Analysts' Warning on U.S. Elections and Bond Market

Analysts at trading and financial services firm Presto cautioned that the U.S. elections could precipitate a “Minsky moment” bond market crash, affecting other assets like bitcoin.

Presto analysts Peter Chung and Min Jung issued this warning after billionaire investor Paul Tudor Jones expressed optimism regarding bitcoin, gold, commodities, and Nasdaq stocks amid rising risks during a CNBC interview.

Rising Debt Concerns

According to the analysts, the U.S. debt-to-GDP ratio has escalated from 40% to 100% over the past 25 years and might reach between 124% and 200% in the next 10 to 30 years. They posited that upcoming U.S. elections could prompt a bond market reaction demanding greater compensation to fund the soaring deficit, which could lead to a crash.

Fiscal Extravagance and Inflation

The potential for a bond market crash is exacerbated by the fiscal promises of both Republican candidate Donald Trump and Democrat Kamala Harris. Chung and Jung argued that the only feasible way to tackle this issue is through inflation, mirroring Jones’ assertion that “all roads lead to inflation.”

During the CNBC segment, Jones, recognized for predicting the 1987 stock market crash, stated that he would have “zero fixed-income” in his investment portfolio. He suggested that to alleviate the debt, governments should inflate their debt away by keeping interest rates below inflation, alongside nominal growth rates exceeding inflation.

Jones noted that historically, civilizations have reduced their debt through inflation, urging the Federal Reserve to persist in lowering interest rates.

Impacts on Financial Markets

The Presto analysts added that Jones’ perspective might explain the recent uptick in Treasury yields and the rising credit default swap rate concerning sovereign risks. Chung and Jung remarked that the BITCOIN Act of 2024, pending Congressional approval, could contribute to stabilizing U.S. debt and the global financial landscape. However, they observed a lack of focus on the debt issue from both presidential candidates, indicating that it may not be a priority for voters.

As of publication, bitcoin is trading at $66,368, approximately 10% lower than its all-time high of nearly $74,000 reached in March, yet still up 57% year-to-date.