Insurrection For Real

Authored by James Howard Kunstler via Clusterfuck Nation,

"The Democrat agenda is to legalize crime and criminalize the middle class."

- Stephen Miller

Not to put too fine a point on it: but whenever a lawfare ninja of the Democratic Party utters the phrase "our democracy," you must know that they are completely full of shit. For sure, they do not mean anything remotely related to an American commonweal, as understood by people of sound mind and good faith.

What they mean by "our democracy" is the state as a racketeering operation run for the sole benefit of their party members, along with the ruthless power to annihilate their opponents and critics.

Norm Eisen, Democratic Party Lawfare Ninja Supreme

The war-cry "our democracy" only signifies how degenerate they have become. Though they yearn to win control of Congress in these midterm elections by any means necessary, the party's actual prospects are not so great, having nominated a pack of obvious morons and reprobates such as Abdul el-Sayed (MI), James Talarico (TX), Angie Nixon (FL), Troy Jackson (ME), and Peggy Flanagan (MN) for the US Senate.

Now, it appears that President Donald Trump is determined to clean up our fraud-ridden election process this year, one way or another. Hopes are nearly dead for Congress passing a comprehensive election reform law, the SAVE Act, so he has looked to other measures. One is a procedure for the US Postal Service to match and track mail-in ballots to real persons with actual addresses listed on state voter rolls. The matter is still working through courts. The DOJ's Civil Rights Division has pledged to send about 1000 election monitors to polling places around the country as "observers," which could obviate arrant shenanigans like the broken toilet ploy in Fulton County, GA, 2020.

Mr. Trump could go further, as discussed here recently, and declare a National Security Executive Order with more exacting rules such as requiring proof of citizenship and photo ID at the polls, and reporting election results no later than the day following the election. The Democratic Party is fighting desperately to prevent any changes to current procedure with so much room for fraud.

The effort is led by chief lawfare ninja Norm Eisen, who is associated with several activist NGOs: the States United Democracy Center (founder); State Democracy Defenders PAC; Citizens for Responsibility and Ethics in Washington (CREW); the Brookings Institution; plus his own pro bono litigation practice, Norma Eisen PLLC.

Eisen enjoys many millions of dollars in backing that have enabled him to file hundreds of court cases against Trump administration actions, including the recent suits against the US Postal Service mail-in ballot plan. His own NGOs are backed by hundreds of other NGOs both here and globally, many of which have been involved in color revolutions in foreign countries. Eisen himself has played a part in many episodes of the long-running color revolution here in the USA, including RussiaGate, the 2020 fake impeachment, and the Jan-6 House Committee. All that could be described in totality as a seditious coup attempt - and it's all currently under investigation by several federal grand juries.

Likewise, lawfare ninja Marc Elias, who operates his election activities through Democracy Docket (founder); the Free election Fund; the Democracy Forward Foundation (board chair); We the Action; plus his own firm, the Elias Law Group. He was formerly a lawyer with the DC law firm Perkins Coie, through which he served as general counsel to the Hillary Clinton campaign in 2016. He shepherded the Steele Dossier into the Intel apparatus and around the news media.

All that is a prelude to a disturbing roll-out of events that anyone paying attention can see coming this fall.

The Democratic Party has massive resources not just to stall and obstruct pre-election reform, but to mount a vicious resistance after the fact if it doesn't produce their desired result. They could go as far as to repudiate the election, refuse to accept its results. If the president does issue that NatSec EO prior to the election, blue state officials could refuse to hold elections under new rules. Thirty states have already refused to comply with DOJ demands to submit their official voter rolls for evaluation. Some of the aforementioned activist NGOs have promised post-election street actions (demonstrations that could easily turn into riots).

In the face of that, you can foresee the necessity of the president having to invoke the Insurrection Act of 1878 (10 U.S.C. §§ 251-255). The act provides an exception to the Posse Commitatus Act, also 1878, which forbids the use of the US military to act as police inside the USA. Under the Insurrection Act, the president can federalize states' national guard units to enforce federal law or protect constitutional rights when ordinary civilian means are not enough.

