Hard Assets, Soft Money: One Year On
- Asim Javed
- Jul 22
- 18 min read
Executive Summary
The three core claims of our September 2025 paper have been broadly validated. The yield curve continued steepening. Long-duration bonds extended their real losses. The hard-asset basket, comprising gold, silver, and to some extent Bitcoin, delivered returns that materially outperformed global equities and sterling cash. Gold rose +65% in calendar year 2025, its best annual performance since 1979. Silver rose +147% over the same period. Bitcoin reached $126,000 before correcting to approximately $63,000, a trajectory that vindicates the directional thesis whilst illustrating why sizing this asset demands a different framework than conventional portfolio construction.
This note adds four new areas of analysis: the mechanics of Treasury short-end bill absorption and where that mechanism breaks; the PBOC’s CNY 10 trillion liquidity expansion and China’s strategic decision to ban crypto whilst accelerating gold accumulation; Japan’s yield curve and currency movements, which confirm the fiscal trilemma is no longer theoretical; and a segue from macro thesis to quantitative portfolio application.
01 Thesis Review
Our September 2025 paper applied a monetary policy framework across six phases, tracing how governments and central banks manage the accumulation and eventual resolution of unsustainable debt. That framework is reproduced below for reference, and the nine months since our original paper have provided additional evidence for precisely the phase transition it describes.
Phase | Type | Key Features | Typical Period (US) |
MP1 | Linked (Hard) Money | Money supply tied to gold or hard assets. Nixon ended dollar-gold convertibility on 15 August 1971. Runs on credit assets to hard money cause defaults. | 1944-1971 |
MP2 | Fiat / Interest-Rate-Driven | Credit and debt growth controlled by interest rates, reserves, and capital requirements. Ends when rates hit zero or private demand for debt assets falls short. | 1971-2008 |
MP3 | Fiat with Debt Monetisation | Central bank creates money to buy financial assets when rates cannot fall further. QE boosts asset prices disproportionately. Quantity of money, not rates, becomes the transmission mechanism. | 2008-2020 |
MP4 | Coordinated Fiscal & Monetary | Monetary and fiscal policy co-ordinated to fund deficits that private markets will not absorb at acceptable yields. Conventional tools exhausted. Examples: Covid stimulus, helicopter money, stealth yield curve control. Provides temporary relief without resolving the structural debt problem. | Post-2020 |
MP5 | Big Deleveraging | Major reduction in debt through restructuring or monetisation. A ‘beautiful deleveraging’ balances deflationary (restructuring) and inflationary (monetisation) approaches. | End of debt cycles |
MP6 | Return to Hard Money | Government restores soundness of money and credit after defaults. Confidence in debt assets is rebuilt. High real interest rates benefit creditors. | Post-deleveraging |
Source: Dalio, R. "Principles for Navigating Big Debt Crises; adapted by Alpha Beta Partners).
The framework's central insight is that these phases are not arbitrary. Each emerges from the exhaustion of the policy tools that defined its predecessor. MP4, the regime now in force, takes hold once conventional instruments are spent and the co-ordination of fiscal and monetary policy becomes the only viable means of financing deficits that private markets will not absorb at politically tolerable yields.
What separates MP3 from MP4 is political rather than merely technical. Under MP4, central bank independence survives in name but not in function. The sheer scale of fiscal deficits, the political impossibility of permitting market-clearing interest rates, and the operational demands of delivering stimulus together dissolve the boundary between monetary and fiscal authority. The evolving relationship between the Fed and the US Treasury illustrates the point.
The One Big Beautiful Bill Act, signed on 4 July 2025, stands as perhaps the starkest legislative expression of MP4 to date. The CBO estimates it will add between $3 and 5 trillion to the national debt over the coming decade. In substance, it marks a government electing to expand deficits rather than consolidate them, on the unstated assumption that the central bank will contain whatever market fallout results.
The investment logic follows directly. When policy action pins the risk-free rate below the level at which markets would otherwise clear, assets priced off that rate face a structural headwind. Those linked instead to the quantity of money, commodities, precious metals and real assets in the broadest sense, are positioned to outperform. Our hard-asset thesis is built on precisely this foundation.
