© nextlevelcorporate, 2025. All rights reserved.

The QE Infinity train to nowhere…...left the station long ago

Back in May 2025, I pointed out that US government debt was compounding at ~9% annually, while nominal GDP was only growing at 5.3%, and real GDP closer to 2%. Since then, the situation hasn’t improved—it’s accelerated.

Debt accumulation at that rate means the U.S. is still firmly aboard my QE Infinity train to nowhere—a long, slow ride to the middle of the Pacific, somewhere off the coast of Japan and back again.

The issue isn’t the journey; it’s that there’s no plan for disembarkation. No credible mechanism to repay. Just rollovers, ZIRP dreams (i.e., zero interest rate policy), and periodic debt ceiling lifts to keep the Infinity train’s boiler fully stoked and the engine running. In short, monetary inflation and currency debasement.

More precisely, this dynamic is less a ‘problem’ and more an entrenched structural reality—a secular parameter that has reshaped the way the U.S. is being forced to manage its debts and deficits, and as a result it reshapes how we think about investing, buying, selling, and corporate development.

The TGA is nearly empty

Since May 2025, the Treasury General Account (TGA) has fallen from $577 billion to just $355 million (as at late July). That’s a drawdown of roughly $125 billion per month.

Meanwhile, Congress has raised the debt ceiling again—this time to $41.1 trillion.

Currently. the headroom between the debt ceiling (minus the balance left in the TGA) and the current Federal Debt of $36.1 trillion is $4.49 trillion.

$4.49 trillion is what’s left in net spending capacity, until a new debt ceiling must be negotiated.

If we stay on track, we probably hit the ceiling by 2027

Assuming the current spending pace continues, and the new ceiling could be reached in ~3 years. Factor in any additional stimulus, military spending, or big, beautiful bill measures, and that window narrows further. Let’s say 2 years.

Here’s the stark trajectory:

2019—total Federal debt of $22 trillion
2027—total Federal debt of $41.1 trillion (nextlevelcorporate estimate)

That’s still a CAGR of ~9%, with very little chance of reversal, particularly given bipartisan addiction to fiscal stimulus and interest-sensitive debt refinancing.

How hot does the economy have to run to stop the debt stack increasing?

To catch the 9% per annum debt formation rate, GDP growth would need to nearly double.

Current Federal spending is ~$7.2 trillion, less taxes of ~$5.2 trillion leaves a deficit of $2 trillion and then add $1 trillion in interest on the debt stack and you have $3 trillion of new treasury issuance required.

Since U.S. GDP is $30 trillion the economy would have to run at a ~10% annual growth rate to cover the current $3 trillion before Scott Bessent can attempt to pay down the debt.

Either that, or tariffs would need to do some mighty heavy lifting, of say $1.5 trillion per annum to augment ~5% GDP growth. It’s possible, but tariffs are not sustainable because they regulate behaviour and should decrease over time, not increase.

What this means is that Debt Monetisation is no longer optional

Put bluntly, the dynamic duo of Trump and Bessent can’t pay down or tariff away the Federal debt, Neither could Biden. The numbers don’t work. The only levers left are:

Drive interest rates lower to suppress the cost of capital and allow rollovers to continue.
Expand liquidity and fiscal largesse to keep credit flowing and offset higher yields.
Monetise the debt that no one else wants, whether overtly via QE, or covertly/dressed up as some kind of liquidity facility, reverse repo, or yield curve control, or perhaps something new.

The Fed may not want to re-expand its balance sheet back to, or even over the previous peak of $8.9 trillion (after having let $2.31 trillion roll off since that peak)—but a masterful Treasury might give them no choice.

TIFFIT, the QE Infinity train’s new conductor

This isn’t just a debt problem—it’s a refinancing problem under fiscal dominance. The traditional separation between fiscal and monetary policy has eroded. In its place, a new reality has taken hold—one we’ve seen building for years.

Back in May 2024, I wrote a five-part series on the NLC blog. In it, I coined the term TIFFIT—“Treasury Is Fed, Fed Is Treasury.”

It captured a structural shift, which is that Treasury and the Fed are working together, out of necessity.

Monetary policy no longer leads the dance and hasn’t since Yellen was Treasury Secretary—it responds to the fiscal tempo because it has to. And as the debt stack grows faster than GDP, the system has only one reliable pressure valve left.

