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August 26, 2026
Partner, Chief Economist
Yesterday, Stanley Druckenmiller argued in the Wall Street Journal that the Treasury should stop trying to hold down long-end yields with buybacks and address the primary deficit instead. The fiscal backdrop to his argument is stark.
Since 2006, US gross federal debt has increased by $32 trillion while the annual level of nominal GDP has increased by $19 trillion, see the first chart below. Debt is up nearly fivefold over that period. The economy is up less than 2.5x. Debt is compounding faster than the economy that has to service it, which is why federal debt held by the public has gone from below 40% of GDP to roughly 100% over that period.
The outlook offers no relief. The CBO projects that under current policies, debt held by the public will keep climbing from 100% toward 175% of GDP, see the second chart below. The OMB forecasts budget deficits near 5% of GDP over the coming years, on top of a current run rate closer to 6%, see the third chart below.
Deficits that size are normal in a recession. These are forecasts for a full-employment economy.
The fiscal outlook, a Fed considering a rate hike, and hyperscaler issuance crowding out demand for Treasuries all point the same way.
The bottom line for investors is that interest rates are going to stay higher for longer. Or, as Druckenmiller puts it, the long-term Treasury yield is the only fiscal disciplinarian the US has left.
Sources: US Federal Reserve, US Department of Treasury, US Bureau of Economic Analysis (BEA), Macrobond, Apollo Chief Economist
Sources: US Congressional Budget Office (CBO), Macrobond, Apollo Chief Economist
Sources: US Office of Management and Budget (OMB), Macrobond, Apollo Chief Economist
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