Scoring the Three Claims
Our September 2025 paper made three principal claims. We score them against the evidence as at June 2026.
Claim 1: The yield curve would continue steepening as term premium rose on fiscal supply concerns. Confirmed. The US 30-year Treasury yield stands at 5.09% up around 4.6% over twelve months, having closed June 2026 just below the 5% threshold before breaking above it in early July [1]. The UK 30-year gilt trades at 5.45% off its May 2026 peak of 5.79%, the highest level since 1998. The Japan 30-year JGB trades at 4.03% (up over 40% year on year, having broken above 4% for the first time in its history on 15 May 2026. The term premium repricing we described as forming in September 2025 has broadened across all three major sovereign curves.
Claim 2: Long-duration bonds would underperform on a real return basis. Confirmed. TLT trades at approximately $84.50 (13 July 2026), against roughly $92 at end-September 2025, a further nominal loss of around 8%, having printed a 52-week low of $82.77 on 19 May 2026. Set against cumulative M2 expansion of approximately 39-40% since January 2020, the real return on long-duration Treasuries over the period remains of the order of −80%. This is not a temporary cyclical loss. It is a structural repricing of an asset class whose return profile is incompatible with the MP4 environment.
Claim 3: The hard-asset basket would outperform in real terms. Confirmed, with material nuance on silver and Bitcoin. Gold trades at $3,997 (14 July 2026), having set its all-time high of $5,602 on 29 January 2026 after a 66% gain in calendar 2025. Silver trades near $58, retesting daily support after a 135% rise in 2025 and its sharpest single day fall since the 1980s at the end of January 2026. Bitcoin trades near $62,000 (13 July 2026), roughly 51% below its all-time high of $126,198 set on 6 October 2025. On a cumulative basis since January 2020, gold has returned approximately +160%, silver approximately +225%, and Bitcoin approximately +760%, all materially above the M2 growth benchmark.
The three yield curves below are the most direct market expression of the MP4 dynamic. In each case, US Treasuries, UK Gilts, and Japan JGBs, the long end has risen materially whilst monetary policy has either cut at the short end or begun tentative normalisation. The divergence between short and long maturities reflects a bond market that now prices fiscal risk at the long end regardless of the central bank’s rate path. This is precisely the signature of fiscal dominance: monetary policy is no longer the dominant driver of long-end yields.
The US curve has rotated dramatically. The 3-month bill yield fell 11 basis points to 3.87%, masking a sharper intra-period move: rates dropped through early 2026 on Fed cuts before snapping back sharply when the Fed removed its easing bias on 17 June 2026. Every maturity from 2 years outward rose materially: the 2-year up 53 basis points to 4.14%, the 10-year up 28 basis points to 4.44%, and the 30-year up 18 basis points to 4.91%, having touched 5.18% in May. The result is a steeply upward-sloping curve where investors are extracting a meaningful term premium to hold duration in a fiscal environment they no longer treat as benign.
The UK gilt market shows a structurally similar but domestically distinct pattern. The 10-year's apparent stability, up only 4 basis points to 4.75%, conceals extreme intraday volatility: the 30-year hit 5.79% on 6 May 2026, its highest since 1998, during a global long-end sell-off before retracing to 5.45% at quarter-end. The steep 10s30s spread reflects structural long-end pressure from a DMO placing approximately £250 billion of annual issuance into a market where liability-driven pension fund demand has materially reduced following post-2022 LDI reforms.
Japan is the most dramatic. The 10-year JGB has risen approximately 115 basis points to 2.80%, and in a market where yields were anchored near zero for a decade, this represents a structural regime change. The 30-year broke above 4% for the first time in its history on 15 May 2026, having set a then-record 3.89% during the January convulsion that prompted Secretary Bessent to call his Japanese counterpart directly as the move began rippling into US Treasury markets. The three curves together provide the clearest available evidence that the MP4 dynamic is operating simultaneously across the major developed-market sovereign bond markets.
