Luke Gromen is the Founder and President of Forest for the Trees (FFTT). In this interview, we discuss the state of the economy, government borrowing and the bond market. We explore the implications of increased US government borrowing and spending on debt and taxes. We also talk about cycles of quantitative easing, a comparison of the economies of Argentina and the US, the impacts of inflation on different groups and investment strategies during a recession.
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Luke Gromen has been praised by former clients and colleagues as having a “unique ability to connect the dots”. Well, there are lots of dots at the moment, and none of them are static. The economy still seems like it’s in a perilous state with debt levels seemingly out of control. We discussed whether there is a limit to how much money the Treasury can borrow, and how the bond market might be signalling that the Fed needs to restrict borrowing.
We talked about how debt has ballooned as a result of the reliance on quantitative easing (QE) as a means to bring down interest rates. As Luke explained, this tool results in inflation, the need to raise interest rates again, then rinse and repeat. This cycle has been ongoing since 2014 when global central banks stopped growing their holdings of reserves.
The issue is who will buy the US’s burgeoning debt? Many expect the US to follow Japan’s model if the Fed starts buying bonds. However, Luke stated that the US risks mirroring Argentina’s economic situation as US government debt is financed mostly by foreign entities. This significantly hinders the US government’s flexibility: it constrains money printing, adds upside risk to bond rates and makes containing a spiralling debt burden much more difficult.
The economic system’s evolution over the past 30 years has contributed to growing wealth inequality and unrest. We discussed how these issues are manifesting in the US, suggesting that it is likely to be due to the hollowing out of the middle and working classes by successive governments from both sides of the aisle.
The result is a more comprehensive welfare budget, which increases the tax burden. But, given that GDP growth lags behind inflation and consumer spending is down, increased government spending requires more debt. Money printing for entitlements only adds more fuel to the inflationary fire. It is little surprise that Luke remains bullish on Bitcoin.