The Act has been used before in our history about thirty times by fifteen presidents, including the Great Railway Strike of 1877 (Pres. Hayes); the Pullman Strike of 1894 (Pres. Cleveland); the Little Rock School Desegregation resistance of 1957 (Pres. Eisenhower sent in the 82nd Airborne). Pres. Lyndon Johnson invoked it three times: the Selma to Montgomery March of 1965; the Detroit riots of 1967; and the riots that followed the Assassination of Martin Luther King, 1968. Pres. George H. W. Bush used it in 1994 to quell the Rodney King Riots in Los Angeles.

If Mr. Trump invokes the Insurrection Act around any violence or organized election rebellion this year, he will invite the Democrats to label him an autocrat, a tyrant, a wannabe king, as they have been taunting him and goading him with for years. Let's suppose that will be enough to inflame the party's activists. I think you can see how this lays the groundwork for something that looks like a new civil war. The repudiation of election results by blue states would be enough.

Know this: it won't work. It will result in charges of sedition and many Democratic officials will be arrested and charged, probably some governors. It will be a really ugly episode in our history, but we'll get through it. Of course, it will be the end of the Democratic Party.

Tyler Durden Fri, 09/04/2026 - 16:20
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Insurrection For Real

The Elephant In The Canadian Room

Authored by Victor Davis Hanson via American Greatness,

At first glance, the current American-Canadian trade "war" is absurd. We are neighbors with a long history of close friendship, speak the same language (for the most part), and spring from the same British civilization.

Nearly one million Canadians reside in the United States.

Given the two countries' natural affinities, Canadians are nearly indistinguishable from Americans.

Both sides have reasonable grievances over trade policy.

Americans don't like Canada's perennial trade surpluses of more than $50 billion in a supposedly free-trade zone.

They resent the fact that non-free-market China exports subsidized cheap steel and aluminum through Canada, giving Canadian auto and truck exports a price advantage.

The United States also objects to Canada imposing a surcharge on American digital media companies to subsidize Canadian Indigenous and French-language content.

Americans further resent Prime Minister Mark Carney's backing out of an apparent deal at the eleventh hour. He apparently hoped to gin up Canadian nationalism on the eve of two key elections in Alberta and Quebec by attacking Trump, who is unpopular in Canada.

Ascendant separatist movements in both provinces threaten to unravel the Canadian nation.

Moreover, Carney expects the dispute to damage Trump on the eve of the U.S. midterm elections, which might reduce his leverage over Canada.

Canada, in turn, resents American demands concerning its importation of Chinese goods as an infringement upon its sovereignty.

It increasingly believes that the sheer size of the United States next door - 13 times larger in nominal GDP and nine times larger in population - threatens to overwhelm Canada's unique culture.

Canada maintains that its trade surplus results largely from U.S. imports of Canadian oil sands petroleum - a mutually beneficial arrangement. It is also tired of Trump's trolling and mockery.

But even these differences could easily be resolved, given our centuries of friendship.

So what is the unspoken source of the acrimony?

The United States is leaping ahead of other Western countries in ways few anticipated several decades ago, while Canada is stagnating.

America is the world's largest producer of oil and natural gas.

Its technology, software, biotechnology, digital media, satellite, and numerous other companies dominate global rankings.

American GDP is roughly $10 trillion larger than either China's or the European Union's. Yet China has four times the population of the United States, while the European Union has 100 million more people.

The U.S. military is the world's most lethal and is now being rebuilt with even greater defense spending.

Moreover, the United States has not been shy about warning its Western friends that their socialist paradigms and leftist policies threaten their very existence.

The EU suffers from unsustainably low fertility.

Massive and often illegal immigration threatens the very culture and values of Europe.

Green hysteria has nearly wrecked the German and British economies.

Until Russia invaded Ukraine and Trump began his harangues, European NATO members were de facto disarming.

Yet Canada - especially under the globalist prime ministers Justin Trudeau and Mark Carney - has adopted much of this ossified European model.