The yield rise in shorter-duration paper is being absorbed in orderly fashion, with the market demanding higher term premia rather than repricing in panic. So long as the curve continues to steepen without generating the kind of volatility that forces leveraged unwinds, the market can digest higher-for-longer yields. For now. To illustrate the point, see Chart 3 SPX vs MOVE Index:
02 The Hard Money Basket
Gold, silver, and Bitcoin are not variants of a single theme. They have different return profiles, correlation structures, demand compositions, and tail properties. The basket logic is diversification within the debasement trade, not concentration into it.
Gold rests on three pillars: central bank accumulation (863 tonnes in 2025, with Goldman Sachs's revised tracking model showing 66 tonnes acquired in January 2026 alone); record ETF inflows ($89 billion in 2025, yet gold ETFs remain just 0.17% of US private financial portfolios); and the PBOC's CNY 10 trillion liquidity injection, which has added a structural demand floor entirely independent of the US debasement dynamic. Gold rose +65% in calendar 2025, hit an all-time high of $5,602 on 29 January 2026, and closed 30 June 2026 near $3,978, having declined for four consecutive months as the Fed's hawkish turn and a firmer dollar weighed on the metal.
Silver returned +147% in calendar 2025, opening near $29, touching an all-time high of $121.67 on 29 January 2026, and closed 30 June 2026 at $56.61, down materially from its Q1 peaks as industrial demand softened alongside rate expectations. Around 55–60% of silver consumption is industrial: photovoltaics alone consumed over 180 million ounces in 2025, with newer cell architectures using more silver per panel than prior generations. Mine production grew only 2% against that demand, creating a structural supply deficit independent of monetary policy. If the debasement thesis partially fails but the energy transition continues, silver retains its own return driver. The gold/silver ratio near 70 at quarter-end reflects the divergence in near-term momentum.
Bitcoin rallied from approximately $57,000 to an all-time high of $126,198 on 6 October 2025 before correcting sharply, closing 30 June 2026 at $58,624, a drawdown of approximately 54% from peak. The case — fixed supply, institutional infrastructure, M2 correlation — remains intact. The constraint is not conviction but volatility management. For UK retail client mandates, Bitcoin is not in the allocation: UCITS rules exclude it, ETNs are absent from mainstream platforms, and OFAC's expanding enforcement posture, the Exodus Movement settlement and the $344 million Iranian USDT freeze, makes compliance operationally demanding for an SMF6-supervised manager. The hard-asset expression of the debasement thesis in our portfolios runs through gold, silver, and broad commodities.
03 The Currency Debasement Scoreboard
The appropriate benchmark for an argument premised on currency debasement is not CPI, it is global M2 growth. If the thesis is that governments are solving a debt problem by expanding the money supply, the test of wealth preservation is whether an asset beat the rate at which the unit of account was being diluted. Over the period from January 2020 to June 2026, US M2 expanded from approximately $15.4 trillion to approximately $22.8 trillion, an expansion of approximately 48%. During the same period the US debt expanded by ~69% [2].This is the benchmark against which hard assets should be judged.
Asset | 30 Sep ’25 | 30 Jun ’26 | 9M Return | Cumul. 2020 | Real vs M2 |
|
Gold (USD/oz) | 3,869 | 3,978 | +3% | +162% | +114% vs M2 |
|
Silver (USD/oz) | 46.71 | 56.61 | +21% | +217% | +169% vs M2 |
|
Bitcoin | 114,000 | 58,624 | -49% | +715% | +667% vs M2 |
|
S&P 500 (Price) | 6,688 | 7,474 | +12% | +131% | +83% vs M2 |
|
US 20Y Treasury (TLT) | 91 | 85.50 | -6% | -37% | -85% vs M2 |
|
Sterling Cash (SONIA MMF) |
|
| 4.75% | +29% | -19% vs M2 |
|
US M2 (benchmark) | - | - | - | ~ 48% | 0% (benchmark) |
|
Sources: TradingView (gold, silver, S&P 500, TLT); CoinMarketCap (Bitcoin); US Federal Reserve (M2); Vanguard (sterling cash). Prices as at 15 July 2026 unless stated. Cumulative returns calculated from 1 January 2020. All figures approximate and for illustrative purposes only. Past performance is not a guide to future returns.
