The risk of the "doomsday cycle" for U.S. Treasuries has not been eliminated! The Federal Reserve may be forced to implement QE earlier?

President Trump's re-election victory ignited a surge in the stock market and pushed Bitcoin to new historical highs, but Stephanie Pomboy, founder of MacroMavens, warned that the long-term impact on the U.S. economy remains uncertain, especially in the context of rising national debt. Following the election results, investors quickly turned to trades aligned with Trump's policies on tariffs, taxes, government borrowing, and cryptocurrencies. On Wednesday, the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite Index reached all-time highs, with the Dow rising over 1,500 points. The last time the Dow rose more than 1,000 points in a single day was in November 2022. Fueled by Trump's campaign promises to make the U.S. the "global cryptocurrency capital" and establish a "strategic Bitcoin reserve," Bitcoin surged to an all-time high, breaking through $76,000. However, given that U.S. federal debt levels are nearing $36 trillion, concerns about the state of the U.S. economy should not be overlooked. Pomboy stated, "We have a significant amount of corporate debt, and for many lower-tier U.S. companies, they are already unable to service their debts, which will be a problem." Pomboy also pointed out the vulnerability of the banking sector, noting that banks hold "$500 billion in unrealized losses. This is not going away. It has not been resolved." She believes that these losses have not been adequately addressed and could pose significant risks to the financial system. She said, "Debt and deficits are existential threats to our economy and the dollar's hegemony; this is a doomsday cycle—as higher interest rates lead to our deficits ballooning, it effectively brings forward the day of reckoning." She added that risks associated with the banking sector may force the Federal Reserve to implement some form of quantitative easing sooner than expected. "What is truly concerning right now is the shadow banking system because it is opaque. Problems may start to emerge there. People are valuing assets at levels that have no relation to reality." After Trump's victory, gold prices fell, dropping more than $80 on Wednesday. The last trading price for spot gold was $2,659 per ounce. Pomboy explained that the decline in gold prices is due to the rise in the dollar index, as these two assets typically move inversely. However, she noted that the drop in gold is merely a "temporary fluctuation in a bull market where gold is set to continue rising significantly." Pomboy emphasized that given the ongoing U.S. deficits and the persistent trend of de-dollarization, the strength of the dollar is unsustainable in the long term. "We are witnessing a phenomenon of global capital outflow. We face an existential issue of how to finance our deficits in this vacuum left behind. No one has proposed any clever solutions. In the absence of solutions, the dollar depreciates, and gold rises," she described. Pomboy pointed out that without measures to restore global confidence in the dollar, there will be a significant problem of "financing these deficits, which could lead to real hyperinflation." Pang Boyi also acknowledged that Trump's pro-growth policies could boost the economy and help curb the growth of the deficit. "The most effective solution to the deficit is growth," she said. "If we can achieve economic growth, it would be a game-changer, at least in terms of curbing the growth of the deficit." However, she also expressed concerns about the potential impact of higher-than-expected interest rates on the economy. "Even though the Federal Reserve is cutting interest rates, rates are likely to remain elevated for a long time. I am worried about the tug-of-war between enhanced economic growth expectations and interest rates. This is a significant headwind for an economy as highly leveraged as ours."