Aug 22, 2026 · 1h 28m
Capital scarcity pushes America toward higher inflation and bond yields
Lacy Hunt & Brent Johnson: The US Has Entered A New Inflationary Era That Will Prove Bad For Bonds
The episode argues that weaker saving, heavier borrowing, deglobalization, and competing investment demands could reshape portfolios and household finances for years.
- 1Capital scarcity and deglobalization could keep inflation and bond yields higher, despite temporary disinflation during recessions.
- 2Falling net national saving limits physical investment while government deficits and AI-related borrowing intensify competition for capital.
- 3Federal Reserve and Treasury intervention may support asset prices while worsening inequality and encouraging financial investment over productive investment.
Don't miss
Lacy Hunt explains why all three components of the Fisher equation—real rates, expected inflation, and risk premiums—could become higher or more volatile.
The brief
Lacy Hunt argues that the United States has entered a prolonged capital-scarcity era, as deglobalization, government borrowing, and competing investment demands raise inflation risks.
AI infrastructure, semiconductors, the electrical grid, and other projects are competing for limited real saving; central-bank liquidity cannot substitute for resources needed to build them.
Hunt’s Fisher-equation framework points to higher or more volatile real rates, expected inflation, and risk premiums, while allowing for temporary declines during recessions.
The discussion links falling net national saving, heavier deficits, and declining foreign Treasury demand to pressure on bonds, the dollar, households, and global markets.
Brent Johnson presses Hunt on debt, inequality, fiscal dominance, and spillovers, while Hunt maintains that inflation-resistant assets may fare better than traditional bonds.
What was said on this episode
29 statements · 3 positive · 22 negative · 3 mixed · 1 neutral
Inflation volatility and interest rates will rise during a prolonged secular shift.
“We're going to have higher inflation. We're going to have greater volatility in inflation. The trend in interest rates is going to be higher”
Listen at 6:27
Capital demand will push real interest rates higher.
“there is going to be this tremendous demand for capital, which suggests that real interest rates will have to rise”
Listen at 8:47
AI infrastructure spending will precede any productivity benefits.
“The draining effects come first, and then the productivity benefits, if they occur, will, uh, um, be later in, in the cycle process.”
Listen at 14:22
The US budget deficit should be reduced to 1–2% of GDP.
“the budget deficit should be 1 to 2% of GDP, not 6.4%.”
Listen at 18:38
US federal debt will rise toward 130% of GDP.
“federal debt is already approaching 120% of GDP, and it's on its way to 130% of GDP.”
Listen at 19:14
Rising fiscal pressure will increase the risk premium on Treasury debt.
“I suspect that it will lead to an increase in the risk premium on Treasury debt.”
Listen at 20:10
Higher Treasury risk premiums will raise mortgage and corporate borrowing costs.
“it will lead to higher, um, borrowing costs in the mortgage market and in the corporate market.”
Listen at 20:35
Treasury markets will ultimately determine market direction despite intervention.
“the Treasury markets are far more powerful than he is, and they're ultimately going to set the course.”
Listen at 23:24
Rising deposits and money supply are increasing inflationary pressure.
“you have an uptick in deposit growth and money supply growth, which in my opinion is moving further into the inflationary direction.”
Listen at 25:19
Warsh will lose credibility if he fails to deliver anti-inflationary policy.
“if he does not deliver on those promises, then he will lose his credibility.”
Listen at 27:25
Fed support for stocks shifts corporate investment toward financial rather than real assets.
“when the Federal Reserve comes in and gives a signal to the market that they're going to support the stock market, the liquidity in the stock market, and the price level of stocks if and when needed, then what that serves to do is it's a signal to the corporate managers that they should put more investment in financial assets and less investment in real assets.”
Listen at 28:21
Federal Reserve largesse is supporting overleveraging that could damage the US economy.
“the largesse of the Federal Reserve is supporting an overleveraging cycle, which could ultimately have highly deleterious effects on the US economy.”
Listen at 30:35
Increasing money supply would worsen inflation under current conditions.
“Federal Reserve can increase the money supply, but in the current environment, all that would do was would allow the pass-through of energy and other costs that are occurring. And actually worsen the inflationary picture.”
Listen at 35:33
US potential economic growth will decline toward 2–2.5%.
“the potential growth rate is not going to stay at 3.5%. It's going to gravitate down toward 2% or 2.5%.”
Listen at 41:37
Structural forces imply higher and more volatile interest rates.
“the fundamental structural forces are suggesting higher in a more volatile environment.”
Listen at 43:42
Cyclical downturns will produce smaller rate declines than previously.
“the rates will decline, but not nearly as significantly as they would in a more favorable global environment.”
Listen at 44:31
US birth rates will decline further as the population ages.
“the birth rate, which is, which is already in a major downtrend, will become even weaker at the same time that we're aging.”
Listen at 46:15
Government is an inefficient allocator of resources and capital.
“The government sector is not the efficient allocator of resources, not efficient. Allocator of capital.”
Listen at 50:44
A movement toward socialism would accelerate existing economic problems.
“the movement towards socialism will actually accelerate the problems that we've been going forward.”
Listen at 51:10
Precious metals and hard assets have historically performed well during inflation.
“Historically, that has clearly been the case”
Listen at 53:47
Higher interest expense burdens lower-income households while benefiting top-income households.
“the rise in interest expense, the burden of it falls on our modest and moderate income households, whereas the benefit accrues to the theft of our households.”
Listen at 56:52
Fed asset purchases lower credit spreads and stimulate stock markets.
“when the Fed comes in like they do, did in, in December, it brought down the, the credit spreads, which gave the impression of economic strength, encouraged activity there stimulated the stock market”
Listen at 58:15
Treasury intervention may create market pressure for continued support.
“once they start it, the market may insist that they continue it. In other words, it gets them trapped into providing a put.”
Listen at 1:05:33
The dollar may weaken near term but recover after subsequent episodes.
“The near-term direction in the dollar might be lower, but I think that ultimately these will be episodes that will follow that will sort of bring the dollar back.”
Listen at 1:08:45
Foreign investment in US Treasuries is declining significantly.
“The Treasury, the investment in Treasuries, however, is dwindling down and coming off quite significantly”
Listen at 1:10:40
Capital scarcity and deglobalization will persist for several years.
“the capital shortage is a story for several years, and I don't think that we will go back to the era of globalization.”
Listen at 1:13:23
The United States will remain the world’s predominant growth engine for now.
“we're still the world's predominant engine of growth, and that'll be the case for the time being.”
Listen at 1:14:59
China’s command-and-control model is causing serious economic problems.
“China has just grave economic problems which stem from too much command and control”
Listen at 1:15:23
Industrial policy does not efficiently allocate resources.
“industrial policy is just an aspect of command and control, and it doesn't lead to efficient allocation of resources.”
Listen at 1:15:57
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
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