On September 17, Jan van Eck, the CEO of global asset manager Van Eck Associates Corp, was interviewed on Bloomberg Radio, where he shared his concerns about the fiscal situation in the United States. He emphasized that the country’s fiscal deficit had reached historic highs, even with low unemployment. According to van Eck, this development is significantly different from previous periods when deficits were similarly concerning but often alleviated by central bank interventions. He pointed to examples such as Japan, which has managed to delay economic consequences despite maintaining high debt levels for more than 20 years.
In van Eck’s view, the U.S. cannot continue with its current spending levels, particularly after witnessing inflation spurred by government expenditures. He suggested that regardless of the political situation, spending will need to decrease. Van Eck noted that in the past, discussions about the U.S. deficit often faded away because of central banks buying up debt. However, this time, he believes that spending will need to be curbed, a move that could slow down economic activity.
During the conversation, Bloomberg Radio host Barry Ritholtz challenged van Eck’s view by referencing how Japan has operated under a significant debt burden without major economic consequences. Van Eck responded that, while it’s true Japan has managed its debt, the U.S. will likely have to reduce its spending soon, as the inflationary pressures caused by recent high spending levels could not be ignored. He noted that from 2022 through 2024, high government spending helped prevent a recession, but continuing that approach may not be sustainable.
Van Eck also commented on the political landscape and its potential impact on future fiscal policies. He pointed out that future trillion-dollar spending packages are unlikely unless there is a drastic political shift. Even within the current administration, he suggested that further large-scale spending would face opposition due to concerns over inflation. He referenced the views of Larry Summers, who had argued that inflation would persist and require significant unemployment to be brought under control. Although inflation proved to be transitory, it lasted longer than anticipated, further complicating efforts to manage fiscal policy.
Van Eck also addressed the possibility of continued high spending. While some analysts argue that markets could continue to thrive, van Eck expressed his belief that a reduction in government spending is more likely. He highlighted how several major pieces of legislation, including the infrastructure bill and the Inflation Reduction Act, have already been passed, making it unlikely that future spending packages of similar scale will be enacted in the near future.
On the topic of investments, van Eck stressed the importance of holding assets that can hedge against fiscal instability. He pointed to gold and Bitcoin, both of which have recently hit all-time highs, as key assets for weathering potential economic turbulence. Interestingly, van Eck noted that despite these assets’ strong performance, there seemed to be fewer “Bitcoin or gold bulls” at the Future Proof conference he attended. This shift in sentiment among investors stood out to him, suggesting that the investment landscape might be changing.
When asked what indicators he was watching to monitor the situation, van Eck pointed to technical metrics for both gold and Bitcoin. He explained that the rally in these assets is tied to concerns about fiscal policy, while the equity markets have been driven by the AI boom and strong performance from several large companies. Although he remains optimistic about U.S. equities, he warned that investors should also be mindful of risks arising from fiscal turbulence.
Looking ahead, van Eck expressed optimism about India’s economic future. He predicted that India’s economy would surpass that of Continental Europe within the next decade. He acknowledged concerns about valuations in Indian markets but argued that the country’s rapid digitalization and the dominance of two telecom companies in controlling internet access present attractive investment opportunities.
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