Afford Anything - First Friday: The Dollar Is Weak, Bonds Are Expensive, and We Owe WWII-Level Debt

Episode Date: June 6, 2025

#614: The US just added 139,000 new jobs in May. That beat expectations. But the real story isn't in the job numbers — it’s in the bond market. Something unusual is happening in bonds. Treasury yields are spiking. The dollar is weakening. That combination almost never happens together. And it's signaling concerns about future inflation. Trade wars continue on. A federal court just struck down some tariffs. The administration will appeal. Meanwhile, the EU has until July 9 to cut a deal. If they don't, 50 percent tariffs kick in. As a result, many companies are playing defense instead of growing. The debt situation keeps getting worse. We owe $36.2 trillion. That's more than we owed at the end of World War II as a percentage of our economy. Moody's just downgraded our credit rating. We're not alone — Britain's bonds just hit their highest levels since 1998. The accredited investor rules could finally change. Right now you need an income of $200,000 ($300,000 as a couple) or $1 million in net worth to access private markets. Those numbers haven't changed since they were written in 1982, even though adjusted for inflation, that $200,000 would be $662,000 today.  The SEC might start loosening enforcement of the accredited investor rules. That could open up more investments to people who've been locked out for decades. Crypto is finding its footing. The SEC dropped cases against Coinbase. They're backing away from treating most crypto like securities. Bitcoin sits near all-time highs. The US keeps building its strategic Bitcoin reserve. The House just passed what's being called the "One Big Beautiful Bill." It extends 2017 tax cuts. Eliminates taxes on tips and overtime. The Congressional Budget Office says it'll add $2.4 trillion to the deficit over 10 years. That's sparked debate between deficit hawks and growth advocates —  including one particularly high-profile debate that has been plastered across the headlines. Consumer sentiment stays stuck at 2022 lows. People expect 6.6 percent inflation. The actual rate is 2.3 percent. That gap between what the data says and what people feel shows up everywhere. We cover all of this in today’s First Friday economic update.  For more information, visit the show notes at https://affordanything.com/episode614 Learn more about your ad choices. Visit podcastchoices.com/adchoices

We created more jobs than expected. The U.S. added 139,000 new jobs in May, slightly exceeding expectations. The mood had been sour because this private payroll company, ADP, came out with a report two days prior on Wednesday, showing that job growth in the private sector had slowed a bit. But this morning, the BLS, the Bureau of Labor Statistics, published their monthly first Friday of the month jobs report, which exceeded expectations, although it also, similar to ADP's report. pointed to fewer jobs being created in May as compared to April. So in April, we created 147,000 new jobs. In May, we were expecting that we'd only create 130,000. We actually beat that, and we created 139,000.

What does that mean? Big picture. It means we're adding more jobs, but we're slowing down the rate at which we do so. It also means that we expected the slowdown to be worse, So it's still a slowdown. It's just not as bad of one as we thought. Meanwhile, the unemployment rate held steady at 4.2%. But nobody's talking about the jobs report this morning. People are talking about a big fight that has dominated headlines. Without naming names, we're going to address that at the end of today's episode. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. Every choice has a trade-off. This show covers five pillars, financial psychology, increasing your income, investing, real estate, and entrepreneurship. It's double-eye fire. I'm your host, Paula Pant.

I hold a master's in economic journalism from Columbia. And once a month, on the first Friday of the month, I produce a macroeconomic update, a look at the economic news of the last month. So welcome to the June 2025, first Friday economic update. If you're looking for a job, health care is the big winner. Over the last 12 months, it has posted an average monthly gain of 44,000 new jobs, but in May, it did very well. It created 62,000 new jobs. Similarly, the leisure and hospitality sector is also beating its recent performance. So over the last 12 months, leisure and hospitality, on average, added about 20,000 new jobs each month.

