Yesterday's discussion about US debt topping $40T and debt to GDP approaching 130% brought out a lot of default fears. So I wrote a short paper on it (link below). The quick version is that 130% isn't a cliff for a country that issues its own currency, and the nuance matters for anyone consuming in USD, holding cash equivalents or govt bonds. Start with the balance sheet. Federal debt held by the public is about $35T. US household net worth is about $196T, roughly 6x GDP and 5x the federal debt. And a big chunk of that wealth is the federal debt itself, sitting in portfolios as safe savings. Federal debt is large, but the asset side of the ledger is massively larger and is the main thing that allows such large govt debts in the first place. The uniquely wealthy and productive asset side is what makes the USA very different from almost every other country in the world. Now the mechanics. The government funds its spending by taxing and borrowing from the wealthiest economy that ever existed. That's a massive collateral and revenue stream supporting the debt. And unlike a household or Greece, it can create the currency its debt is in. So the real risk to a bondholder isn't getting stiffed in nominal terms. It's getting paid back in dollars that buy less. Hyperbolic narratives about default gloss over the balance sheet AND the mechanics that make the USA unique. But debt to income is high and rising, Cullen! Of course it is. That risk is real and should be measured with nuance, not panic. But the historical utility of debt to GDP ratios as a predictor of default is mixed at best and useless at worst. History backs this up. About half of all sovereign defaults since 1970 happened with external debt below 60% of GNP. The UK hit 252% in 1946 and never defaulted on its own currency debt. And we all know the Japan story. Hyperinflations are driven by collapsing output and debts owed in foreign currencies, not by crossing a debt ratio. And the popular "51 of 52 countries defaulted above 130%" stat comes from a report that counts inflation and devaluation as "default." Its own examples list wars, revolutions, droughts and export collapses as the causes, and the actual missed payments were on foreign currency, gold standard or euro debt. Debt to GDP wasn't even the causal factor! And those causal factors aren't what the USA faces today. It doesn't borrow in a foreign currency and it isn't losing a world war. The bigger risk isn't default or hyperinflation. It's that aging, inequality and technology keep dragging on growth and prices, pushing debt higher as the govt fills an inequality gap the private sector won't. That leaves a fragile economy with sticky inflation that's exposed to disinflationary shocks. The distinction is important, and hyperbole doesn't help anyone untangle the risks. For portfolios, default hits all bonds, but persistent above-target inflation hits long bonds the most. So the question isn't whether to own USD or Treasuries. It's how much duration you own, matched to real liabilities, and how to diversify around that for the inflation protection long-term T-bonds can't provide. Full paper:

Common response to this is: "Sure, $489 trillion in assets is a lot, but it can't be monetized because it's mostly stocks and real estate". Guys, real estate is the most collateralized asset in the world. And stocks are bought and sold every day. Financing $40 trillion of govt debt is not a problem in the wealthiest society that ever existed. Save your "sovereign debt crisis" narrative for European nations or pretty much any other country in the world. It ain't happening in the USA any time soon.

This chart is even more insane. This shows total gross private sector assets. $489 TRILLION. Say that out loud. Four hundred and eighty nine TRILLION. That's almost half a QUADRILLION. If you're gonna talk about the debts then you also need to talk about the assets and the assets that fund the public debt are 10X bigger.

Is this even controversial? The bond market tries to predict the long run path of the Fed. And the Fed tries to set rates by predicting the long run path of inflation. So. Inflation determines where bond yields should be....

Very cool to see Your Perfect Portfolio on Christine Benz's recommended list of books. All 8 of these are fantastic. @awealthofcs @moneyover55 @JeanChatzky @MeasureTwiceMNY @MullaneySeanW @WadePfau @christine_benz

This is a good takedown. It’s hard to emphasize how bad Prop 40 (the one time billionaire tax) actually is. It’s so near sighted and void of evidence that its passing relies entirely on narrative. The fact that it’s retroactive to Jan 1, 2026 is the tell. The people supporting this know it causes capital flight so they made it retroactive to tax people who leave before they leave. But they’ll leave anyhow because they’ll assume this isn’t really a one time tax (it never is, anyhow). Capital is global. A billionaire moving from CA to TX doesn't change what gets funded. What changes is who pays CA income tax, and the top 1% pays ~half of it. Attacking that wealth is a long-run impediment on the state’s ability to fund the very things this wealth tax claims to fund in the long-run just so some politician can score a short-term “win”. Property taxes work because you can't move a house and all states have them. Financial wealth moves where it’s treated friendly. Europe learned this the hard way: 12 countries had wealth taxes in 1990, 3 do now. You can have progressive income taxation without making it punitive. Prop 40 is punitive and will hurt the very people it intends to help.

This was too much fun. We talked about How Countries *actually* Go Broke and why Ray Dalio is wrong about the USA. We also talked about how the US debt and inflation can have a very different impact on different bond durations and why bonds under 5 years actually look very attractive now.

Maybe the two best fitness devices I've ever purchased: 1) Belt squat lever. The ultimate squat machine with no spine compression risk. Absolutely awesome. 2) Assault bike. Great full body cardio machine. Amazing for HIIT workouts and does what it says - assaults your whole body. Bigly endorse both!

We need to get back to authentically stupid writing, the way it was in the good old days. In the future please do not use any proofreaders, do not use spell check, no peer review, absolutely don't use the super intelligence that is better at language than all of us. We need to know exactly how authentically stupid everyone is.

Here's a short interview I did last week. We did a full macro rundown: 1) Labor market stinks, but not collapsing due to AI. Firms are just cautious to hire. 2) No recession on the horizon as the VERY famous Roche Recession Rule shows. :-) 3) Inflation got sticky again. The Fed is on hold for the foreseeable future. 4) Long bonds still stink, tbills are still great. Gotta be optimistic AI in the long-run, but if you're sequence risk aware I'd lean towards value.