Two numbers merit particular attention. Sterling cash, proxied by a SONIA-tracking money market fund such as the Vanguard or LGIM sterling liquidity fund, has generated approximately +29% cumulatively since January 2020, reflecting the step-up in rates from 2022 onwards. Against M2 expansion of approximately 48% over the same period, the real wealth preservation against the rate of money creation is approximately −19%. This is the silent erosion that fiscal dominance imposes on conventionally safe assets. Long-duration Treasuries tell a starker story: TLT has lost approximately 37% of its nominal value in USD since January 2020 and approximately 85% on an M2-adjusted basis. As established in our original paper, the 60/40 portfolio's fixed income ballast is structurally broken in the MP4 regime.
04 Short-End Issuance, Bank Absorption, and the Neutral Rate
Much of the commentary on US fiscal dynamics focuses on the long end of the yield curve. This is warranted, but it misses a mechanism operating at the short end that is more immediately consequential for money markets and, over a medium horizon, for the structural level of interest rates across the economy.
In fiscal year 2026 alone, approximately $9.7 trillion of maturing securities must be rolled over, in addition to the ongoing primary deficit. Secretary Bessent has been explicit: rather than issuing long-duration debt at yields the Treasury regards as temporarily elevated, the issuance mix has been deliberately tilted towards Treasury bills and shorter-dated instruments. Bills now represent approximately 22% of outstanding marketable Treasury debt, above the Treasury Borrowing Advisory Committee's recommended steady state of around 20% and still climbing. The historical peak was 35% in November 2008, when the Treasury ran precisely the same playbook. With the CBO projecting average annual deficits above $2 trillion through 2036, there is no near-term path back below the recommended range.
Money market funds have been the primary absorbers of this supply. Their assets reached a record of approximately $8.3 trillion in May 2026, equivalent to more than a quarter of US GDP, having grown some 13% over the preceding year. These bills are then recycled as collateral through a $6.1 trillion daily primary dealer repo market, where they qualify as Level 1 High Quality Liquid Assets at full value with no haircut.
The Treasury basis trade, holding long cash Treasuries against short Treasury futures, financed in the overnight repo market, has become one of the most important and least visible structural features of the US Treasury market. By October 2025, Cayman-domiciled hedge funds held $1.85 trillion in US Treasuries, roughly $1 trillion more than official TIC data suggests, according to Federal Reserve analysis. Repo borrowing funding these positions reached $2.5 trillion in Q4 2024, a 104% increase in two years, with leverage ratios exceeding 18:1. The total notional basis trade is estimated at approximately $1.4 trillion, potentially twice the size of the March 2020 episode, when the Federal Reserve was forced into emergency purchases as the trade unwound.
The transmission is self-reinforcing. The basis trade depends on three conditions holding simultaneously: stable repo rates, stable futures pricing, and adequate dealer balance sheet capacity. In other words, it requires stable bond volatility and that can come under pressure If issuance overwhelms MMF and bank absorption capacity at the margin, bill yields rise, repo rates rise with them, and the basis trade's funding margin compresses. Highly leveraged funds must then either post additional margin or unwind and that risk leaks into the equity complex, derivatives and leveraged positions.
Why This Pushes the Neutral Rate Higher
The neutral interest rate, r-star, is conventionally modelled as a function of productivity growth and demographic trends. The Cleveland Fed's model places it at approximately 1.5% in real terms; the FOMC's median longer-run projection held at 3.1% nominal in the June 2026 Summary of Economic Projections. The direction across all models is upward from the near-zero readings of the 2015 to 2021 period.
The fiscal mechanism adds a third channel that standard models do not adequately capture: the growing structural demand for short-term rate compensation from a financial system absorbing an ever-larger bill stock. At the margin, absorbing that supply requires one of three things: higher bill yields, expansion of bank balance sheets, or additional Fed reserves, the last being exactly what the debasement thesis predicts.
