On November 3rd of 2024, I shared my logic for Never Harris, even while lamenting the state of our country’s choices. It’s worth recounting some of that as we reflect on where we are two years later.

We are at a time of serious issues with very unserious people running for president. Neither candidate mentions the $35T in debt that they have racked up. Neither candidate focuses on the fact that in this supposed good economy, we are projected to have a $1.9T budget deficit just this past year! Almost $2T of red ink, and it’s not part of the discussion. Because of the Biden administration’s weakness, we now have conflagrations around the world, and neither party offers specific, credible solutions to how they’d deal with it. Mr. Trump does say he’d end the Ukraine war in a day, but how? Cricket, cricket. Regardless of the issue of Ukraine itself, the conflict revealed a deep shortfall in industrial manufacturing capability in the U.S. for critical munitions stocks. Neither party has a plan to significantly rebuild the warfighting capability of the U.S.*, and should we have to go to war, we may not have the warfighting materials we need. How will we deal with the new axis of evil that is getting closer by the day? No, we can talk about Donald Trump’s “fascism”, and we can talk about how “dumb” Liz Cheney is

One did not need to be a Nostradamus, or have a particularly clear crystal ball to see what was going to happen. Spending would continue on autopilot (with some minor changes on the margins*), and we would hurtle towards debt oblivion.

Yesterday we crested $40T in debt, and as always for the moment of a milestone, people notice. At one level this is not particularly a problem. Obviously there is no meaningful difference between $39.8T and $40T. And while a very large number it has to be put in context. The U.S. projected GDP for 2026 is ~$32T, and our total net worth is estimated by the Fed to $166T, which doesn’t include the ~1/3 of the U.S. land which is owned by the government (much higher proportion of the West than the rest of the country). But we also know we have made big promises that cannot be sustained. Actually I should rephrase that. “We” have never made promises; we have allowed politicians at one period of time to give benefits to one group of people that will reward them at the ballot box, with the bill passed to our kids and grandkids. But the bill is getting closer every day and we all know it; we are scheduled to have social security take a mandatory ~20% cut in 2033 at the latest. Further we have ~$75-100T in unfunded liabilities when you include all our social programs. Which political party is standing up to deal with this? The Iran war has revealed what was perfectly predictable**, and yet rather than the Trump Administration making revitalization of the defense industrial base the focus of his call for renewed domestic manufacturing, we have only made changes at the margins.*** Mr. Trump has proposed a large military budget this year to address this in part, but given the scope of the problem (as revealed in the Iran war) we are proceeding with the urgency of 1971 becoming 1972.

Markets seem to reflect this. Coincident with this $40T debt level, we have seen bond yields rise quite rapidly. There are some who can make really good points as to why this is not an issue, such as this week’s WSJ’s op-ed which argued (correctly) that our current long term bond is only taking us back to what are normal rates. It is the last 15 years of Federal Reserve mischief which was unnormal. Breitbart also makes some good points; long rates are a combination of expected inflation and real output growth, and one measure of the market’s expected rate of inflation is not rising, suggesting that higher rates may be just higher expected growth in the future. That is certainly what AI is promising, but as of now it is just promises–aside from MASSIVE infrastructure buildout (which is coming with its own political challenges). I think it is more simple than this; it is simply supply and demand. And the supply of bond is very large with rising debt in almost all the world’s governments, plus the private demand for funding of the AI buildout. The dramatic uptick in issuance is putting strain on the bond market, which is leading to higher rates.

These higher rates are global, not just in the U.S. and some are accidents waiting to happen. Japan’s pegging of its interest rate at much lower levels than is deserved from it’s massive debt (~200% of GDP, although their net debt is slightly less than half that as they have an extraordinary amount of dollar denominated bonds), which is causing their currency to fall like a rock. The Trump Administration is deeply fearful of an economic blow up before the election and has joined Japan in trying futilely to stop the yen’s collapse. Further, in response to the higher bond rates, Treasury Secretary Bessent engaged yesterday in a large swap of short term funding (Treasury bills) for longer term bonds to pull long term rates down. Initially that worked, although this morning they seem to be moving back up a bit. Further, gold had some of its best returns in months, and while good for goldbugs, it doesn’t seem particularly encouraging for the broader economy.

So in short, economic conditions don’t feel quite like we are simply just “returning to normal” or “boom times ahead,” even though both could be true. And it is exacerbated by much of the country agreeing with my comment of 2024 that “We are at a time of serious issues with very unserious people” in charge. Donald Trump is still the same 90s era Democrat he was then; deficits aren’t really something that concerns him, and that is reflected in his budgets. And Democrats have reacted with a move to insanity embracing socialism. Former Vice President Pence said it best, ““Look, I think in many respects Republicans have lost our way. But Democrats have lost their mind.” Do we have any hope in princes? So what is our one really big hope?

¹Praise the Lord! Praise the Lord, O my soul! ² I will praise the Lord as long as I live; I will sing praises to my God while I have my being. ³ Put not your trust in princes, in a son of man, in whom there is no salvation. ⁴ When his breath departs, he returns to the earth; on that very day his plans perish.⁵ Blessed is he whose help is the God of Jacob, whose hope is in the Lord his God, ⁶ who made heaven and earth, the sea, and all that is in them,who keeps faith forever; ⁷ who executes justice for the oppressed,  who gives food to the hungry. The Lord sets the prisoners free; ⁸ the Lord opens the eyes of the blind. The Lord lifts up those who are bowed down; the Lord loves the righteous. ⁹ The Lord watches over the sojourners; he upholds the widow and the fatherless, but the way of the wicked he brings to ruin. ¹⁰ The Lord will reign forever, your God, O Zion, to all generations. Praise the Lord!

Trust not in princes; Hope in the Lord. Despite our political economy woes, we can this day choose to rejoice always.

* Not that these marginal changes are not very important to the specifics of those areas, but simply that they are a drop in the bucket in the scope of the problems we still have. Planned Parenthood still gets money after a short ban. Rather than eliminating the Department of Education, we continued funding it at essentially the same amount.

** So predictable that what I wrote above I don’t even consider a prediction, simply an obvious reality that we ignored.

*** For sure the President’s signing of last year’s reconciliation bill helped, but the munitions build up was only ~$5B, which needs to be significantly expanded in light of all the conflict across the globe, and the challenges for the warfighting of the future as revealed in both Iran and Ukraine.