It’s August 19, 2025. On August 19, 2035, yields on U.S. Treasuries from the shortest to longest maturities will be lower relative to today. I’ll gladly welcome $1,000 bets in a shameless attempt to mimic the late Julian Simon.
Simon famously placed a bet in 1980 with catastrophist Paul Ehrlich about a number of notable commodities and their prices. Simon said high prices were a summons to production and would beget lower prices within ten years. Ehrlich disagreed. Simon won.
Treasury yields are poised to decline, meaning U.S. Treasuries will become more valuable, precisely because money is ruthless and markets are wise.
To which most will not unreasonably say that with $37 trillion in Treasury debt, the only direction for Treasury yields is up, way up. That’s the consensus view.
At a July meeting of politicians, think tank types, economists, and prominent businessmen titled Monetarium (it took place in Washington, D.C.), the latter was the substantial majority view among attendees. The discussion wasn’t about if Treasuries would collapse under the weight of $37 trillion (and rising) of federal debt, but when Treasuries would collapse (yields rise). My response was that the consensus was incorrect. Treasuries will perform impressively in the present and future.
Evidence? All the Federal debt. As stated regularly in my newly released book The Deficit Delusion, money is once again ruthless and markets are incredibly wise. Treasury markets are particularly wise when it’s remembered that Treasuries are the most owned income streams in the world.
For the consensus to then be that Treasuries are poised to collapse was and is backwards. The surest sign that such a view is backwards is once again all the debt. No one blithely commits capital to just anything, and they don’t because the cost of losing money (see the genius of compounding) is so substantial.
There’s not $37 trillion in Treasury debt because Treasuries face a major reversal, but because the opposite is true. Once again, in 10 years Treasury yields from short to long maturities will be lower to reflect rising Treasury debt. Yes, Treasury debt is will expand in the next ten years amid falling Treasury yields.
Why is that an easy prediction to make? Because as The Deficit Delusion similarly points out, every alleged “solution” meant to bring down the national debt will logically expand it. Contrary to left, right, libertarian, supply side, and every other economic religion, the surest way to increase debt of any kind (including federal) is to boost the incomings of the borrower. Translated, so long as the U.S. Treasury has excessive taxable access to the richest, most productive people on earth, it will continue to borrow with ease.
Let’s add here that governments, like individuals and businesses, borrow money for what it can exchanged for. AI’s advances are poised to drive production skyward, and in a way that will render 2025 somewhat primitive relative to the plenty of 2035. This staggering abundance will similarly drive down the cost of borrowing money exchangeable for real resources.
In conclusion, if you’d asked economists, pundits and politicians what the yield on Treasuries would be in 2025 based on $37 trillion in total debt (it was $900 billion in 1980), their yield prediction would have been in the four digits. Which is the point. They didn’t get debt then, nor do they now. Yields are going down precisely because federal debt is going up. Bank on it.