In May, it added, it more than doubled that. It added 48,000 new jobs. we are seeing a decline in federal government jobs. So in May we saw a decline of 22,000 jobs. In total, we're seeing federal government jobs down by 59,000 since January. Now, I'm going to put a big, big, big, big asterisk here. Employees who are on paid leave or employees who are receiving ongoing severance are not counted within that number. So if a federal government, government worker is still getting severance, then they officially, on paper, count as employed. So we're not going to have accurate data until that severance runs out, so probably

in the fall. So in future First Friday updates, stay tuned because you're probably going to hear those numbers revised. But as of now, we know that government jobs declined 22,000 in May and 59,000 since the beginning of the year. And to be clear, those are federal government jobs. we actually have seen some gains in state and local government. And that's the jobs report. Let's open with a recap of where we are on tariffs, trade taxes at the moment. One of the strange realities of creating an economic report that is monthly in its nature is that we are not focused on the day-to-day drama of daily news,

but rather we'll recap what happened this week so we can stay current and then zoom out to take a much bigger picture look. not just at what's happening, but more importantly, at what it means for you. So the U.S. Court of International Trade, which is an entity that was established under Article 3 of the Constitution, to provide jurisdiction over disputes related to customs and international trade, made a ruling that stated that the U.S. Constitution gave Congress the exclusive power to regulate commerce with other nations, and that an emergency law that was invoked by the presidential administration does not give him the authority.

to impose tariffs. Now, to be clear, this does not impact tariffs on specific elements like steel, aluminum, even cars, because those fall under a different law. This only impacts tariffs that were imposed under the International Emergency Economic Powers Act, which is a 1977 law that President Trump cited in order to justify the tariffs that he announced on Liberation Day. The court also ruled that a separate set of tariffs, on products from Canada, Mexico, and China, related to what he says is their role in sending fentanyl to the U.S. were also a violation.

Now, the administration is, of course, appealing the ruling, and that case will be decided in the U.S. Court of Appeals for the Federal Circuit. Zooming out, getting away from the news of the week and putting this in perspective of what it means for the month. Zooming out what all of this means for businesses is greater uncertainty. For example, we know that the president had threatened to impose 50% tariffs on the EU. However, in an effort to make a deal, he granted a deadline to the EU of July 9th. And so as just one example of this uncertainty, we on one hand know that July 9th is a deadline to see whether or not a deal is made.

And if it is not made, 50% tariffs could go into effect. If those tariffs are struck down by the court, then those tariffs may not go into effect and may have to be unwound. On the other hand, if the administration wins its appellate, appeal, and if the U.S. and the EU do not come to a deal before July 9th, then the 50% tariffs against the EU are back on again. So as you can see, if you were the owner of any business that interfaced with the EU, perhaps you have a liquor distribution company. Maybe you're a liquor distributor. And so you need to source whiskey from Ireland and Scotland, in addition, of course, to Kentucky bourbon and other domestic homegrown whiskeys. You can see how challenging

it would be to create any type of forward forecasting, because while you would have great certainty around the Kentucky bourbon or Tennessee whiskey portion of your business, you would have far more questions around the import of scotch and how to handle whiskeys that come from Canada, Ireland, Japan. The takeaway with these tariffs, bourbon is certain, scotch is uncertain. And while the hope is that that may cause

distributors and vendors to favor bourbon, thus boosting the economy of Kentucky and Tennessee, the on-again-off-again nature of what is currently happening has meant that that hasn't happened yet and that businesses and consumers both are taking a more defensive posture as we brace for the possibility of price shocks. I should make a note here that when we talk about trade, there are both tariffs and non-tariff barriers

and both play a role, And we often do not hear about non-tariff barriers, but they come in many forms, including export subsidies, regulatory barriers, government procurement policies, a value-added tax known as a VAT, because VAT tax is spending, but does not tax exports. So all of these play a role in the cost of trade. But there are a few things that are certain, which is, number one, that in the short term, all of the uncertainty has. has slowed growth. And if the question is by how much, the OECD, the Organization for Economic Cooperation and Development, has downgraded its growth forecast for the U.S. to 1.6% this year and 1.5% next year. That is a drop from the previous expectation of 2.2%. Global growth is also expected to slow. The expectation for 2025 downgraded from 3.1% down to 2.9%.

