Veteran economist David Rosenberg has warned about the United States’ fiscal trajectory following the passage of a major tax and spending bill in the House.
Rosenberg cautioned that the federal debt-to-GDP ratio is climbing to unprecedented levels, surpassing even those seen during wartime, a development he described as concerning, he said in an X post on May 22.
In response, he urged investors to seek safety in what he termed the “last refuge” assets amid what he sees as a looming economic storm. His top recommendations are gold, a traditional safe-haven asset, and Treasury bills (T-bills), which are less sensitive to interest rate fluctuations due to their short-term nature.
“Gold, T-bills, and the Asian FX market are the last refuges and if I was a fan of speculative assets (which I am not), I would add crypto to that short list,” he said.
Moreover, Rosenberg pointed to opportunities in Asian foreign exchange markets, signaling confidence in the region’s economic fundamentals.
Interestingly, despite his typically cautious stance on speculative investments, he also included cryptocurrencies as a potential hedge.
The House passed the GOP-backed legislation, dubbed the “Big Beautiful Bill,” including extended tax cuts, increased military spending, and targeted spending reductions. However, these benefits come at a steep cost to the federal deficit.
The Fed’s reluctance to intervene
Rosenberg also emphasized the Federal Reserve’s reluctance to intervene by purchasing Treasury securities to suppress yields, a strategy it has employed in past financial crises.
With inflationary pressures persisting into 2025, the Fed’s hands-off approach means the market must absorb the massive new debt issuance, likely pushing interest rates higher.
According to the economist, this surge in interest rates could undermine stock valuations more than the tax relief can boost earnings.
He went so far as to describe the situation as “kryptonite” for both bonds and stocks. Rising yields drive down bond prices, while higher borrowing costs squeeze corporate profit margins.
On a similar note, economist and gold advocate Peter Schiff echoed Rosenberg’s concerns, calling the budget proposal one of the most fiscally reckless outside major crises.
In an X post also published on May 22, Schiff noted that the projected deficits as a percentage of GDP are among the highest ever recorded, excluding those seen during COVID-19 and World War II.
He warned that actual deficits could surpass projections, fueling worries about the ballooning national debt and unsustainable government spending.
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