Part 15/19:
McDonald asserts that a full-blown default cycle is increasingly probable. The collapse of the commercial real estate sector, weaknesses in high-yield bonds, and stressed banking sectors—already evident from recent turmoil—underline the risks. The federal government’s reliance on continuous debt issuance and political brinkmanship could exacerbate fears, leading to a systemic crisis if investors lose confidence.
He highlights that during the UK’s 2022 bond crisis, a similar "Liz Truss moment," bond yields soared, and intervention was forced to restore stability. Similar episodes may occur in the U.S. around September or October, especially when Treasury issuance once again exceeds market absorption capacity.