The debasement trade and why crypto and gold are surging

On August 19, Treasury Secretary Scott Bessent announced the department will double the size of its buyback operations for longer-dated securities from $2 billion per batch to $4 billion.The stated goal of this operation is to bring the yields down for bonds between 10- and 30-year durations, which is another way of saying the government wants to make money cheaper to borrow.It didn’t exactly work.

After a brief dip in long-dated bond yields, the cost of borrowing returned to its multi-year highs.Meanwhile, the dollar as measured by the ICE dollar index fell nearly 1% on the news, putting the dollar down 2.5% since its recent July high.

Money managers who first talked about the “debasement trade” in February started talking about it again.The debasement trade is the market’s belief that the value of the dollar will continue to fall, which is another way of saying the government may stoke inflation, whether intentionally or as a side effect of monetary, fiscal and trade policy.Traders see this as an opportunity to buy “hard” assets like gold and cryptocurrency.In addition to the Trump administration’s extraordinary push to bring down the yield curve on long-dated bonds, its deficit ballooning tax cut in 2025 and its scattershot approach to tariffs have already driven inflation up from 3% in January 2023 to 3.5% today.The cumulative effect has been both to extend inflation’s run and to devalue the dollar.

This shouldn’t come as a surprise, however; Trump has made a weaker dollar central to his fiscal argument since the 1980s.Even in his first term he was tweeting his desire to see a weaker dollar.If a weaker dollar is the strategy, it’s working.Since the dollar notched a post-pandemic high in October 2022, IT has lost 12% of its value.

And the national debt also reached a record high $40 trillion this past week.Adding to the pain for American consumers, since the war with Iran began in February, the price of gas has shot up by 72%.Meanwhile, t...