Now, if you're listening to those numbers and you're thinking, wait a second, it sounds as though growth in the rest of the world just sounds like it's going to be stronger. That is actually not the case. So I realize on a raw numbers basis, that might be what it sounds like, because you're comparing 1.6% in the U.S. to 2.9% globally. But large developed nations such as the U.S. have lower, slower, more stable GDP growth numbers overall as compared to, developing economies, which overall tend to have higher growth numbers, but much greater volatility. And the U.S. is globally well positioned because we have the edge when it comes to AI, robotics, quantum computing. So we, more so than any other nation, hold the potential to make massive productivity gains.

As one example, Nvidia just published its latest quarterly report and its revenue has grown nearly 70% year over year. And that that is strong growth given that NVIDIA was already, as far back as 2022, people were already saying, well, it's grown so much. How could it possibly grow any further? And yet we keep seeing quarter after quarter, year after year just continued outperformance. And that's in spite of NVIDIA having to eat a $4.5 billion charge due to a change in policy that affects the way that it can transact with China. So, Nvidia took that $4.5 billion

hit, and yet they were still tremendously profitable. They saw their revenues grow to $44.1 billion, and their profits grow to $18.8 billion. The jump in net profits was another 26%. And I think this in one company shows the story of, at least at the large company level, at the Meg 7 level, shows the story of resilience that big, well-positioned companies can be adversely affected by trade war uncertainty and yet can still, through the advantages that we already hold through the economic moat that big American companies already hold, can still be bullish outperformers even in spite of any such hits. So if you're listening to this and you're wondering, all right, how does this impact me? I'm not worried about your

stock portfolio, particularly the large-cap growth elements of your stock portfolio, which is necessarily VTSAX, VTI, the total stock market index has very heavily weighted towards Mag 7 large-cap. I'm not worried about that. They've got plenty of margin, and they, in spite of any hits they may be taking, they are still doing incredibly well. And thanks to the economic moat that the biggest tech companies in the U.S. have, invidia, alphabet, meta, Amazon, we are still the global leaders.

If the question is how does this affect me, you, the average person, I'm not worried about your total stock market index allocation. I'm not worried about your stock portfolio. I am worried about your bond portfolio, which we will talk more about in a moment. And I am worried about your employment if you work for a small to mid-sized company. What we see in the jobs report is that the private sector is still hiring, but they're doing so at a much slower rate than they have for the last several years. And that is largely because small to mid-sized companies in particular do not have the cash on hand that these larger companies do. They do not have the margin of error to be able to buffer

the uncertainty that larger companies do. And so they buffer that uncertainty through slower growth, slower hiring, more conservative forward-looking projections. The holidays are right around the corner, and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens. Maybe you need serveware and cookware. And of course, holiday decor, all the stuff to make your home a great place to host during the holidays. You can get up to 70% off during Wayfair Black Friday sale. Wayfair has can't miss Black Friday deals all month long. I use Wayfair to get lots of storage type of items for my home, so I got tons of shelving that's in the entryway, in the bathroom, very space saving. I have a daybed from them that's multi-purpose. You can use

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It's about not being just one thing, but many things for our customers. Big Bank Muscle, FinTech Hustle. That's your commercial payments of Fifth Third Better. I want to talk about the bond market. your eyes glaze over. I want to emphasize a particular point. If you truly want to understand the economy, understand the bond market. People mistakenly think that the stock market is a proxy for the economy. It is not. The stock market is a moody teenager. It's going to have mood swings. Just don't get too caught up in it. And in the long term, things will be okay. The exception to that

is when there is some type of a financial crisis such as 2008, when there's a black swan event triggered by underlying weaknesses in the system. And I do think that there's evidence of a few ways in which that can happen. We can talk about that separately. I would love to have a different discussion about what are some of the black swans that could cause things to come crashing down. We'll save that discussion for a later time. But right now, the point that I want to make is that in the absence of a 2008 level event, the stock market is a reflection of hopes and fears. It is moody. It is in the short term of voting machine rather than a weighing machine, and it does not serve as a good bellwether for the economy. What does, however, serve as an

excellent, excellent bellwether for the economy are 10-year interest rates. That's why, if you want to learn about what's happening in our economy, look at 10-year treasuries. So first, anytime we talk about interest rates, people automatically think about the Federal Reserve. They think about Jerome Powell. I want to be clear. While the Federal Reserve controls short-term interest rates, they control the overnight bank funding rate, which is, as the name implies, the rate at which banks lend and borrow money to and from one another overnight in order to to meet their reserve requirements. The Federal Reserve controls that they have no control over the 10-year treasuries. Sure, their actions can influence 10-year treasuries,

