By Brett Arends

That's good for gold, stocks and long bonds. Eventually.

Canada has been one of the biggest buyers of U.S. Treasury bonds in recent years. What now?

What kind of spendthrift picks a completely needless fight with one of the last banks in town willing to lend him money?

Uncle Sam, that's who.

Especially in the figure of our irrepressible president, who - as we all know - has been right about everything.

And if there's one thing that's becoming increasingly likely, it's that sooner or later the administration, or its proxies at the Federal Reserve, is going to have to resort to quantitative easing.

If the Fed won't buy U.S. Treasury bonds, who will?

The president, launching a trade war and 50% tariffs, just accused Canada of freeloading off the U.S.

Ahem.

Canada has been one of the biggest buyers of U.S. Treasury bonds of recent years. Canada has tripled its holdings of Treasurys in the past five years to $460 billion. This has mostly offset the sales of U.S. Treasury bonds by China.

In other words, Canada is lending us the money that China won't.

Who do these darn Canadians think they are, paying for our federal deficits and keeping a cap on our mortgage rates? No wonder the president is so mad.

The launching of the trade war comes just as beleaguered Treasury Secretary Scott Bessent tries to come up with ways of trying to reshuffle the cards in his hand in the hope of turning a Jack high into a royal flush. His latest idea is to use some of the Treasury's cash on hand to reduce borrowings. This follows the failure of last week's big idea, which was to pay down some of the borrowings with...er...borrowed money.

In order to understand what is happening in the bond market, you need to look at table 1.1 in the latest "Budget and Economic Outlook" from the independent Congressional Budget Office. The federal government will need to borrow $1.9 trillion this year and next, and $2.1 trillion in 2028. Overall, the federal government is expected to borrow $24 trillion over the next 10 years, raising the net debt by 75% to $56 trillion.

These figures do not exaggerate the amount of needed borrowing: They understate it. These figures assume that the president's tariff revenues continue, even though they were thrown out by the Supreme Court. They assume that various tax breaks passed last year, such as "no tax on tips," will expire at the end of 2028, which is unlikely. They also assume that Social Security, in line with present law, will slash benefits by about a fifth when the trust funds run out of cash around 2034 - even though the chances of that actually happening are slight.

Current and projected deficits are as large or larger than the $1.8 trillion borrowed in 2024. Yet while Bessent pretends that the Treasury can lend itself the money, and President Donald Trump goes to war with the Canadians, Vice President JD Vance is trying to persuade people that it's all the fault of Joe Biden.

None of these are serious and none will address the debt crisis.

Why is this happening now? Simple. As Ernest Hemingway wrote a century ago: One goes bankrupt two ways - gradually, and then suddenly.

The U.S. government is not bankrupt. But the debt burden continues to rise faster than GDP, even when the economy is strong. There is no end to the spiraling deficits in sight. Interest on the national debt now accounts for more than half of the federal budget deficit, and costs more than Medicare.

Can the U.S. government fix the problem by "cutting federal spending," and especially "waste, fraud and abuse?" No. That's already baked into the cake. The CBO budget forecasts already assume that federal spending, excluding Social Security, Medicare and debt interest, will fall as a percentage of GDP. Nondefense discretionary spending, defense spending, plus Medicaid, CHIP, healthcare subsidies and other mandatory programs are already projected to shrink in relation to the economy.

And that's before counting Trump's latest budget proposal, which raises - yes, really - federal spending. Or the costs of the Iran war.

Actual savings from DOGE were trivial.

Eventually you have to assume taxes will be raised, but that would require a degree of functionality from the U.S. political system that currently doesn't exist.

The politically easy solution is to let inflation rise, whittling away the value of the debt in real purchasing-power terms. That's what happened for nearly 40 years after the end of the Second World War (though Wall Street and Washington won't tell you that).

Meanwhile, once Trump has alienated Canada, who will be left to lend us money? Saudi Arabia - maybe.

The obvious solution will be the Federal Reserve, which can revive the old quantitative-easing program, effectively printing or creating new money and using it to buy up Treasury bonds.

No wonder gold is rising again.

-Brett Arends

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08-24-26 1503ET