That valve is a compliant Fed—that’s probably not as independent as it wants to be, like I wrote last week in my article: “TIFFIT Rising: Why Fed independence is a roadblock under Trump2.0.ai”.

If bond markets start demanding higher yields—if the bond vigilantes return—the Fed will be forced to intervene, not out of choice but necessity.

With Treasury now dominant under Trump/Bessent, the Fed becomes the release valve that prevents the refinancing calculus from puking.

Thus, balance sheet expansion, rate suppression, or yield curve control all become tools of fiscal accommodation. Bessent’s becomes the de-facto controller under the President’s agenda. The Fed becomes subservient.

So, the QE Infinity train to nowhere doesn’t just keep circling—it accelerates to accommodate debts and deficits with falling demographics. But this time under Trump, the conductor is the Treasury and the Fed’s just there to keep the boiler from exploding.

And the result is increasing liquidity.

Market implications start with monetary physics—TIFFIT liquidity has to go somewhere, right?

When liquidity rises, it doesn’t sit still. It seeks yield, growth, and shelter from currency debasement. Here’s where we see capital flowing next:

For investors

📈 Equities & Crypto

Risk assets tend to move first when liquidity returns. Growth stocks, tech, and crypto often react early as rate expectations drop and capital rotates into longer dated earnings due to the benefits of the discounting effects. These conditions also favour multiple expansion (i.e., price goes up even if earnings don’t because there’s more money supply), which drives up valuations and risk appetite.

💵 Bonds

Lower rates equal higher bond prices. If the Fed signals any return to balance sheet expansion or yield suppression—formally or informally—expect duration to rally and long-end yields to compress.

On the other hand, if the Trump administration follows through with borrowing at the short end of the curve, it means refinancing cycles will reduce from 3-4 years to a few months. The frequency of roles would likely cause bond indigestion, and short-end bond buyers would demand lower prices to buy those bonds.

🏠 Real assets

From real estate to infrastructure, real assets typically benefit from falling interest rates and higher liquidity. Investors looking for inflation protection and yield will continue to rotate into hard assets—especially if the USD weakens.

🌍 Capex, commodities & industrial minerals

A softer dollar boosts demand outside the U.S., for globally priced raw materials, including industrial minerals like copper, steel, aluminium, lithium, and rare earths. These are foundational to the energy and infrastructure formation narratives, both of which are heavily backed by fiscal spending.

For corporate developers

🔄 M&A activity!

While a falling cost of capital supports deal-making, elevated valuations may limit traditional M&A unless companies face strategic pressures or distressed scenarios. Watch for selective, high-conviction acquisitions, particularly in resource, energy, and innovation-heavy sectors.

And as Sar Katdare of Johnson Winter Slattery reminded this morning, the ACCC’s new merger control regime will commence on 1 January 2026. With it will come a mandatory, suspensory regime with new thresholds, timelines, and approval requirements that will fundamentally reshape how mergers and acquisitions deals are done in Australia. Something for corporate developers (sell and buy side) to watch out for.

🚀 IPO window reopening?

Lower interest rates and rising equity valuations could reopen the IPO window—particularly for late-stage private companies that held off listing during the rate shock of 2022–2024. Liquidity-fuelled risk appetite, coupled with investor hunger for growth, tends to revive public listing activity in waves. If we truly enter an interest rate cutting cycle in Australia (led by worsening unemployment), expect a pickup in prospectus filings in 2026.

What we’re watching for next

Well, tomorrow, the Federal Marlet Open Committee will make a call on interest rates and Fed Chair Powell will likely announce that the committee has decided to leave interest rates on pause.

We’ll also be watching Treasury issuance and signals for a change in mix from long term to short-term borrowing.

In our September edition of Debts, Deficits and the Liquidity Deluge, we’ll check on the debt and TGA balances, monitor the Fed’s posture, and scan for early signs of forced monetisation and/or TIFFIT coordination under pressure.

Until then, it pays to remember that despite cyclical breakouts and some tariffs, there’s no reverse gear on the Infinity Train to nowhere, especially under a TIFFIT regime where there’s a new controller.

See you in the market, for sure.

Mike

Debts, Deficits, and the Liquidity Deluge—July 2025