but ultimately that 10-year rate is going to be based on the strength of the overall economy. It's going to be based on inflation, and it's going to be based on X-year rate. expectations about the future value of the dollar and about the stability of the U.S., therefore, global demand for long-term treasuries. Broadly speaking, when we have high inflation, we tend to have higher rates. When we have slow growth, we tend to have lower rates. Sometimes we have both, like in the 1970s, we had stagflation, which meant we had simultaneously. In the 1970s, we had simultaneously a recession and inflation. So sometimes both can happen simultaneously. What we're seeing right now is that the dollar is getting weaker, which has both pros and cons. A weaker

dollar is beneficial for exporters. So in that regard, a weak dollar could help with the trade deficit. Anything that helps exporters helps with the trade deficit. That said, a weak dollar is bad for importers, which means it could lead to higher inflation because imported goods would then need to be priced at a markup. So importers would pass those prices onto you and I, average consumers. And so that higher inflation or the expectation of higher inflation could push treasury yields higher. And so what we're seeing right now, what we've been seeing for the past couple of months is a really unusual combination. We're seeing a spike in treasury yields coinciding with a weaker dollar, which is really unusual. So over the past few months, the past three months, there's been

a big climb in treasury yields, and particularly in the 10-year treasury. And that could be reflective of a lot of things. Likely, it is reflective of higher inflation expectations. but it could also be reflective of worries about the overall fiscal situation in the U.S., particularly the huge level of debt that we have. Not only do we have huge deficits, but our debt, and I want to emphasize just how bad it is, not just in terms of total dollar amount, but as a percentage of GDP, in both regards, as total dollar amount and as a percentage of GDP, we've never seen debt levels like this. Our national debt is the highest peacetime debt we've ever had.

In fact, we actually have an even higher level of debt as a percentage of GDP than what we had at the end of World War II. Our debt levels right now are incredibly, they're five-alarm fire, incredibly concerning. We currently sit at a debt level of 36.2 trillion. And when Treasury yields spike, that means the government has to pay higher borrowing costs. It means the government is paying more for those government bonds. Not only do we have record high levels of debt, but we're also paying high levels of interest for it. Meanwhile, Moody's just downgraded the U.S. credit rating. It was the last of the three major agencies to do so.

And so when you put all of these factors together, the weak dollar, the spike in treasury yields, the high levels of debt, the trade war uncertainty, what I see here is a recipe for a potential big shakeup in the bond market. I should add that this is not specific to the U.S. This is actually a pattern that we're seeing across a lot of rich nations worldwide. So the cost of borrowing in Britain, it's 30-year, hit 5.6%, which is the highest level since 1998. 30-year bonds in Japan have hit 3.2%. that's nearly a new record for them. In Germany, it's also 3.2%. That's the highest it's been there since the 2010s.

And so the fact that yields are climbing all around the world highlights that inflation expectations, not just in the U.S., but around the world, are starting to climb. The reasoning is very simple. When investors expect there to be higher rates of inflation, they demand higher interest rates. So investors are demanding higher rates for long-term, bonds all over the world, or at least all over rich developed nations. And that puts a debt burden

on the taxpaying public because as old bonds mature, those bonds need to be refinanced with new bonds, which are now at higher yields, which then adds to the cost of borrowing. And so a major part of the reason why U.S. debt levels are so concerning is because as long-term treasury yields go higher and higher, and simultaneously our debt continues to climb higher and higher, we're taking on just extreme amounts of debt, and now we're refinancing that debt at higher and higher rates. And so when I say that there could be volatility in the bond market or turbulence in the bond market, I'm not talking just about like the market as an isolated market. I'm talking about a very real possibility of the U.S. facing a debt crisis.

