Instead of a transparent default, the U.S. government's strategy is to devalue its debt by keeping interest rates below inflation. This policy, known as 'financial repression,' erodes the real value of the dollar, effectively transferring wealth from savers and bondholders to the government to pay down its massive debt.

A large portion of corporate profits stems from two sources perceived as safe: debt-financed AI spending by hyperscalers and government fiscal deficits. This apparent stability supports high market multiples but creates a classic Minskyan dynamic, where prolonged stability encourages leverage and risk, eventually leading to fragility and a potential crisis.

When firms, particularly large tech companies, issue debt while simultaneously repurchasing their own stock, it is a strong indicator that management believes their equity is undervalued relative to their debt. This is a bullish sign for equity holders, contrasting with a scenario where both debt and equity are issued simultaneously.

The government's endgame for its massive debt is to hold interest rates below inflation. This 'negative real interest rate' means bondholders like retirees and pension funds are paid back in dollars with less purchasing power, transferring wealth to the government.

The last time US debt-to-GDP was over 110% was after WWII, when the debt was halved in five years through real rates that hit -13%. Today's debt levels imply the same outcome is mathematically necessary, requiring years of significant inflation that will destroy the wealth of bondholders.

Domino's has negative $4 billion in shareholder equity. This isn't from unprofitability but from systematically returning more cash to shareholders via debt-funded buybacks than it retains. This financial structure makes traditional metrics like Return on Equity (ROE) useless for analysis.

Profitable companies act as a hedge against currency debasement. They issue long-term debt at low fixed rates, effectively shorting the currency. They then invest the proceeds into productive assets or their own stock, which tend to outperform inflation, benefiting shareholders.

In a potential recession, highly levered companies like Global Payments and Shift4 (3.5x net debt/EBITDA) make a mistake prioritizing buybacks. Fiserv's new strategy of pausing buybacks to deleverage is more responsible, as de-risking the balance sheet can increase equity value.

The prolonged period of near-zero interest rates encouraged businesses, especially in private equity, to take on massive leverage. These companies, structured for cheap debt, are now struggling to survive in a normalized rate environment, creating a significant systemic risk.