The result is a sluggish economy. Also left unspoken is Canada's growing reliance on the U.S. market, American continental defenses, and the general goodwill of the United States.

Until last year, Canada had refused to honor its NATO commitment to spend 2 percent of GDP on defense.

It has thrown open its border even as the United States is closing its own.

Some 45 percent of Canadian residents are either foreign-born or the children of immigrants.

The majority come from impoverished, non-Western countries and immediately depend upon a vast social welfare system that the present anemic economy cannot sustain.

Utopian think tanks speak grandly of a Canadian "Century Initiative" that would bring in enough immigrants to increase the population to 100 million. But sheer numbers will hardly remedy the country's underlying demographic and economic stagnation.

How mostly non-Western immigrants are to be integrated, assimilated, and acculturated in a country that has forsaken anything remotely resembling the idea of a melting pot is never explained.

The tragic irony is that Canada once punched well above its demographic weight, with a formidable military and a dynamic economy.

Not anymore. Its per capita GDP is now among the lowest in the industrialized West.

Yet Canada has the fifth-largest oil and natural-gas reserves in the world, even as green restrictions and provincial infighting nullify those natural advantages.

In timber, metals, and mineral resources, Canada ranks among the world's top five nations.

Apparently, Canada believes that opening its economy, insisting upon legal, meritocratic, diverse, and measured immigration, and fully developing its natural wealth would be a bitter medicine worse than even its present maladies.

For all America's unsolicited advice and tough-love attitude, the United States would prefer a strong Canadian partner to a dependent one.

That growing asymmetry explains much of this otherwise inexplicable melodrama.

Tyler Durden Thu, 09/03/2026 - 16:20
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The Elephant In The Canadian Room

Market Valuation: Expensive CAPE Or Cheap PEG?

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

The S&P 500’s Shiller CAPE ratio just hit 41. Since 1881, the market valuation has been more expensive under CAPE only once. That was during the final months of the dot-com bubble. At the same time the CAPE is ringing warning bells, the PEG ratio, which measures price relative to expected earnings growth, is at its lowest level in at least three decades, possibly its cheapest reading ever.

One market valuation says run for cover while another says bargain. Both market valuation tools use data from the same 500 S&P companies but interpret the market completely differently.

Confusing, yes, but the disagreement between the two charts comes down to one question: Is the past a better predictor of the future than the wisdom of Wall Street?

To answer our question, we’ll first summarize what each ratio measures, then dig into expected growth versus historical growth, the culprit behind the big difference in the two graphs.  

CAPE Isn’t Perfect

The P/E ratio is one of the most quoted market valuation gauges for stocks and stock indexes. While valuable, it rests on one bold and often wrong assumption: future earnings will match past earnings. In other words, it doesn’t capture how earnings may change.

For the CAPE valuation, the assumption is similar, but instead of using the most recent one year of earnings to assess value, it uses ten years of earnings. This better smooths earnings, reducing the impact of short periods of economic volatility.  But it has the same vulnerability, assuming the future will be just like the past.

P/E tends to be most useful for comparing companies with similar earnings growth, but it is less useful when analyzing high-growth companies or those with the potential to change their growth trajectory.

Despite its flaws, the CAPE valuation strongly correlates with future market returns, as shown in the graph below comparing CAPE valuations and forward ten-year S&P 500 returns. While the CAPE provides a good indicator of expected returns over the full next ten years, it doesn’t provide a roadmap for the monthly and annual returns that make up the period.

The PEG Ratio

The PEG ratio builds on the P/E ratio framework but uses future earnings growth estimates instead of prior realized earnings. Because it uses estimates, it can change rapidly.  

The PEG ratio calculation is the forward P/E divided by the expected 3–5-year earnings growth.

To better appreciate today’s PEG ratio, we break down the numerator, forward P/E, and the denominator, G (3-5-year growth estimates).

Forward P/E

The numerator in the PEG ratio is the forward P/E. Instead of using the trailing twelve months of earnings as in the traditional P/E ratio, the forward P/E uses earnings estimates for the coming twelve months. Thus, its value depends heavily on how well Wall Street can predict earnings for the coming 12 months.  