and if that does happen and it will start in the bond market, it might have or would have spillover effects, trickle over effects into the stock market, the equities market as well. But if there is a crisis, it would start in the bond market. It would start as a debt crisis. Now, I don't say this to be alarmist. And again, that's partially why I want to emphasize that this is not a problem that's isolated to the U.S., that Britain and Japan and Germany are also

seeing higher yields. They're seeing, they're all paying more for long-term government bonds. But much of U.S. economic policy, U.S. is unique in that we, for a long time, have been the safe haven investment. We are the World Reserve currency, and in times of turmoil, investors, both domestically and internationally, flock to the U.S. Capital flows to the U.S. because in times of turmoil, people seek the safety of treasuries. And what we're seeing right now is a weakening of this. People used to believe that the 30-year treasury yield couldn't really go that much above 5%. Because if the yield ever got that high, there would just be so much demand for it,

that that demand would push prices up and yields down, which means that the demand for U.S. treasuries, the idea was that demand would serve as a natural cap on how high yields could go. That was the thinking. And now that assumption is really being tested, which is concerning because so much of the U.S. financial system was built around that assumption, the modern system. So, in general, in the coming weeks and months, if you're ever wondering, hey, how's the economy doing? Don't look at the stock market for that information. Look at the 10-year treasury. And look at the inflation rate, look at the strength of the dollar, look at those indicators to give you a much more well-rounded picture. On the topic of inflation and interest

rates, the next Federal Reserve meeting is going to be June 17 and 18, and investors are overwhelmingly betting that the Fed will hold rates steady once again. So there are no anticipated changes to report there. The Fed in their notes from their May meeting stated, quote, Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace, the unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.

End quote. So functionally what they're saying is we're not worried about unemployment. We're happy to see that the economy is continuing to grow, and we are still a bit worried about inflation. Later in the same statement, they reiterated their commitment to bringing inflation down to a 2% level. We are close to that. The annual inflation rate for the U.S. was 2.3% for the 12 months ending in April. That's according to Labor Department data that was published on May 13. Remember, the Fed has a dual mandate to preserve both maximum employment and stable prices, so their dual mandate relates to both employment as well as inflation,

as long as unemployment remains at or near historic lows. They are widely expected to continue to hold interest rates exactly where they are so that we can bring that inflation rate from 2.3% where we currently are down to 2%. And given the fact that investors in the bond market seem to be signaling or anticipating future inflation worries, that is all the more reason for the Fed to hold steady, as they're widely expected to do. Very quickly, I want to go back and answer a question that I used to, I don't hear it so much anymore, but I used to hear it frequently last year.

People will often look at the fact that prices are permanently elevated and say, wait a second, how can you say that the rate of inflation is down? How can you say that the rate of inflation is 2.3% when these prices are so much higher than what I used to pay? eggs at the grocery store are far more expensive than they used to be. My rent is far more expensive than it used to be. So how is it possible that inflation is down? My answer to that is imagine you're driving a car from Maine to Florida. The rate at which you are driving that car might be 60 miles per hour from Maine down to Virginia. And then once you reach Virginia, you slow that rate

down to 50 miles per hour and you drive at that to North Carolina. And then when you get to North Carolina, you slow the rate even further. And now you're going 40 miles per hour to Georgia. And then you slow down to 30 miles per hour to get you over the Florida border. And then, heck, you go 20 miles per hour from the Florida border all the way down to Miami. The rate at which you are driving changes, but you're not going in reverse. In fact, you're still getting further south. So things are still in this analogy still getting more expensive. It's just getting more expensive at a slower and slower rate. It's taking you longer to get there. That's how the rate of inflation can come down, but prices can still continue to climb. Just like the speed at which you're

driving is now 20 miles per hour, but you're still heading south to Miami. There might be huge changes to who can be an accredited investor. Typically, you need a million dollars. Wait, can we queue the Austin Powers? One million dollars. Typically, you need a million in order to be an accredited investor. but as I ranted about on an episode a couple weeks ago, that's an absolutely idiotic policy. And fortunately, the decision makers in Washington, at least some of them, seem to agree. So there might be big changes that will directly affect everyone listening to this that relate to the accredited investor policy and therefore the amount of private businesses, private equity that you can access.