Events have already moved in this direction. When we published in September 2025, the forward curve priced a sequence of cuts through 2026. Instead, the June 2026 FOMC under Chair Warsh removed the easing bias entirely: the median 2026 projection rose from 3.4% to 3.8%, above the current 3.50 to 3.75% target range, with half the committee now projecting at least one hike this year and seventeen of eighteen participants judging inflation risks to be tilted to the upside. The cuts Secretary Bessent was counting on have now disappeared from the projection entirely, even as the longer-run dot sits unchanged at 3.1%. A Treasury funding strategy built on refinancing at lower short rates is now colliding with a central bank signalling higher ones. This is the fiscal-monetary tension the MP4 framework describes, and it remains an additional tailwind for hard assets relative to cash and short-duration fixed income.
05 The PBOC Dimension
Our September 2025 paper was framed through a US and developed-market lens. A second force has since amplified the hard-asset trade independently: the PBOC’s sustained liquidity expansion and the strategic decisions that have flowed from it.
The PBOC injected over CNY 10 trillion ($1.5 trillion) into Chinese money markets during 2025, Medium-Term Lending Facility operations, reverse repos, and RRR cuts used in combination. Both the Fed and the PBOC are, by different mechanisms, expanding system liquidity to accommodate fiscal trajectories that markets alone would not fund at current yields.
The transmission into gold and silver is direct. Chinese gold ETF inflows hit a record 17 tonnes in November 2025 alone. Central bank purchases ran at 220 tonnes in Q3 2025, with confirmed net buying through April 2026. The gold/silver ratio has compressed to approximately 60, reflecting silver’s dual role in a Chinese economy with significant photovoltaic buildout.
By 2025, Beijing had observed what OFAC’s enforcement posture meant in practice: that even non-custodial wallet providers bear US sanctions obligations; the freeze of $344 million in Iranian Central Bank-linked USDT demonstrated that Washington can enforce financial restrictions across decentralised protocols at will. For a sovereign state actively reducing dollar-system dependence, allowing citizens and enterprises to hold material balances in an asset class subject to unilateral US enforcement jurisdiction is a national security vulnerability.
06 Japan’s Impossible Trilemma
In our September 2025 paper, Japan occupied a central role in the fiscal dominance thesis. That paper argued that it represented the most advanced case study in the dynamics that US, UK, and European governments were beginning to experience: debt-to-GDP exceeding 230%, a central bank that had absorbed over half the JGB market through two decades of quantitative easing, and the fundamental impossibility of simultaneously maintaining fiscal expansion, price stability, and currency stability. Nine months on, that thesis has moved from analytical framework to live market event.
The Bank of Japan raised its policy rate to 0.75% in December 2025, the highest level in 30 years. The 30-year JGB yield hit a record 3.89% in January 2026, a 27 basis-point single-session spike large enough to prompt Secretary Bessent to call his Japanese counterpart as the moves began rippling into US Treasury markets. The 40-year yield crossed 4%, also a record. The 10-year yield reached 2.43% in April 2026, the highest since 1997, and currently trades near 2.60-2.66%. The yen, meanwhile, has not responded to rising domestic yields as textbook interest rate differential models would predict. USD/JPY traded around 160 in April 2026 despite repeated Ministry of Finance intervention threats and actual reserve deployment.
The Bank of Japan owns approximately half the outstanding JGB market. It has begun quantitative tightening, reducing holdings by 8.1% in the year to December 2025. But when yields spike, as they did in January 2026, the BOJ faces an immediate choice between continuing Quantitative Tightening (QT) (allowing yields to rise further, increasing debt service costs on a 230%+ debt-to-GDP ratio) and intervening with purchases (abandoning QT and signalling that the normalisation programme is conditional on market behaviour, itself undermining credibility). Japan cannot simultaneously normalise monetary policy, maintain fiscal expansion, and preserve yen stability. The current configuration, slow rate normalisation, continued fiscal loosening, verbal rather than fully material FX intervention, is producing gradual yen depreciation despite rising nominal yields: exactly the scenario our original paper outlined as the defining characteristic of the MP4 regime.