We can analyze the effectiveness of one-year earnings forecasts in a couple of different ways.

First, we can compare the trailing 12-month P/E to the forward P/E and imply expected earnings for the next year. We can then compare the implied earnings with actual earnings. Using this method, the top two charts below show that Wall Street almost always overestimates earnings and by a wide margin at times.

The second way to grade Wall Street’s forecasting ability is to compare final one-year forecasts with those made at the start of the period. The graph below reinforces the graphs above: Wall Street tends to overestimate earnings.  EPS estimates were reduced in nine of the ten years spanning 2016 through 2025.  However, the trend has changed with 2026 and 2027 estimates trending higher than original forecasts.

G: 3- 5 Year Expected Earnings Growth

Forecasting earnings for just 12 months forward is extremely difficult for Wall Street professionals. Accordingly, forecasting three- to five-years of earnings growth (G in the PEG ratio) is much trickier and more error-prone.

(Note: for this article, we use four-year expected earnings growth to balance out the three-to-five-year range of estimates.)

To assess the effectiveness of longer term forecasts, we can use historical PEG and forward P/E ratios to back out an implied four-year growth rate. As we did with one-year estimates, we then compare that to the actual four-year growth that ensued.

The graph below shows there is very little correlation between four-year earnings growth estimates and actual growth. As we saw with one-year estimates, the market overestimated earnings far more often than it underestimated them.

Deciphering Today’s PEG Ratio

The graph below shows the market PEG valuation and its two components- forward P/E and 3-5 year earnings estimates.

The middle graph shows the forward P/E (the numerator) is stretched, indicating a relatively expensive valuation. Despite the forward P/E, the PEG ratio in the top graph is cheap because the longer-term earnings growth estimate shown in the bottom graph is at its highest level since at least 1995. The takeaway is that the PEG ratio is cheap entirely because of strong earnings-growth forecasts.

The G Is Concentrated

The hardest part of analyzing the “G” in the PEG ratio is the abnormal divergence in recent earnings trends and earnings expectations between a few large tech companies and the large majority of other S&P 500 companies.

Second-quarter earnings results exemplify this problem. In a mid-July summary of the quarter, with roughly a third of the stocks in the index still to report, FactSet reported the Magnificent 7 was growing earnings 31.1% year over year versus a blended rate near 25% for the index. Only a few weeks later, on August 7, the quarter’s growth rate more than doubled to 50.4%.

Most of that acceleration traced back to two companies. Alphabet and Amazon, both large earnings contributors, reported significant non-operating gains. Alphabet reported a $98 billion mark-up in its equity portfolio primarily due to SpaceX, and Amazon added a $53 billion gain largely from Anthropic. Strip out those gains, and FactSet’s blended growth rate for the S&P 500 falls from 50.4% to 32.0%. Two companies, out of five hundred, are worth eighteen full percentage points of index earnings growth.

This leads to a big question. Can ten or so large-cap technology companies carry earnings growth for a 500-company index? Hyperscalers are on pace to spend roughly $700 billion on AI infrastructure in 2026 and are projected to top $1 trillion in 2027. That spending shows up today as reported capex and, eventually, as revenue for a small number of companies selling the chips, the cloud capacity, and the construction and power systems supporting it. It does not contribute much to the earnings growth for the other companies in the index.

Is The Market Rich Or Cheap?

Think of this market valuation conundrum between PEG and CAPE like your favorite sports team that’s been mediocre for a decade. Ten years of results argue that your expectations for next season should be minimal.  But during the offseason, the team signed a few all-stars, and a reasonable fan would bump up their expectations regardless of the last ten years.

The historical losing record is real, and so is the upgraded roster. The substantial growth estimates are making a big bet that the new players will significantly help the team. The question investors need to ask is whether they will help generate more wins than the market expects.

So, how should investors think about today’s stock market valuations? The answer likely sits between rich and cheap. If earnings keep growing rapidly alongside AI spending, the market, in aggregate, may be fairly priced despite CAPE’s warning. But a recession, or a slowdown in planned AI spending, is a real risk to that outcome.