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Welcome back. So in the United States, anyone can invest in public equities like publicly traded stocks, Nike, Coca-Cola, Home Depot, GM. There is no means test that a person must pass before they're eligible to buy shares of these major publicly traded companies. In fact, even children, with their parents' consent, can purchase fractional shares or whole shares if they have the money. of some of their favorite brands like Coca-Cola or Nike or Disney. And you see a proliferation of that in trading platforms. Fidelity offers a youth account specifically for teens aged 13 to 17, for example.

And there are custodial IRAs for minors who have earned income. There are custodial brokerage accounts for miners who want some stock market experience. So public markets are widely available. But there's an entirely hidden class of investments, and these are private equities. Right? So we've got public equities, private equities. Since 1982, the average American was shut out of private equities. I've been running my own business for over-ed decades. So the SEC's definition of an accredited investor states that individuals who earn over $200,000 a year or jointly earn over $300,000 a year with their spouse are considered to be accredited. They're individuals who have a network that's higher than $1 million, excluding the primary residents,

are also considered to be accredited. Those were the means, those were the basic financial thresholds that were set out in the 1982 accredited investor rule. Interestingly, those numbers have not been updated for inflation. Earning $200,000 in 1982 is the equivalent to earning $662,000. And if you ever get stuck, So over time, as inflation has withered away at the thresholds that were set, more and more people are able to qualify as accredited investors, meaning private markets are more accessible now than they were 40 years ago. But that doesn't change the fundamental fact that it's still limited to only the very, very top margin of income earners and or the very top margin of net worth holders.

Now, to make a couple of comments about the accredited investor rule, one is that the net worth calculation, as I mentioned, excludes the value of your primary residence. This actually set the tone for subsequent discussions in the personal finance community and in the financial independence community. There's a bit of an internal debate. When people are calculating their net worth, there's an internal debate as to whether or not the value of your primary residence should be included in your net worth. and it is possible that the popularity of that idea, the popularity of the concept that primary residents should be excluded from net worth calculation might trace back to this SEC 1982 rule. So that's just a little aside.

When you hear people in the personal finance community debating that, this rule may be the lineage of the debate. Now, in the year 2020, the SEC modified the accredited investor rule to add certain professional certifications. There are a series of financial licenses known as series seven, series 65, series 82. If you have one of those, you could qualify as an accredited investor. Similarly, if you are what's called a quote unquote knowledgeable employee of certain private funds, you could also qualify as an accredited investor. And they also made a rule for family clients of family offices. So they made an expansion that let a few more people who were already

adjacent to the inside become official insiders, but that, of course, does nothing for the general U.S. population. It does nothing for Frank, the high school basketball coach, who has not yet, through frugality and compounding interest, amassed a $1 million net worth, and he hasn't done that yet because he's only 32. And therein lays a big piece of the problem. And to illustrate the problem. I'm going to read a quote from Mark Ueda, who was briefly the SEC chair for like a minute. He said, quote, when you think of the net worth test, for instance, somebody who has invested for decades is more likely to have accumulated than necessary million dollars. If they are 75 years old, an investment that has a horizon of five to seven years may not make sense, but it might make perfect

sense for the 23-year-old recent university graduate, end quote. And that's exactly the issue. For ordinary people to become accredited investors, Frank the high school basketball coach, through compounding interest, through investing, could reach that million-dollar threshold by the age of 50, but he might be better served by being able to access those investments at the age of 25, or 30. Similarly, a person who simply got in early at a company that later IPOed and therefore has a net worth that's higher than a million, well, if that person's job at the company had nothing to do with finance or investing, if that person's job at the company was HR management or marketing, or maybe they were an executive assistant, right? they could have any number of roles that have no relevance to finance, but if they were at the right

company at the right time, now they suddenly have access to a class of investments that the majority of people are shut out from, despite the fact that they have no specialized knowledge. There's a disconnect there. And likewise, let's say that you're a highly compensated professional. You make more than $200,000 a year as a result of your extremely special. skill in a given domain, but that skill has nothing to do with investing. Maybe you're an enormously successful software programmer or singer or athlete, or maybe you're an anesthesiologist. The simple fact that you have income that's above a certain threshold doesn't bear any

relevance to your ability to assess investments in the private market. And I know people will argue that, well, it does mean that you have more disposable income. and that if you lose money, you can afford to shoulder that loss. A, that's not necessarily the case. You may have massive student loans. You may have six children that you're supporting, and you're supporting your elderly parents and grandparents, right? There's no bearing.