The global portfolio implication is direct. Domestic Japanese investors, pension funds, life insurers, and retail savers, are re-examining JGB exposure as real yields remain negative when adjusted for domestic inflation above 2%. A repatriation of even a modest fraction of Japan’s approximately $4 trillion in foreign asset holdings would constitute a significant systemic event across global bond and currency markets. Japan is not a warning to be heeded in future, it is the future, arriving early.
07 Stress-Testing the Thesis
The most intellectually credible thing a CIO can do is articulate, in advance, the conditions under which a core thesis would be structurally wrong, not merely temporarily underperforming.
Scenario | Probability | Assessment |
Genuine Fiscal Consolidation | Low, 5yr horizon | A credible multi-year programme of primary deficit reduction. The OBBBA widened the fiscal gap by 45%. Requires a political realignment not currently visible in any developed market. Most structurally powerful falsifier; least politically probable. |
Sustained Dollar Recovery | Medium, proximate | A renewed dollar bull cycle from fiscal credibility restoration or US growth surprise. DXY above 105 sustained for a quarter would compress the hard-asset premium, particularly silver. The most proximate near-term risk to monitor. |
Bitcoin Structural Break | Low | Co-ordinated multi-jurisdictional regulatory action, cryptographic vulnerability, or loss of confidence in the scarcity narrative. Institutional infrastructure makes a total structural break less likely than in prior cycles. |
AI Deflationary Productivity Shock | Medium, 10yr+ | A productivity surge sufficient to grow nominal GDP faster than interest costs without monetary expansion. Not our base case, but a genuine long-horizon consideration. Addressing the K-shaped distribution of AI’s benefits is the critical variable. |
Of the four falsifiers, a sustained dollar recovery is the most proximate and practically relevant risk to monitor, and it is already partially in train. The DXY closed 30 June 2026 at approximately 101.3[3] up around 4.6% year on year from its 2025 lows, supported by the Fed's hawkish turn under Chair Warsh and safe-haven demand amid the Middle East conflict. This is precisely the environment in which the falsifier framework earns its keep: the dollar has recovered but has not yet met our threshold. A sustained move above 105 maintained for a full quarter would trigger a formal review by the ABP investment committee, with any resulting allocation change proposed by the CIO and implemented.
The AI deflationary scenario deserves serious consideration at longer time horizons. It would not necessarily invalidate the gold allocation, as gold has performed well in mild-deflation environments, but it would remove the primary basis for silver's industrial demand trajectory and challenge the Bitcoin scarcity premium narrative if fiat supply growth slowed organically. The critical variable is not the productivity gain itself but its distribution: without broad buy-in from those most affected by the K-shaped economy, technological deflation risks producing societal fractures that could themselves accelerate the fiscal dominance dynamic rather than resolve it.
Conclusion From Macro Thesis to Portfolio Reality
The period of fiscal dominance is still very much with us. What has changed in the nine months since our original paper is not the regime itself but its texture. It is maturing and shaping itself in subtly different ways to where it began: the transmission channels are more varied, the geographic footprint is wider, and the market responses are more granular than a simple dollar debasement story captures. The fiscal arithmetic continues to deteriorate, the MP4 framework tells us precisely what phase we are in, the short-end absorption mechanism is self-limiting with basis trades, collateral/derivatives, and 0DTE options as the specific amplifiers that could accelerate a stress event, the PBOC's liquidity expansion is providing structural independent demand for the same hard assets that absorb dollar debasement, and Japan is demonstrating in real time what happens when the fiscal trilemma reaches its constraint. Alpha Beta Partners sees these dynamics clearly, and portfolios are being adapted accordingly.
Strong macro convictions are one of the most reliable sources of portfolio construction error.
