My Thoughts on the Debasement Trade
By J.R. Robinson, Financial Planner
The “debasement trade” is the increasingly popular idea that investors should move money away from traditional currencies and government bonds and toward assets that cannot easily be created by governments. Gold is the classic example. Bitcoin is the modern addition. Real estate and other tangible assets sometimes get thrown into the mix as well.
The thesis is simple. Governments around the world have accumulated enormous debts and continue to run large budget deficits. Since dramatically cutting spending or raising taxes is politically difficult, debasement proponents believe governments will ultimately take the path of least resistance by allowing inflation and monetary expansion to gradually reduce the purchasing power of their currencies.
I am not ready to fully embrace the debasement trade, but I am increasingly sympathetic to the concerns behind it.
The National Debt Really Does Worry Me
For most of my career, warnings about the national debt have been easy to dismiss. People have been predicting a U.S. debt crisis for decades, and those predictions have repeatedly been wrong.
That does not mean they will always be wrong.
The Congressional Budget Office projects a federal budget deficit of roughly $1.9 trillion in fiscal 2026. More troubling, the CBO projects that debt held by the public will rise from about 101% of GDP today to 120% by 2036, exceeding the record reached immediately after World War II.
Perhaps the most disturbing part of the CBO projections is the interest expense. Net federal interest expense is projected to exceed $1 trillion this year and more than double to $2.1 trillion by 2036. At that point, interest expense would consume 4.6% of GDP and nearly equal all federal discretionary spending.
Those numbers are difficult for me to ignore.
My concern is that the day of reckoning may eventually come when Treasury buyers decide they need to be compensated more generously for lending increasingly large amounts of money to the federal government.
That does not mean the United States is going to default on Treasury securities. I regard an outright nominal default as extremely unlikely. The government borrows in a currency it controls.
The more realistic risk is that investors simply demand higher yields.
We may already be getting a glimpse of that. Long-term Treasury yields have recently been moving higher amid concerns about government borrowing, inflation and demand for U.S. debt. That does not prove a fiscal crisis is beginning. Interest rates move for many reasons. But it demonstrates why the debt trajectory matters.
The Feedback Loop Is What Scares Me
This is where the arithmetic gets ugly.
Suppose investors become increasingly concerned about America's fiscal condition and demand higher interest rates to purchase Treasury securities. Higher rates increase the government's interest expense. Higher interest expense increases the federal deficit. Larger deficits require the Treasury to issue still more debt. More Treasury issuance could cause investors to demand still higher yields.
Round and round we go.
The CBO itself acknowledges this dynamic. Borrowing to cover greater interest costs increases debt, which in turn increases future interest costs.
There is even empirical evidence that higher government debt can push rates upward. A 2026 Federal Reserve research paper estimated that a one-percentage-point increase in the expected U.S. debt-to-GDP ratio increases the 10-year Treasury term premium by roughly two to three basis points.
A few basis points does not sound frightening. Apply them repeatedly to tens of trillions of dollars of debt and the implications become more meaningful.
This is the part of the national debt discussion that worries me most. The risk is not merely that interest expense becomes another large line item in the federal budget. It is that rising rates could accelerate the very fiscal deterioration that caused investors to demand higher rates in the first place.
Does That Mean the Dollar Is Going to Collapse?
No.
This is where I part company with some of the more enthusiastic proponents of the debasement trade.
There is an enormous difference between saying the United States has an unsustainable long-term fiscal trajectory and saying the dollar is about to become worthless.
The dollar remains the world's dominant reserve currency. U.S. Treasury securities remain enormously important to the global financial system. The United States has a massive, productive economy, deep capital markets and extraordinary taxing capacity.
There is also no obvious replacement waiting in the wings.
The euro has its own structural problems. China maintains extensive controls over its currency and financial system. Gold is useful as a store of value but impractical as a modern transactional currency.
And then there is Bitcoin.
I Am Not Convinced Bitcoin Is the Answer
Bitcoin advocates have eagerly embraced the debasement narrative because Bitcoin has a predetermined maximum supply of 21 million coins. The federal government can issue trillions of dollars of additional debt. The Federal Reserve can create additional dollars. Nobody can create another 50 million Bitcoin.
I understand the argument.
What I do not accept is the leap from “Bitcoin is scarce” to “Bitcoin must therefore be a reliable store of value.”
Scarcity alone does not create value.
Bitcoin remains an extraordinarily volatile speculative asset. An asset that can lose half its value in relatively short order is a strange definition of a safe haven.
Gold has a much longer history as a store of value, but gold is hardly a perfect investment either. It produces no earnings, pays no dividends and generates no interest. Its price depends primarily upon what someone else is willing to pay for it.
That does not make gold or Bitcoin worthless. It simply means investors should be careful about confusing a compelling macroeconomic narrative with a guaranteed investment outcome.
There Are Other Ways to Prepare
Investors do not have to make an all-or-nothing bet on dollar debasement.
Owning equities means owning businesses with the ability, at least in theory, to raise prices and grow earnings over time. Real estate can provide some protection against inflation. Treasury Inflation-Protected Securities explicitly adjust principal for inflation. Even ordinary short-term Treasury securities allow investors to continually reinvest at prevailing interest rates rather than locking themselves into long-term bonds.
This last point is particularly important to me.
I have long preferred individual Treasuries and CDs to bond funds for the conservative portion of client portfolios. We generally do not extend maturities much beyond five to seven years. If the fiscal situation eventually forces long-term interest rates significantly higher, I would much rather have maturities coming due regularly than own a long-duration bond fund whose value could be pummeled by rising rates.
There is also an important distinction between worrying about Treasury prices and worrying about Treasury repayment. I remain comfortable using short- and intermediate-term Treasuries as among the safest places to hold money that absolutely needs to be there when it is needed.
I am considerably less enthusiastic about lending the federal government money for 20 or 30 years at today's rates – or worse, buying bond mutual funds and ETFs that buy 20-30 year treasuries.
The Debasement Trade May Be Asking the Right Question
The biggest mistake investors can make with the debasement trade is treating it as a prediction instead of a risk.
I do not know whether the United States is approaching a fiscal tipping point. Nobody does. The country could grow its way out of some of the problem. Congress could eventually muster the political courage to address spending and revenues. Inflation could remain manageable, and demand for Treasury securities could remain strong for decades.
But extrapolating the past indefinitely is dangerous too.
The national debt is rising. Interest expense is rising. The government continues running enormous deficits even when the economy is relatively healthy. Eventually, investors are entitled to ask how much compensation they require for financing that trajectory.
That is why I find myself taking the debasement trade more seriously than I once did.
I am not selling everything and buying gold. I am certainly not converting client portfolios into Bitcoin.
But I am paying very close attention to the Treasury market.
If investors begin persistently demanding higher yields because they perceive greater fiscal risk, the consequences will extend far beyond bond investors. Higher Treasury rates affect mortgages, corporate borrowing, stock valuations and ultimately the federal government's own cost of borrowing.
That is the scenario that concerns me.
The national debt itself may not trigger the crisis. The interest rate investors eventually demand to finance it might.
Related Reading:
The Best Way to Own Gold in a Retirement Account—and Why You Should (Barron’s)
Understanding the Debasement Trade (Charles Schwab)
6% Treasury yields are the biggest risk facing stocks right now. Here’s why. (MarketWatch)