Why Are Global Bonds Crashing? How Next ‘Fiscal Crisis’ Starts 'Suddenly' | Justin Wolfers

Summary

Justin Wolfers, professor of public policy and economics at the University of Michigan, explains the global bond sell-off as a rise in demand for loans driven by the AI buildout, large U.S. deficits, and geopolitical risk. He warns that fiscal repair is not on the political agenda and that a fiscal crisis could happen suddenly. The conversation also covers tariffs, inflation, the Fed, recession risks, gold, and the US-Canada trade conflict's impact on autos.

• Global G7 bond yields have risen sharply over the past year, with Japan leading.
• Wolfers attributes higher long-term rates to AI-related borrowing, U.S. deficits, and geopolitical risk.
• He sees fiscal repair as absent from public policy and warns of a possible sudden fiscal crisis.
• Tariffs are discussed as a tax that raises revenue but also consumer prices, with limited fiscal capacity.
• The Fed is expected by markets to hike before the election, though Wolfers downplays the exact timing.
• He dismisses gold as an investment and the gold-to-oil ratio as a macro signal.
• The US-Canada trade conflict is framed as damaging the integrated North American auto supply chain.
• Recalibrated geopolitical risk may lead to higher military spending.