狮山巡礼
投资杂谈
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The U.S. stock market has seen incredible growth over the last century, rising over 524 times since 1939. However, U.S. national debt has grown even faster. Federal debt has increased by 751 times since 1939, reaching approximately $36.2 trillion. The debt’s average annual growth rate of 7.86% has outpaced both the stock market and nominal GDP growth.
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The U.S. debt ceiling has been raised over 100 times since 1917. While some investors fear a crisis, their long-held belief in "American exceptionalism"—supported by the U.S. credit foundation and the dollar's global reserve status—has historically prevented panic. However, recent policies from the Trump administration have begun to challenge this belief.
By looking at three historical debt crises, we can find lessons for today.
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World War II: The Rise of Yield Curve Control
(1942–1951)
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During World War II, massive spending caused the U.S. debt-to-GDP ratio to nearly triple. To manage borrowing costs, the Treasury and the Fed implemented Yield Curve Control (YCC). The Fed committed to buying as many bonds as necessary to keep short-term rates at 0.375% and 10-year yields below 2%. This action made the Fed a tool for government financing, a period known as "the Fed being captured by the Treasury."
With bond yields held artificially low, inflation outpaced returns, causing real yields to turn negative. This pushed investors into the stock market, which saw a major bull run. By 1952, the SP 500 had surged by 187%.
While this approach helped the U.S. manage its debt after the war, it would be difficult to repeat today. The scale of current debt, lower GDP growth, and a less willing Fed make a similar strategy unlikely.
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Reagan Era: Stagflation and the Volcker Shock
(1981–1994)
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The Reagan era, often referenced by Trump, faced its own debt challenge. The period saw tax cuts, increased defense spending, and lingering stagflation—a combination of high inflation, slow growth, and high unemployment. Debt-to-GDP rose significantly, fueled by high inflation, which reached 15.7% in 1981.
To fight inflation, Fed Chair Paul Volcker hiked interest rates to an unprecedented 20%, restoring the Fed's credibility but causing a short-term recession. Bond yields initially soared but fell as the economy slowed. The stock market, after an initial shock, entered a decade-long rally, gaining 277% by 1994, supported by falling real yields and restored confidence.
This period shows how a confident Fed, like Volcker's "whatever it takes" stance, can restore market trust even when "American exceptionalism" is questioned. Today's core issue is whether the market still trusts the Fed to keep bond yields from spinning out of control.
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Global Financial Crisis: Quantitative Easing
(2007–2014)
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The 2008 financial crisis saw the government's debt-to-GDP ratio rise above 100% due to fiscal stimulus and bank bailouts. To control long-term rates and support recovery, the Fed launched Quantitative Easing (QE), buying trillions in government and mortgage-backed securities.
QE drove down bond yields, lowering borrowing costs and encouraging investment. The stock market, which had fallen by half, began a multi-year recovery, reaching new highs by 2013 as QE restored confidence in the U.S. economy.
The crisis showed that even when confidence in "American exceptionalism" falters, the Fed can still win back trust by controlling long-term rates. While QE is now politically unpopular, the Fed still has some ability to influence rates and maintain market confidence.
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The Fed is Key
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Over the last century, U.S. debt crises have repeatedly challenged the belief in "American exceptionalism." However, history shows that U.S. financial markets are resilient, especially the stock market. This resilience is directly tied to the Federal Reserve’s ability to control long-term bond yields.
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Despite political pressure from figures like Trump, the Fed has resisted easing policies prematurely. The central bank's capacity to act, and when it chooses to do so, remains the most critical factor in maintaining market trust and navigating future debt challenges.