That said, while the optimism embedded in the PEG ratio carries downside risks, we must also consider that AI’s productivity gains will eventually spread to other S&P 500 companies. The open questions are when, how much, and most importantly for pricing today’s market, how that eventual payoff compares to what’s already priced in.

Summary

CAPE uses historical realized data to value stocks.  You can debate whether the past decade is a fair guide for valuing stocks, but you can’t debate whether the earnings in CAPE’s denominator are real; they are.

PEG asks you to rely on one-year and three-to-five-year earnings estimates.  This leaves the obvious question of how much current forecasts deserve to be trusted. The historical answer, as we showed, is not very much.

Nine of the last ten annual EPS estimates were revised lower before they were finished. Thirty years’ worth of four-year growth estimates show no statistical relationship to the growth that followed.

However, today’s outlook is trickier than in the past, as the expected growth making today’s PEG ratio look so cheap is disproportionately concentrated in a small handful of companies. That earnings growth concentration hinges on AI, a powerful innovation that could be an economic game changer.

PEG says market valuations are cheap while CAPE says they are expensive. CAPE is a report card on what already happened. PEG is a bet on what happens next. Keep that distinction in mind, and the two market valuation charts stop contradicting each other.

Tyler Durden Wed, 09/02/2026 - 15:05
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Market Valuation: Expensive CAPE Or Cheap PEG?

Pentagon Launches Grok And ChatGPT For Military Use

Authored by Timothy Frudd via The Epoch Times,

The Department of War announced the launch of two new artificial intelligence (AI) platforms for military use on Aug. 31, expanding the department's platform of AI assistants for military personnel.

Starshield AI's Grok for Government and OpenAI's ChatGPT Mil were both added to the War Department's GenAI.mil generative AI platform on Monday. The Aug. 31 launch came months after the Pentagon announced a partnership with OpenAI to deploy AI models on the Pentagon's classified networks and a partnership with Elon Musk's xAI service to assist personnel with controlled unclassified information.

Announcing the launch of Starshield AI's Grok for Government, the War Department said the AI tool would enable the military to execute missions faster and with more precision in multiple operational contexts. Examples of such contexts include supply chain management for logisticians and market research analysis for acquisition professionals.

The Pentagon said Starshield AI's Grok for Government would provide military personnel with "immediate productivity gains, stronger knowledge continuity, and more secure and efficient collaboration." Capabilities department personnel will have access to include adaptive reasoning modes, customizable workspaces, deep-thinking inference, persistent projects, and reusable "playbooks."

Starshield AI's Grok for Government was accredited for controlled unclassified information at impact level five, a designation given to unclassified information that still requires security safeguards. It was also engineered for "secure, consistent enterprise use," according to the War Department.

With the addition of Starshield AI's Grok for Government to the department's GenAI.mil platform, the Pentagon said military members would have access to another "top-tier generative AI tool." The Pentagon also said the addition of another AI tool would promote a "vibrant" AI ecosystem for the United States and would eliminate its dependence on a single AI provider.

The War Department also announced Monday that it had launched OpenAI's ChatGPT Mil as part of its GenAI.mil platform. Like Starshield AI's Grok for Government, OpenAI's ChatGPT was accredited for controlled unclassified information at impact level five.

"ChatGPT Mil brings a familiar commercial experience into the Department's secure environment, tailored to warfighter needs," the Pentagon said. "The core experience centers on chat, files, projects, and custom GPTs, with additional features sequenced over time."

The department said ChatGPT Mil will support document-heavy unclassified work, including planning, logistics, administration, and policy. Built to support more than 3 million personnel, the AI platform will increase the speed of routine tasks and allow personnel to concentrate on "more critical projects across the Joint Force," the Pentagon said.

"Integrating ChatGPT Mil into GenAI.mil alongside existing frontier AI capabilities establishes a robust, multi-model ecosystem for the warfighter," it added.

The Epoch Times reached out to Starshield AI and OpenAI for comment but did not receive a response before publication time.

