Fed Considers Bond Purchases as Labor Market Falters

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[1] Fed data suggests central bank has stopped losing money - KITCO (https://www.kitco.com/news/off-the-wire/2025- ...)[2] Trading Day: Fed hopes fire risk rally - Reuters (https://www.reuters.com/world/china/global-ma ...)[3] The Job Market Is In Its Worst Stretch Since The Pandemic - Investopedia (https://www.investopedia.com/the-job-market-i ...)

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Dec 04 2025, 13:11

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Dec 04 2025, 13:06

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Dec 04 2025, 08:33

US Debt Sparks Bond Collapse, Gold Bull Run Warnings

## Executive Summary This report details mounting warnings from prominent financial experts regarding the precarious state of the U.S. financial system. The primary drivers of this risk are the unsustainable trajectory of U.S. government debt and the increasing politicization of the Federal Reserve's monetary policy. While markets are currently reacting to the prospect of lower interest rates, with gold prices rising, the underlying structural issues point toward a potential U.S. bond market collapse and a significant future reversal in the gold bull market. The potential appointment of a new, more dovish Fed Chair is a focal point, creating a sharp divergence between short-term market optimism and long-term systemic risk. ## The Event in Detail Louis-Vincent Gave, CEO of **Gavekal**, has forecast a potential collapse of the U.S. bond market, attributing the risk to a "foregone conclusion" of a merger between the **Federal Reserve** and the **U.S. Treasury**. This view is echoed by former Treasury Secretary and Goldman Sachs co-chairman **Robert Rubin**, who has drawn parallels between the current market complacency and the period preceding the "Black Monday" crash of October 19, 1987. At the core of these concerns is the U.S. national debt. The Congressional Budget Office (CBO) estimates that debt held by the public will reach 99.8% of GDP in fiscal year 2025, double the 50-year historical average of 51%. Rubin noted this is a significant increase from 30% in 2000 and cited forecasts from the Budget Lab at Yale suggesting the ratio could climb to a more realistic 130-140%. Rubin stated that while the timing is "impossible to predict," the nation is running a significant risk by continuing on an unsound fiscal path. ## Market Implications ### U.S. Treasuries Under Pressure The alignment of fiscal and monetary policy, often referred to as fiscal dominance, poses a direct threat to the U.S. bond market. If the **Federal Reserve** is perceived as monetizing government debt to keep borrowing costs low—effectively inflating its way out of the problem—investor confidence could erode rapidly. This scenario, warned against by Rubin, could trigger a sharp sell-off in U.S. Treasuries as investors demand higher yields to compensate for rising inflation and credit risk. ### Gold's Dual Narrative Gold prices have rallied, with spot prices recently trading around $4,217 per ounce, supported by weak economic data and rising expectations of a **Federal Reserve** rate cut. The probability of a 25-basis-point cut at the December FOMC meeting is currently priced at approximately 89%. However, **Gavekal** presents a contrarian long-term thesis. Gave predicts that an appreciation in Asian currencies around 2026 could end the current gold bull market. Such a currency shift would incentivize Asian investors to repatriate capital, reducing a significant source of demand for the precious metal. ### Federal Reserve Policy at a Crossroads The selection of the next Fed Chair is a critical variable. Markets are pricing in a 75-85% probability that President Trump will nominate **Kevin Hassett**, his top economic advisor. Hassett is widely viewed as a dovish figure who would favor lower interest rates to stimulate growth, aligning with the administration's political goals. This contrasts sharply with the other leading candidate, **Christopher Waller**, a current Fed governor and career central banker seen as a technocrat more likely to defend the institution's independence. An analysis by *The Economist* explicitly endorsed Waller, arguing for a "technocrat over the partisan" to maintain the Fed's credibility. A Hassett-led Fed could lead to more aggressive rate cuts and a higher tolerance for inflation, potentially weakening the dollar and steepening the yield curve as investors price in higher long-term risks. ## Expert Commentary > "When I talk to people in the markets, I say there is one date you ought to keep in mind: Oct. 19, 1987," stated **Robert Rubin** at the CNBC CFO Council Summit, highlighting the danger of market complacency in the face of excessive debt. **Louis-Vincent Gave** has warned that the "merger of the Federal Reserve and the Treasury is a foregone conclusion," directly linking this to a potential bond market collapse. Economist **Mohamed El-Erian** has also weighed in, stating that while the Fed needs reform, political leaders must "cool it" and cease treating the central bank as a tool for short-term political objectives. ## Broader Context The current situation places the independence of the **Federal Reserve** under an intense spotlight. The potential for **Kevin Hassett** to become a "shadow Fed chair" for five months before his term officially begins could influence policy and market expectations well in advance. This is compounded by an administration that is actively seeking to reshape the Fed's board with loyalists. This dynamic is not occurring in a vacuum. It reflects a global tension between the need for credible, data-driven monetary policy to control inflation and rising political pressure for lower interest rates to manage high debt loads and stimulate economies. The ultimate resolution of this conflict in the U.S. will have profound consequences for global markets, the role of the U.S. dollar, and the viability of capital-intensive growth sectors like Artificial Intelligence, which Gavekal suggests is also at a potential turning point.