Perspectives: Ryan Kimmel Updates DoubleLine’s Federal Debt Spiral Watch

Ryan Kimmel, Macro Asset Allocation Analyst at DoubleLine Capital, Aug. 22, 2024, discusses with Product Specialist Phil Gioia Mr. Kimmel’s latest research (0:00) on the U.S. deficit and debt spirals. The government’s fiscal position, Mr. Kimmel warns, are on a trajectory to become worrisome for markets, with possible implications including weaker GDP growth, a steeper Treasury yield curve, higher gold prices and a weaker dollar. Their discussion includes:

(2:09) the departure of federal deficits from their decades-long, Keynesian behavior of moderating in times of economic growth, with the U.S. now running deficits near 6% of GDP even amid low unemployment and positive growth;

(5:28) risky optimism at the Congressional Budget Office with respect to interest rate levels and thus the government’s debt service burden over the next 10 years;

(7:01) the danger that deficits, debt loads and interest rate levels have entered “this self-perpetuating negative feedback loop” that while raising the government’s debt burden could crowd out private investment, lowering GDP and thus the economic wherewithal to service that debt;

(8:00) the few options left to policymakers to address the deficit and debt spirals, and the absence of serious measures being discussed by Republican and Democratic leaders in this election year;

(12:21) possible market implications, including a steeper Treasury yield curve, stronger gold prices and a yen-like decline in the U.S. dollar if the Federal Reserve embarks on a Bank-of-Japan-like course of yield curve control.

Mr. Kimmel’s research paper, “Debt Spiral Watch: A Scenario Survey as Washington Drifts Toward a Reckoning,” is available here.