The War Department confirmed Monday that more than 1.7 million of its more than 3 million personnel have been onboarded for the department's generative AI platform since GenAI.mil was launched nine months ago.

The launch of the two AI tools for use by War Department personnel comes after the Defense Counterintelligence and Security Agency warned in June that unauthorized "shadow AI" tools could cause data leaks and lead to other security risks.

"Shadow AI encompasses two distinct threat vectors: the intentional use of external commercial or private [large language models], and the activation of embedded AI features within existing government and sensitive networks that have not yet been fully evaluated for security risks," the agency wrote in an assessment.

"When bypassing traditional security controls, both vectors create a massive, unmonitored attack surface where new risks outpace current technical safeguards and governance."

Tyler Durden Tue, 09/01/2026 - 14:20
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Pentagon Launches Grok And ChatGPT For Military Use

Rickards: The Dollar's Not Dying

Authored by James Rickards via The Daily Reckoning,

Last week's financial media was full of apocalyptic headlines: "$40 trillion in national debt!" "U.S. debt in a doom loop!" "The end of the dollar is near!"

Gold and bitcoin soared in lockstep with the dollar doom and gloom. If you took the headlines at face value, one would assume the dollar was already toast and U.S. Treasuries were worth no more than digital confetti.

The truth is that the dollar's position as the leading reserve currency is not in jeopardy. Of course, foreign exchange reserves are not simply piles of currency. They are largely held in liquid financial assets, including U.S. Treasury securities denominated in dollars.

Dollar-denominated assets will dominate global reserves for decades to come.

The reason is simple. There are few sovereign bond markets with the size, liquidity and depth of the U.S. Treasury market. Other large government bond markets, including Japan and major European markets, do not offer the same combination of scale and liquidity. King dollar will remain king.

This does not mean interest rates won't rise or inflation won't increase. Both are likely. But neither means the end of the dollar. It just means the Treasury pays more to borrow and you pay more at the gas pump and grocery store.

So, there are problems in the dollar bond markets, but debasement-trade hysteria is not a useful way to understand them.

BESSENT GOES AFTER THE BOND MARKET

U.S. Treasury Secretary Scott Bessent has just announced a plan to address higher interest rates in U.S. Treasury securities markets and, by extension, mortgage and credit card markets. It has both long-term and short-term components.

One short-term component involves U.S. support for Japan's efforts to prop up the yen, including joint currency intervention and potential greater use of the Federal Reserve's FIMA Repo Facility. That facility allows Japan to borrow dollars against its U.S. Treasury holdings rather than selling those securities outright.

In turn, that could take pressure off U.S. interest rates. Japan is the world's largest foreign holder of U.S. Treasuries, with about $1.12 trillion as of June.

Another short-term component is for the Treasury to purchase longer-dated Treasury securities, specifically those in the 10- to 30-year sectors. The Treasury recently announced that it will at least double the size of certain scheduled buyback operations from $2 billion to $4 billion, with the possibility of going higher.

Treasury has also relied heavily on short-term maturities such as one-month, three-month and six-month Treasury bills in its overall financing mix. These Treasury bills generally carry lower interest rates than longer-dated notes and bonds. Greater reliance on shorter maturities can lower U.S. interest expense, at least in the short run.

Treasury bills are also prized by dealers and hedge funds because they are highly liquid and are widely used as collateral in financial transactions. Supporting liquidity at the long end while maintaining a large supply of short-term Treasury securities makes sense. Why it is causing such hysteria in the media is a bit of a mystery.

BESSENT'S 3-3-3 GAMBIT

The longer-term component of the Bessent Plan is sometimes referred to as the Three Arrows.

The first arrow is to keep annual deficits at 3.0% or less of GDP. The second arrow is to achieve GDP growth of 3.0% or more. The third arrow is to increase U.S. energy production by the equivalent of 3 million barrels of oil per day.

That's where the shorthand 3-3-3 comes from: a 3% deficit, 3% real GDP growth and 3 million additional barrels of oil equivalent per day.

