (S&P 500, 10-year Treasury Yield, Dollar, and Gold):

Key Macro Indicators - Investor Sentiment, Market Breadth, The S&P 500 Index (Stocks), The 10-year Treasury Yield (Bonds), and the Dollar:

The S&P 500 Index (Stock Market)

  1. Investor Sentiment (looking for extreme optimism or extreme pessimism): The current reading is neutral

  2. Market Breadth (looking for direction): The current reading is bullish, but lower since last week and nearing a neutral reading

  3. S&P 500 Index Weekly MACD: The current reading is bullish

Notable - S&P 500 Index: Investor sentiment is neutral, Market Breadth is positive, and the S&P 500 Index Weekly MACD remains bullish (last signal 5-17-25). The green arrow pointing to the 5,700 area indicates a significant upside price gap. Gaps tend to be filled, which means a correction back towards the support line is probable (not guaranteed). CHARTS AVAILABLE IN FULL POST.

10-Year Treasury Yield Weekly MACD: The current reading has just turned bullish, signaling a decline in interest rates. The green arrow in the bottom right is signaling declining interest rates, which is bullish for bond prices.

Dollar Weekly MACD: The current reading is bearish. This is concerning from an inflation perspective. A declining U.S. dollar generally has these implications:

  • Stocks: Often helps large-cap multinationals, as their overseas earnings translate into more dollars. It can also boost commodity and export-driven sectors.

  • Bonds: Can be negative for U.S. bonds, especially Treasuries, as foreign investors may demand higher yields to offset currency losses.

  • Gold: Typically positive. Gold is priced in dollars, so as the dollar weakens, gold often rises as investors seek a store of value.

In short, a weaker dollar is good for gold, mixed for stocks (but helps exporters), and puts pressure on bonds.

The break below 100 (red line) is significant, as foreign investors appear to be selling U.S. investments and repatriating that money.

Gold. After many months, the Weekly MACD turned bearish. Gold peaked at $3,500 and remains in a medium-term correction. Looking for $3,000 as a good point to add. The long-term outlook for gold remains bullish.

NOT A RECOMMENDATION FOR YOU TO BUY OR SELL ANY SECURITY. FOR DISCUSSION PURPOSES ONLY.

About Trade Signals

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The views expressed herein are solely those of Steve Blumenthal as of the date of this report and are subject to change without notice. Not a recommendation to buy or sell any security.

Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. 

 

Personal Note: Peyton Manning

“Everything I want for myself, I want for everyone around me. I hope we all make it and I hope we all find the things that make us happy."
— Annomious via X, @SeekWiser_

“He Was Sitting Alone at Graduation - Until Peyton Manning Took the Empty Seat Beside Him:

It was high school graduation. Hundreds of families packed the bleachers. Balloons. Cheers. Flashing cameras. Except for one student, Ryan.

He sat in the front row, cap slightly crooked, hands in his lap. No one in the stands was clapping for him. No parents. No siblings. Just an empty space next to his name.

His mother had passed away the year before. He’d been living with an aunt who couldn’t attend due to work. Ryan didn’t complain. Didn’t cry. Just sat there… quietly.

Then, right before the ceremony started… A tall man walked in, wearing a simple gray suit and a Colts tie. It was Peyton Manning.

He didn’t speak to the crowd. Didn’t go to the VIP section. He walked straight up… and sat next to Ryan.

No big gesture. No cameras. He leaned in and whispered, “Heard you might need a fan today.” Ryan looked over, stunned. Then he nodded, eyes welling up.

When Ryan’s name was called, Peyton stood and clapped the loudest. After the ceremony, someone asked him why he came. Peyton just smiled: “Because no one deserves to feel invisible on a day like this.”

That moment? It wasn’t about fame, football, or followers. It was about showing up when it mattered most. And for Ryan, that moment will echo louder than any cheer on a Sunday night.”

Source: @RickyDoggin

I’ve always been a Payton Manning fan. I enjoy his football commentary, and I actually enjoy his television commercials. He has a fun, genuine way. I like him even more after hearing the story about what he did for Ryan.

In a world that seems to be divided, we sure do need more Payton Mannings. Uplifting, inspiring, loving.

Susan is in North Carolina, coaching this weekend. Her club teams are competing in the regional finals. The top teams advance to nationals. I’ll be waiting for her update calls, catching up on a few things around the house, and playing some golf at Stonewall (suburban Phila, Elverson, Pa).

The following is a recent picture I took with my iPhone. The project began under Tom Fazio, but a young Tom Doak, early in his career, with Gil Hanse as his associate, took over and completed the course. It opened in 1993.

I’m not sure if I’m right or not, but I always say Stonewall is Doak’s first masterpiece. Both he and Hanse have gone on to become renowned golf course architects. The original property was an old dairy farm, and the stone building, part of which you see in the picture, housed the cows.

It was early morning, and my friend Chuck and I, along with two guests, had just finished breakfast. As we walked to the first tee, I stopped and took this shot. When our kids were young, we’d fish the pond you see through the opening for bass, play three holes, and then head for ice cream. That was over twenty years ago. I do miss those days. They were perfect days.

Stonewall June 2025

“Things that make us happy.” Payton Manning made me happy, and I hope he made you happy, too. There is so much going on in the world. Happy is needed!

Get out and do something fun. Maybe surprise an old friend, former teacher, or coach.

Wishing you happiness!

With kind regards,

Steve

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Stephen B. Blumenthal
Executive Chairman & CIO
CMG Capital Management Group, Inc.
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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management. Author of Forbes Book: On My Radar, Navigating Stock Market Cycles.

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On My Radar - What The Technical Indicators Are Telling Us