They contend that Western governments, led by the United States, have already crossed a structural threshold.
Conventional interest rate policy no longer functions as a reliable tool.
Fiscal realities now dictate outcomes.
The United States, he argued, now owes more in inflation adjusting hard currency obligations than it collects in receipts. True interest expense, which includes gross interest plus entitlement outlays, has reached 105 percent of federal receipts.
That figure continues to climb at roughly 7.5 percent while receipts grow closer to 4 percent. A further rate hike would push the ratio even higher.
Both guests described the current environment as fiscal dominance rather than monetary dominance. Lyn Alden stated the implication plainly: “Rate hikes don’t solve the problem at this point. We’re in fiscal dominance.”Hiking rates would enlarge deficits, squeeze debtors, and still fail to contain physical price pressures in energy and food. The pair sees little chance that incoming Fed leadership will pursue aggressive tightening.
The long end of the Treasury market has been grinding higher, with the 10 year yield moving toward 4.8 percent. Treasury Secretary Scott Bessent responded with increased buybacks well before any public crisis materialized.Gromen called this intervention “the dog that didn’t bark.” Traditional buyers such as insurers and pension funds have not stepped in at the long end despite historical patterns. The reason, he said, sits in private credit.
Insurance companies now hold 11 to 16 percent of their assets in private credit vehicles. These positions are illiquid. Selling them would force large mark downs that could threaten solvency. That constraint prevents insurers from rotating into Treasuries even at attractive yields, creating what the guests termed a Mexican standoff among private credit, insurance balance sheets, and the long end of the bond market.China remains the conspicuous exception. Its 10 year yields sit near 1.4 to 1.5 percent, the lowest in the world and hundreds of basis points below U.S. levels.Gromen attributed the divergence to capital controls, a willingness to absorb pain after allowing the housing sector to collapse, and the use of AI for continuous improvement in manufacturing. The result is wholesale deflation. An electric scooter can be charged for a penny or two and travel 60 to 100 kilometers.
Chinese producers now export high quality goods at prices that undercut Western competitors.
In the West the opposite dynamic is unfolding. Hyperscalers borrow at 5 to 6 percent to fund AI expansion and compete directly with the Treasury for capital.Gromen described them as the new bond vigilantes. Combined with potential AI driven job losses that would shrink the tax base, the setup forms a self reinforcing loop of rising rates.
“There’s no stopping this train until they essentially cut off its head, which is full on yield curve control,” he said.
Physical bottlenecks add another layer of pressure. Crack spreads for diesel remain elevated. Refinery constraints persist even when crude prices stay contained. These real world limits cannot be solved by modest adjustments in the funds rate.Looking ahead, the guests outlined two possible paths: a slow erosion of credibility as authorities buy bonds amid ongoing inflation, or a sudden nonlinear event. In the latter case Gromen pointed to a scenario drawn from Jim Rickards in which a single phone call from Treasury to a firm such as BlackRock could freeze five trillion dollars of assets.Markets would close for two or three weeks and reopen under new allocations. Paper claims would be marked down relative to gold and Bitcoin.
“When people that are running trillion dollar balance sheets internalize that there’s no stopping this train, they’ll go to hit the sell button. They’ll shut the markets and then they’ll reopen them two weeks later.” Gold and Bitcoin, as bearer assets that can be held outside the banking system, would likely preserve purchasing power better than financial claims. Gromen, who earlier reduced a large Bitcoin allocation, has begun adding back modestly. He said he would buy aggressively if the 10 year yield spiked toward 7 percent.Alden remains a long term holder of both Bitcoin and gold while keeping extra cash to navigate air pockets and sudden shocks. She prefers to trim exposure through leveraged Treasury products rather than selling the scarce assets themselves.
The conversation closed with a practical warning. Americans, the guests suggested, remain overly confident that institutions will always reopen the same way they closed.History in other countries shows that savings can lose purchasing power quickly when the system resets.
Positioning in scarce, self custodial assets and maintaining liquidity for dislocations offers a more resilient stance than waiting for policy makers to restore the prior equilibrium.
The interview leaves listeners with a clear message.The math of entitlements, interest, and receipts has already overtaken the old playbook.
What remains is the timing and the form of the adjustment, not the direction.
