The Macroeconomic Malaise | Juliette Declercq on Debt, Tariffs, Immigration, and Yield Curve
Monetary Matters with Jack Farley
Deep Dive
What is the macroeconomic malaise according to Juliette Declercq?
The macroeconomic malaise is the deep-rooted issue of losing organic growth due to a shrinking working-age population, which affects the financial system, standard of living, and social mobility. It's a problem that brings economic and political instability and volatility.
How has the U.S. managed to maintain robust growth despite issues with the working-age population?
The U.S. has relied on debt growth and immigration to maintain robust growth. Immigration has been a quick fix for the government, boosting the labor force and fiscal gains, but it has also increased precarity and pulled down real wages for the average worker.
Why does Juliette think a recession is a greater risk than inflation for 2025 and beyond?
Juliette believes that the U.S. is facing demographic headwinds with a shrinking working-age population, and the economy is no longer capable of organic growth. Borrowing into prosperity, which worked in the past, will now lead to higher debt-to-GDP ratios and a lack of demand due to lower real wage growth and job losses.
What are the potential economic consequences of Trump's policies on immigration and tariffs?
Cutting immigration will reduce the labor force and organic growth potential, leading to a recession. Tariffs will generate some government income but are likely to reduce American consumption and disrupt global trade, potentially leading to a stronger U.S. dollar as a strategic tool.
Why does Juliette believe the yield curve will continue to steepen?
The yield curve will steepen because bond vigilantes are back, and markets are less willing to accept negative real rates. The U.S. cannot borrow into prosperity without facing higher debt-to-GDP ratios, and the strong dollar will act as an escape valve for large deficits.
What is Juliette's view on the stock market and the Russell 2000 versus tech giants?
Juliette thinks the stock market is extremely expensive and is skeptical of the cyclical uptilt priced in by markets. She expects tech giants to outperform, especially with AI and productivity gains, while the Russell 2000, representing Main Street, will struggle due to economic uncertainty and weakening demand.
How does Juliette define American exceptionalism in the context of the economy?
American exceptionalism is defined by the U.S. ability to get other Western countries to adopt its technology, which fills the current account gap and strengthens the dollar. The U.S. also has the benefit of the reserve currency status, making its bonds more attractive relative to other developed markets.
What are Juliette's key macroeconomic recommendations for 2025?
Juliette recommends being long the two-year note (expecting interest rate cuts), long the dollar, and long tech versus short Russell 2000, particularly in the Tesla versus Russell trade. She expects these positions to benefit from the economic and political changes driven by Trump and Musk's policies.
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