The Puck · June 26, 2025

The Puck June Newsletter

The Puck Newsletter June 2025 🚀 The puck is moving—are you ready? Debt, Financial Repression, and the Return of Hidden Inflation The U.S. economy is entering dangerous territory. Deficits are ballooning, inflation is mutating, and monetary

The Puck Newsletter
June 2025

🚀 The puck is moving—are you ready?

Debt, Financial Repression, and the Return of Hidden Inflation

The U.S. economy is entering dangerous territory. Deficits are ballooning, inflation is mutating, and monetary policy is quietly being repurposed to keep the system afloat. Beneath it all, hidden inflation is silently eroding purchasing power and trust.

Welcome to the feedback loop economy.

The federal deficit has surged to $1.4 trillion year-to-date, up 7% from this time last year—even with a growing economy. Federal revenues and outlays have both grown, but spending is once again outpacing income. The main culprits: rising entitlement costs and a massive surge in interest payments, which now account for 21% of the increase in federal outlays.

We are also borrowing more in an era of high rates—and it’s costing us.

What’s going on with the One Big Beautiful Bill?

When those cuts are simply extended. In reality, extending the cuts lowers government revenue, increasing the deficit—not reducing it. Meanwhile, the real drivers of long-term fiscal imbalance—entitlements and interest payments—are largely untouched. This isn’t a fix. It’s accounting sleight of hand wrapped in a shiny name.reductionWashington’s newest fiscal showpiece—the “One Big Beautiful Bill” (OBBB)—promises $6.6 trillion in deficit reduction over the next decade, including $1.7 trillion in so-called mandatory savings. But the numbers are misleading. The bulk of the “savings” comes from a budget gimmick: assuming that Trump-era tax cuts will expire as scheduled, then claiming deficit

I Hear Sirens…

With fiscal policy flailing, the Fed is intervening. In May, the FED quietly purchased $20 billion in 3-year Treasuries after a failed auction—an unannounced act of de facto quantitative easing. The reason? Private demand for government debt is weakening.

Meanwhile, reserve requirements for U.S. banks remain at zero, encouraging banks—via regulatory nudges rather than direct mandates—to soak up Treasuries. No need to remind you all of our episode with Chris Leonard, but economists call this financial repression: manipulating markets to keep borrowing costs low.

This is the kind of policy more common in emerging markets under strain. And now it’s happening here.

When the Fed steps in to buy Treasuries, especially after a weak auction, it's a game-changing moment. It reflects not just typical portfolio adjustment, but a shift where central bank implicitly backs fiscal policy—literally monetizing government debt. On May 21, 2025, a 20-year Treasury auction saw subdued private demand (2.46× bid-to-cover—the lowest since February), prompting yields to spike and forcing the Fed to purchase roughly $20 billion in 3-year notes to stabilize the market. This matters because:

Treasury auctions are the backbone of sovereign financing—faltering demand here signals eroding investor confidence, risking higher future borrowing costs for the government.
The Fed’s intervention suppresses yields artificially, making credit cheaper for everyone, not just the government—fueling asset bubbles in housing, stocks, and even education finance.
This covert intervention blurs the line between monetary and fiscal policy, undermining the Fed’s traditional independence and resembling direct financing of the federal deficit—an alarming echo of Modern Monetary Theory in practice.
Finally, with private investors stepping aside, the Fed becomes the buyer of last resort, setting a precedent. If auctions continue to struggle, expect more stealth QE, more liquidity pumping into financial assets, and greater financial fragility—all without the usual warning signs of rising consumer inflation.

In short: when the Fed buys Treasuries to plug auction gaps, it’s not routine—it’s a structural shift with profound implications for interest rates, asset prices, and the future of monetary policy.

“In reality, all this money was chasing assets... So when you've got a policy that's driving up asset prices to boost economic growth, it is dramatically enriching the tiny section of people who own these assets. So that's how the Fed has deeply widened the gap between rich and poor.” – Chris Leonard

Hidden Inflation: The Effects

Official inflation is back in the headlines: 2.4% in May (headline), 2.8% (core). But these figures don’t reflect the full reality. The truth is more insidious: inflation is hiding in plain sight.

Shrinkflation: Product sizes drop while prices stay the same—cost per unit rises, but CPI barely notices.
Hedonic Adjustments: Quality improvements are used to lower the measured price of goods—even if you pay more out of pocket.
Exclusion of Asset Prices: Skyrocketing home and stock prices don’t show up in CPI, even though they reshape real living costs -- This is simply running back the playbook of the mid-2010s QE.
Basket Weight Manipulation: The CPI changes weightings of categories like food and fuel, often dampening the impact of price spikes in essentials.
Limited Scope: Urban-focused CPI data often excludes rural and demographic-specific inflation experiences.

Inflation isn’t just about percentages—it’s about trust. And that trust is slipping.

Bottom Line: It’s Already Happening

A failed bond auction. A stealth Fed rescue. Core inflation creeping up. Tariffs poised to add another 1.4% to prices. Markets are showing signs of stress, and the dollar is quietly weakening. The U.S. is now running a deficit above 6% of GDP with debt over 100% of GDP. Interest costs are now the second largest federal expense, trailing only Social Security. The OBBB does nothing to arrest this spiral.

This isn't a hypothetical future. It's a present reality. This is no longer a slow drift---its a gathering storm. The structural cracks are visible, the emergency measures already underway, and the trust that underpins the entire system is fraying. What happens next wont' follow a neat script. As pressure mounts, expect unanticipated --possible desperate--reactions from both the President and Congress.

Buckle up. The next phase of the crisis won’t be linear. It will be political, volatile, and very, very real.

🚀 The puck is moving—are you ready?

CATCH UP ON PAST EPISODES

David French returns to The Puck for a wide-ranging, deeply thoughtful conversation about the state of American democracy, the risks of authoritarianism, and the spiritual costs of political polarization. A New York Times columnist and former National Review editor, French unpacks the dangerous allure of strongman politics, reflects on Israel’s evolving strategy in the Middle East, and explores how each of us can preserve trust and truth in chaotic times. We talk about why institutions feel broken, how Trump uses public spectacle as a shield against accountability, and what it means to live with faith and courage in a disorienting moment. From LA protests to global power shifts, from misinformation to moral resilience—this is an episode you don’t want to miss.

On this recent episode of The Puck, host Jim Baer sits down with Aswath Damodaran, renowned NYU finance professor and the “Dean of Valuation,” for a deep dive into the current economic landscape. Damodaran breaks down the market’s recent volatility, the looming risk of a recession, and why the U.S. has been able to defy macroeconomic gravity for so long. He explores the impact of globalization’s decline, the role of risk capital, and the evolving influence of AI and Big Tech on markets. From the challenges of government inefficiency to the realities of investing in turbulent times, this episode offers a sharp, data-driven perspective on what lies ahead. Is the U.S. government running an unsustainable economic experiment? Can AI and technology continue to carry the economy? And what should investors do in a world of increased volatility?

WE CAN ALWAYS DO MORE

This month The Puck is highlighting FINCA one of the many charitable organizations impacted by the cuts to USAID.

FINCA supports a pathway out of poverty through financial empowerment and impact investing to small and micro-business owners and farmers with scarce resources to receive financing to grow their enterprises. Along with their partners, FINCA provides education, healthcare, and other critical services for families on the margin.

FINCA stands by the knowledge that investing in women is good business. They empower women—who are routinely denied opportunity—to access the resources they need to keep food on their tables, pay for their children’s education, and pursue their aspirations.

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