Debasement trade

The thesis: with structural ~$2T deficits, yields at cycle highs, and inflation above target for years on end, the state can neither cut spending nor afford a Volcker-style rate shock (debt service would explode). The only politically feasible exit is inflating the debt away — so bonds and cash are the losing side, and the trade is equities and hard assets. Geiger Capital’s version adds the social framing: opt in or join the “permanent underclass.”

The Volcker photo attached to the post is the hinge of the argument: last time inflation ran this long, the resolution was 20% rates and a deliberate recession — and that path crushed hard assets for two decades (gold peaked 1980). The trade is a bet that a second Volcker is fiscally impossible now. Its risk is exactly that bet being wrong, or the crowded version of it unwinding hard.

ekwufinance’s arithmetic for why the bet holds (08/2026): Volcker hiked into a ~30% debt-to-GDP ratio — after the 1940s inflation had already deflated the WWII debt from ~120% — while today’s starting point is back at ~120%, with interest eating 21% of tax receipts (vs 10% in 1980) and a 6.3% deficit (vs 2.6%). Hence his read on Fed Chair Warsh: “can talk tough on inflation, can’t act tough” — fight inflation and blow up the bond market, or sacrifice the dollar to save it; he bets on the dollar. His sequencing: “first you inflate the debt away, then you raise rates to kill inflation.” And the policy-intent version is appearing in the open — Alkibiades reads Bessent and Warsh (08/2026) as signaling they’d sacrifice the bond market and the dollar to support equities, a Plaza-Accord-style managed devaluation.

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