Since oil output does not directly impact fiscal policy, we can leave that to one side in our analysis. The deficit and GDP growth targets, however, are critical.

The metric that really matters in terms of whether investors have confidence in U.S. Treasury securities is the U.S. debt-to-GDP ratio. It's silly to hyperventilate about $40 trillion as the U.S. national debt unless you put that number in the context of the GDP available to finance and roll over the debt.

Right now, gross U.S. federal debt is roughly 123% of GDP. That's the result of approximately $40 trillion of debt divided by roughly $32.5 trillion of annualized nominal GDP. That ratio is near the highest levels in U.S. history.

High debt-to-GDP ratios can be a drag on growth and leave governments with less room to respond to crises. A ratio of 60% is much more comfortable. A ratio of 30% is more comfortable still. The previous postwar high was reached around the end of World War II.

The annual deficit will not go down to zero. That's a fantasy. The level of U.S. national debt will also not go down anytime soon. That's another fantasy.

But that doesn't matter.

What does matter is whether the debt-to-GDP ratio goes down.

The way to do that is to grow the economy faster than the debt. If you can do that, the ratio goes down even if the debt goes up. That's Bessent's plan. That's what he meant when he said the U.S. could "grow its way out" of the debt problem. In theory, he was right.

For example, let's say annual deficits are $2 trillion so that a year from now the national debt will be $42 trillion. That's a 5.0% increase in the national debt.

But if GDP grows from $32.5 trillion to $34.5 trillion, that's a 6.2% increase. The debt-to-GDP ratio drops from roughly 123% to 121.7%. That's still high, but it's lower than the year before.

That's all the so-called bond market vigilantes need to see. As long as the debt-to-GDP ratio is coming down, bond investors have reason to retain confidence in U.S. Treasuries and the U.S. dollar.

The U.S. has done this before. The gross federal debt-to-GDP ratio reached roughly 119% in 1946 and was down to about 31% by 1980. That process took more than three decades and occurred under both parties using a combination of fiscal and monetary policy, strong nominal growth and inflation.

During that period, the national debt increased substantially. But GDP increased by more than 1,000%. And that was the key. If GDP grows faster than debt, the ratio comes down and America's fiscal position improves.

HERE'S THE DIRTY LITTLE SECRET

So, that's the plan. But there's a dirty little secret that Bessent has not emphasized.

When the government computes debt-to-GDP ratios, it's using nominal numbers, not numbers adjusted for inflation.

In the example above, GDP grew by about 6.2% while the national debt grew by 5.0%. That lowers the ratio, but it does not reveal how much of the GDP growth was real and how much was inflation.

The 6.2% nominal growth could have been 4.2% real growth plus 2.0% inflation. That's fairly healthy. But it could have been 2.2% real growth plus 4.0% inflation.

At 4.0% annual inflation, the purchasing power of the dollar is cut roughly in half in about 18 years and cut in half again over the next 18 years. That kind of inflation can destroy your net worth and income if you're not prepared.

So, how much inflation is included in the Bessent Plan? Secretary Bessent didn't say.

Investors should assume the worst.

The U.S. has had difficulty sustaining real growth of more than about 2.0% per year on average since the global financial crisis. If we need roughly 6.0% nominal growth to outrun the growth in debt and if we can only produce 2.0% real growth per year, then the difference has to come from inflation.

That could mean 4.0% inflation.

That's not a policy preference. It's just fifth-grade math.

In describing how the U.S. lowered its debt-to-GDP ratio dramatically between the end of World War II and 1980, I conveniently omitted the fact that consumer prices rose about 50% between 1977 and 1981.

That's one way the U.S. government took care of the debt problem.

I lived through that period. It was a fun time if you owned gold or real estate, if you used leverage and if you had a job that gave you a raise every few months.

It was not a fun time if you depended on fixed-income streams like annuities, insurance policies, pension plans or Social Security.

Which side of that trade are you on?

We publish a variety of perspectives. Nothing written here is to be construed as representing the views of ZeroHedge.

Tyler Durden Mon, 08/31/2026 - 15:00
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Rickards: The Dollar's Not Dying