Can the U.S. survive its debt? The 'doom loop' trap, gold's & dollar's future under Trump – Stephanie Pomboy
(Kitco News) - President Donald Trump's re-election victory ignited a surge in the stock market and propelled Bitcoin to new record highs, but Stephanie Pomboy, founder of MacroMavens, warned that questions remain about the long-term impact on the U.S. economy, particularly in light of the nation's mounting debt levels.
In the immediate aftermath of the election, investors swiftly moved into trades aligning with Trump's policies on tariffs, taxes, government borrowing, and cryptocurrencies.
The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite hit new record highs on Wednesday, with the former surging more than 1,500 points. The last time the Dow jumped more than 1,000 points in a single day was in November 2022.
Bitcoin, buoyed by Trump's campaign promises to make the U.S. the "crypto capital of the planet" and establish a "strategic Bitcoin reserve," surged to new all-time highs, pushing above $76,000.
However, concerns about the U.S. economic situation should not be forgotten, given the nation's nearly $36 trillion federal debt level.
"We have got corporations that are massively leveraged," Pomboy told Jeremy Szafron, Anchor at Kitco News. "You're going to have a problem for a lot of the lower echelon of corporate America that already can't service its debts."
Pomboy also pointed to vulnerabilities in the banking sector, noting that banks are sitting on "500 billion dollars on unrealized losses. That's not going anywhere. It hasn't been cured."
She believes these losses have not been adequately addressed and could pose a significant risk to the financial system.
"This debt and deficit are the existential threat to our economy and the dollar hegemony," she said. "This is a doom loop - with higher interest rates mushrooming out our deficits, essentially bringing forward the day of reckoning."
She added that the risks associated with the banking sector could force the Federal Reserve to employ some form of quantitative easing sooner than expected. "The real source of concern right now is in the shadow banking system because that's opaque. Where problems might begin to bubble up. People are marking assets at levels that just have no bearing in reality."
Watch the video above for Pomboy's insights on debt, the U.S. dollar, and the macro warnings.
Gold declined after Trump's victory, falling more than $80 on Wednesday. The spot gold price was last trading at $2,659 an ounce.
This dip was attributed to the rising U.S. dollar index, with the two assets typically moving in opposite directions, Pomboy explained. However, she noted that the decline in gold is "a very temporary blip in what will continue to be a massive bull market for gold."
For Pomboy's gold outlook into the year-end and beyond, watch the video above.
Pomboy highlighted that the dollar's strength is unsustainable in the long run, given the U.S.' persistent deficits and ongoing de-dollarization trend.
"We have seen this global exodus. We have this existential problem of how we will finance our deficits in this domain vacuum they're leaving behind. And no one has proposed any clever solutions. And in the absence of any solutions, um, you know, the dollar goes lower and gold goes higher," she described.
Pomboy pointed out that if no measures are taken to shore up global confidence in the dollar, there will be a massive problem in terms of "financing those deficits and potentially having a real hyperinflation problem here."
Pomboy also acknowledged that Trump's pro-growth policies could potentially boost the economy and help restrain the deficit's growth. "The number one cure for deficits is growth," she said. "So if we can get this economy growing… that's a game changer and could at least restrain the growth in this deficit."
However, she also expressed concern about the potential impact of higher-than-expected interest rates on the economy. "Even though the Fed is cutting rates, higher for longer is probably going to be the story for the interest rate side," she said. "I am concerned about this push-pull between stronger economic expectations and interest rates. That's a major headwind for an economy as levered as ours."