It’s done. With the deciding vote cast—no less—by Vice President J.D. Vance, the “One Big Beautiful Bill” passed in the US Senate. Yet another piece of evidence that bond investors stubbornly refuse to acknowledge: their asset class is becoming obsolete.
The current US administration plans to lower or maintain low taxes, ramp up defense spending, and simultaneously cut back on healthcare and food stamps. Sounds wonderfully populist. The Congressional Budget Office (CBO) already ran the numbers on what this beautiful bill means for the federal budget. Brace yourself. Over the next five and ten years, the bill will add an extra 2 trillion and 3.3 trillion dollars, respectively, to the US deficit. Extra—on top of a budget shortfall that, according to projections, will never dip below 6 percent of GDP again in the coming decades.
That additional 3.3 trillion-dollar shortfall piles on top of a national debt that already stands at 36 trillion dollars. That’s more than France’s entire annual GDP. These are serious numbers, even relative to GDP.
Just the tip of the iceberg
The budgetary impact of the bill is front and center on the CBO’s website. That’s also where my eye caught another headline: CBO’s 2025 Long-Term Projections for Social Security. As in any aging society, social security expenditures are typically one of the largest mandatory government spending categories.
The accompanying data file shows CBO’s estimates of tax revenue and spending tied to social programs. For example, in 1985, social security-related tax revenues amounted to 11.7 percent of all wage-based tax income. That year, expenditures were 11.1 percent of total tax receipts—a surplus of 0.6 percent. Last year, both the revenues and the expenditures had risen to 13.0 percent and 14.7 percent, respectively. While both figures increased, spending outpaced revenue, creating a shortfall of 1.7 percent of total tax income. And that’s just the beginning.
According to the CBO, this gap will continue to grow. By 2030, it will reach 2.7 percent, then 3.4 percent by 2040, and 4.1 percent by 2050. Because these gaps are measured against total wage-based tax income rather than GDP, the numbers are a bit less intuitive—but the trend is crystal clear. The budget deficit is on a runaway course, driven by social spending alone.
A safety net full of holes
Fed Chair Jerome Powell is no politician, but he might as well be. His carefully chosen words—that it’s not the US debt itself that is unsustainable, but the fiscal path of the US government—were masterful. Without causing panic, he subtly revealed the gravity of the situation.
Still, those wise words won’t save him. The example of social security easily extends to healthcare and defense spending—two more areas where meaningful cuts are politically explosive. These are government expenditures that can’t realistically be reduced without shredding the social safety net. Why do you think Trump keeps tampering with healthcare? He understands full well that massive concessions are required to keep things even remotely manageable. His old buddy Elon saw this coming much earlier and bailed quickly. And because he dared to criticize that magnificent bill, he now faces potential retribution in the form of lost subsidies for Tesla.
Not bankrupt
Most bond investors are in outright denial. Meanwhile, most debt pessimists are taking the wrong turn. The US government will not go bankrupt—at least not because of its debt. At the same time, the national debt will never again settle at 80 percent of GDP, let alone 60 percent—the so-called holy grail under the Maastricht Treaty.
Trump cannot continue slashing social programs and healthcare without severe backlash. Otherwise, by 2029, we’ll see Alexandria Ocasio-Cortez sworn in as the first female president.
The only realistic path forward? Keep the debt affordable through ultra-low interest rates—and shrink it via inflation. It’s the path of least resistance. Suppressing interest rates and fostering inflation is relatively easy. All you need is Powell—or better yet, his Trump-approved successor.
Evidence that debt-to-GDP ratios are destined to rise surfaces almost daily. One day it’s fresh CBO data, the next it’s ultra-wealthy individuals fleeing the UK or the Netherlands in response to tax hikes. And yet, not a single traditional asset manager or pension fund seems to take meaningful action.
Even if you estimate just a 50 percent chance that eurozone interest rates will average below 2 percent while inflation holds at 3 percent, a de-risking from excessive bond exposure becomes imperative. Maybe it would help if we finally started reporting returns net of inflation, so we can stop dancing around the issue.
Jeroen Blokland analyzes striking, current charts related to financial markets and macroeconomics. He also manages the Blokland Smart Multi-Asset Fund, which invests in equities, gold, and bitcoin.