An investor who is right about the direction of gold, right about the fiscal deficit trajectory, and right about the structural impairment of long-duration bonds can still produce poor client outcomes if the sizing and timing of those views is not disciplined by a rigorous framework. In our framework, each asset class is allocated a share of the total portfolio risk budget measured as its marginal contribution to portfolio volatility. This separation of the conviction management process from the risk management process is what distinguishes a systematic approach from a narrative-driven one. How we define risk, risk budget and manage it using our proprietary models is a subject of another paper.
Authored by Asim Javed, CFA · CIO, Alpha Beta Partners · June 2026 · Part II of the Fiscal Dominance series. Part I: Hard Assets, Soft Money (September 2025).
[1] Trading View TVC:US30Y, 14 July 2026
[2] Bloomberg data 01/01/2020-30/06/2026 23tr to 39tr
[3] Tradingview 15/07/2026
Appendix
US Fiscal Trajectory: CBO Primary Deficit Data
The table below reproduces CBO Budget and Economic Outlook data (February 2026 baseline) alongside OBBBA cost estimates and the derived fiscal gap figures. The fiscal gap is defined as the average annual primary deficit reduction, as a percentage of GDP, required to stabilise the federal debt-to-GDP ratio over a 10-year horizon. The shaded rows reflect the post-OBBBA trajectory. Figures are approximate and subject to CBO revision.
Fiscal Year | Deficit % GDP | Deficit ($tn) | Key Driver | OBBBA Addl. Cost | Fiscal Gap* |
FY2020 | −14.9% | −$3.1tn | COVID emergency expenditure; CARES Act | n/a, pre-OBBBA | n/a |
FY2021 | −12.4% | −$2.8tn | American Rescue Plan; continued stimulus | n/a | n/a |
FY2022 | −5.4% | −$1.4tn | Inflation Reduction Act signed August 2022 | n/a | n/a |
FY2023 | −6.2% | −$1.7tn | Structural deficit; interest costs rising | n/a | n/a |
FY2024 | −6.7% | −$1.8tn | Defence, entitlements, debt service | n/a | n/a |
FY2025 | −6.4% | −$1.8tn | Fiscal gap 1.64% GDP (pre-OBBBA baseline) | n/a | 1.64% |
FY2026E | −5.8% | −$1.9tn | OBBBA signed 4 July 2025 | +$0.4tn | 2.39% |
FY2027E | −6.1% | −$2.1tn | OBBBA provisions taking full effect | +$0.4tn | 2.39% |
FY2030E | −6.3% | −$2.4tn | Structural deterioration; debt service rising | +$0.5tn | 2.50%+ |
FY2034E | −6.8% | −$2.9tn | 120% debt-to-GDP projected by CBO | +$0.5tn | 2.60%+ |
FY2036E | −7.0% | −$3.2tn | Post-OBBBA trajectory average annual deficit | +$0.5tn | 2.70%+ |
* Fiscal gap = average annual primary deficit reduction (% GDP) required to stabilise debt-to-GDP over 10 years. Pre-OBBBA baseline: 1.64% of GDP (CBO, January 2026). Post-OBBBA: 2.39% of GDP (American Progress analysis, July 2025), representing a 45% widening. OBBBA additional cost estimates from Bruegel (conservative) and Committee for a Responsible Federal Budget (extended provisions scenario). Sources: Congressional Budget Office, Budget and Economic Outlook (February 2026); American Progress, “The Big Beautiful Bill Would Push the U.S. Into Fiscal Dominance” (July 2025).
Principal Sources and References
Congressional Budget Office. Budget and Economic Outlook: 2026 to 2036. February 2026.
Congressional Budget Office. Analysis of the One Big Beautiful Bill Act. July 2025.
American Progress. “The Big Beautiful Bill Would Push the U.S. Into Fiscal Dominance.” July 2025.
Dalio, R. How Countries Go Broke: The Big Cycle. Avid Reader Press, 2025. Framework for monetary policy phases (MP1-MP6).
Dalio, R. “Principles for Navigating Big Debt Crises.” Bridgewater Associates, 2018. Framework for monetary policy phases (MP1-MP6).
