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With Donald Trump elected to a second term as president, investors have had to consider paradigm shifts in their positioning, from tariffs to ‘DOGE’.
There is also the bogeyman of the rising debt burden that the US will take on if Trump delivers on his campaign promises. Trump’s plans will increase the debt by $7.75 trillion, according to an analysis by the nonpartisan Committee for a Responsible Federal Budget.
Although that is not a problem for investors “today”, they are still struggling with what that increase could mean in the long term.
“I think markets tend to respond to the shark closest to the boat,” Rick Rieder, chief investment officer for fixed income at BlackRock, told me at the Yahoo Invest conference this week. “The shark on debt dynamics will not be off the mark in January or February, but it will be off the mark at some point. I don’t know if it’s late 2025 or early 2026 unless they address the magnitude of spending dynamics, the amount of debt we’re issuing, and of course inflation relative to that.”
Rieder outlined a scenario in which “union vigilantes” could attack. If regular buyers of government bonds decide that Trump’s fiscal policies are inflationary, they can essentially stage a strike or sell en masse, causing interest rates to rise. That, in turn, would increase the cost of servicing the U.S. government’s debt and have a ripple effect on markets and the economy.
Of course, the U.S. national debt has been rising for years, and the federal government has not had a surplus (where revenues exceeded expenditures) since the short span between the end of the Clinton administration and the beginning of the George W. Bush administration . And the markets have mostly looked the other way.
Oppenheimer’s John Stoltzfus invoked Bill Gross’s famous “cleanest dirty shirt” comparison when explaining why: “The US stands out because of our accountability, our transparency, our governance, and also our ability to innovate and the size of our economy,” he said in a recent interview.
That said, Stoltzfus, like most market participants, says federal debt will eventually become a problem. For now it is more of a point of discussion than an economic obstacle.
Julie Hyman is the co-host of Market domination on Yahoo Finance. You can find her on social media @juleshyman.
