Edward Quince's Wisdom Bites: Stars

 

We spend endless time debating the Fed’s neutral rate. Much less time asking whether the government can afford it.

Enter Fiscal r-star: the real interest rate that stabilizes debt-to-GDP.

When Math Becomes Politics

At current debt levels, the U.S. government’s tolerance for high real rates is limited. If rates exceed fiscal r-star for long, debt dynamics deteriorate rapidly.

This creates tension between inflation control and solvency.

Financial Repression by Another Name

Historically, governments resolve this through repression: holding rates below inflation, taxing savers quietly, and favoring debtors.

It is not announced. It is endured.

The Lesson

Investors should prepare for a world where real rates are politically constrained. That means skepticism toward long-duration nominal bonds and greater emphasis on real assets and pricing power.

XTOD

“If the government cannot make ends meet… it pays its bills by manufacturing the money needed.” — Irving Fisher