And now for Washington’s next trick — sawing the dollar’s value in half

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I have a simple investing rule: Never catch a falling safe — especially when the government’s dropping it. There’s a time to buy bonds, but not when the U.S. budget deficit is setting records and the Federal Reserve is an accomplice to the crime.

The 2055 zero-coupon Treasury has fallen two-thirds from its pandemic-era peak. Some investors see a bargain. The reasoning: that anything down 66% must be oversold. Buy the dip. Wait for the bounce.

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Tell that to Lehman Bros.

These bonds are actually worse than failed bank stocks. They’re 30-year IOUs from a government running $2 trillion deficits, paying you back in dollars that will buy half a ham sandwich. Lehman only took a weekend to die. This is financial suicide on the installment plan.

Let me show you why today’s “bargain” is tomorrow’s regret.

Zero-coupon bonds pay no interest until maturity. You buy at a discount and collect face value at the end. The terms of the 2055 issue: pay $24 now, pocket $100 in 30 years. That’s longer than many murder sentences. Hell, that’s longer than most marriages.

You might as well bet on the Jets to win the Super Bowl. At least with the Jets, you know what you’re getting — and the suffering ends in January.

Duration risk: the first trap

Watch how this arithmetic plays out. Pay about $24 today, get $100 in 2055. No interest checks along the way. Because all the cash arrives at the end, these bonds are hypersensitive to interest-rate changes.

With 30 years until maturity, if interest rates rise by one percentage point, your $24 bond drops to about $17 — a 30% loss instantly. If rates fall one point, it jumps to $31.

These aren’t investments but leveraged bets on interest rates.

Inflation: the real killer

But the real trap is that future $100. Inflation is not just the CPI print. It is monetary dilution.

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The U.S. money supply has grown at 7% annually for decades. At 7% debasement, purchasing power halves every decade. After 30 years, your $100 will buy what $13 buys today.

And in a taxable account, the IRS imputes phantom interest each year. Uncle Sam taxes you on gains while inflation robs you of value. You pay taxes on money you haven’t received for an investment that’s losing purchasing power.

Story Continues

The bulls wave history around. In the early 1980s the long bond paid double digits. True. But prices cratered first, then yields became genuine bargains. We are nowhere near that point.

The math is brutal: The U.S. Treasury must sell $2 trillion in new bonds annually just to fund deficits. Foreign central banks that used to buy are now selling. The Fed can’t buy without restarting inflation. That leaves pension funds and banks already drowning in underwater bonds.

Until deficits shrink or buyers magically appear, these bonds keep falling.

The government’s ‘solution’

So here comes Uncle Sam with his magic wand — which looks suspiciously like a printing press. The Fed cuts rates like a drunk surgeon — quick, sloppy and with complete confidence that this time will be different. It prints money to buy bonds, which is like paying your Visa with your Mastercard, except you own both of the cards plus the bank, and somehow this is supposed to make sense.

The Treasury, meanwhile, does what it does best: floods the market with more IOUs. Congress spends the freshly printed money on programs that definitely, absolutely, pinky-swear will work this time.

But wait. It gets better.

The Treasury isn’t just pushing $2 trillion in new debt like a dealer working a street corner. Oh, no. It’s got to roll over $23 trillion in existing debt that’s coming due. That’s $25 trillion total.

Remember last May? One lousy $16 billion auction came up short and yields spiked faster than blood pressure at an IRS audit. Now imagine what happens when buyers start edging toward the exits.

The beautiful part is that more dollars chase the same goods. Inflation shows up like your in-laws at Thanksgiving. Investors demand higher yields. Bond prices crater. Your mortgage rate climbs like it’s training for Everest.

Wall Street’s rescue fantasies

When the math doesn’t work, Wall Street reaches for miracles. This time it’s AI — the productivity fairy with a silicon wand — here to cure inflation and rescue these bonds.

AI may cut costs at the factory. But policy adds fees, taxes, mandates and compliance that eat the savings. If a robot makes your burger for two dollars, someone will find three reasons it should cost six at the register.

And deficits are not background noise. They are the soundtrack. A big primary deficit means a relentless auction calendar for Treasury. There is no magic buyer. The buyer is you, your pension, your bank, your insurer or a foreign central bank with its own politics. Every one of them now demands a premium for inflation risk, fiscal risk and policy risk. That premium is the term premium. It is not, if you own the long end, your friend.

The kicker: that when bonds crack, stocks follow. When long-term rates climb, every future dollar of corporate earnings is worth less today. That is math, not opinion. Credit dries up. Growth stalls. But buying long bonds because stocks might fall? That is not hedging. It is jumping from the frying pan into the fire.

So when are Treasury bonds worth buying? When the U.S. government lives within its means. When it stops printing money to buy its own debt. When inflation expectations fall for real reasons, not Fed fairy tales. When the 30-year BX:TMUBMUSD30Y pays enough to cover both inflation and three decades of political circus.

Today? Not even close.

What to do if you own these bonds

If you’re sitting on these zeros, you have three choices: hold and pray for a miracle, sell and take your loss or double down because you enjoy pain.

If you insist on playing, at least watch who is buying. Strong demand from real investors means the market believes the story. Weak auctions that need Fed rescue tell you everything. When the government becomes its own best customer, you are not investing. You are enabling a system that must eventually reconcile with reality.

The market arrives like a repo man, calculator in hand, indifferent to excuses. Whether or not Congress defaults on its obligations, the market shows up to haul off your purchasing power.

How? Two ways, usually simultaneously. First, through inflation. The government prints money to pay its debts, flooding the system with dollars. More dollars chasing the same goods means each dollar buys less. Your $100 bond payment in 2055 might be legally honored, but it won’t buy what $100 buys today.

Second, through a steeper yield curve. When investors lose faith in long-term fiscal stability, they demand higher interest rates for longer-term bonds. Short-term rates might stay at 4%, but 30-year rates spike to 6% or 7%. That spread — its steepness — reflects fear about the distant future. Your existing bonds, locked at lower rates, plummet in value. You can’t sell without massive losses, and holding means accepting negative real returns.

Usually you get hammered by both, because financial disasters rarely travel alone. The government prints to avoid default (inflation), while bond buyers demand higher yields to compensate for that printing (steeper curve). Your bonds lose value while your dollars lose purchasing power. It’s a mugging from both ends.

The three rules of bond buying

Here’s what Wall Street doesn’t tell you: that you’re not an investor; you’re the mark. The government is holding pocket aces. The Fed’s dealing from the bottom of the deck. The financial press is the shill who keeps saying the game is honest. And you? You’re the tourist from Ohio who just asked if a straight beats a flush.

So let me spell it out:

First rule of bonds: The house always wins.

Second rule of bonds: You’re not the house.

Third rule of bonds: See Rule 1.

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More:America’s key lenders are snubbing Treasurys for gold — putting your 401(k) at risk. Here’s what to do now.

Also read:Here’s the $863 billion secret Powell, Trump and Bessent aren’t telling us about gold and bitcoin

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