Your income has no bearing on the number of dependents that you have. And the means test has no relationship to the amount of debt that you hold. So it does not necessarily follow that just because a person makes more than 200,000, that they necessarily have a greater ability to shoulder a loss. And so the SEC's 1982 accredited investor rule is, I would argue, senselessly arbitrary. And, as you may have guessed from the quote that I just read you, the quote coming from former SEC Chair Mark Ueda, there are now voices in the SEC that agree with that and that are pushing for, granting more ordinary individuals access to these cordoned off private markets.

The primary activity that we're seeing on that front right now is that the SEC has loosened its enforcement of the rules, not just around accredited investor enforcement, but around several other SEC rules as well, particularly when it comes to the way that Gary Gensler, the former chair, was treating crypto. That's a different conversation. But broadly, the SEC has loosened its enforcement of, of many of the rules that it previously held in place. And this is an area to watch because it is likely that bigger, more official changes may be on the way. On the topic of crypto, the SEC has dropped its cases against Coinbase, which is a major crypto exchange,

as well as Ripple Labs, a crypto issuer. It is backing away from its previous position under former Chair Gary Gensler that crypto should be regulated like securities, its leadership now indicates that most crypto in fact should not be treated as a security which means it would no longer fall under SEC purview and volatility in specifically in the Bitcoin market which Bitcoin is special among cryptocurrencies

a volatility in the Bitcoin market has subsided the value of Bitcoin has held relatively steady over the past month at just shy of its all-time highs. Money is flowing into the I-Share's Bitcoin Trust. And the company formerly known as Microstrategy, now they're just called Strategy. It's a company that is widely seen as a proxy for Bitcoin because they are so heavily exposed to Bitcoin's price. They hold a lot of Bitcoin on their books. They are trading well.

They're trading close to their year-to-date highs. And overall, if you watch that stock price, there is, particularly in the last six months, it's been pretty smooth. So all in all, in the crypto markets generally, we're seeing a lack of volatility. There were some big moves last fall since then. That market has stabilized. And in the mainstream media, we don't really hear about crypto that much these days because it's sort of business as usual, chugging along. That said, there's a potential for good long-term growth, as we mentioned in the last first Friday episode, the U.S. has established a strategic Bitcoin reserve, and we've also established the U.S. digital asset stockpile. And so that's why I say Bitcoin is special among cryptocurrencies.

It is the only cryptocurrency for which we as a nation have a strategic reserve of specifically that this one particular cryptocurrency. It's sort of become the anointed currency among cryptocurrencies. It also has the largest market cap. It has the biggest value out of any other crypto. It's got the most widespread adoption. It has the strongest network. It's immutable. There's a capped supply. It's never been hacked. And at this point, there's so much value in it. All of the Bitcoin worldwide is over $2 trillion. And that makes it less affected by speculation in the way that a smaller coin could be, less affected by wild price swings that are spurred by speculation. Speaking of wild price swings, gold. Gold has had a massive run-up over the last six months. It's up

27% year-to-date. This corroborates what we talked about earlier in this podcast episode. When people are concerned about inflation, when investors are concerned about inflation, they flock to tangible assets. because inflation erodes the value of fiat currency. It erodes the purchasing power of our dollars. It erodes confidence in business as well and therefore weakens the outlook for many businesses, particularly if wages don't keep up with inflation and therefore consumers have less disposable income to spend on consumer discretionary purchases. So where do you put your money in an inflationary environment? You put it in tangible assets.

You put it in real estate, gold, art, any type of tangible asset is the holding that investors flock to in inflationary environments. Art, of course, is highly speculative. So while it may be inflation resistant, it has a whole lot of other risk factors associated with it. Gold, by contrast, even though it has very limited actual utility, it has a long-established historical precedent as serving as the backbone of commerce. Gold predates fiat currency. And then real estate, of course, is my favorite inflationary hedge because not only is it a tangible asset, but it also has utility that is inflation resistant. It's recession resistant.

People will always need a place to live regardless of economic conditions. So the only thing that would cause its value to decline would be either the city or town as a whole declining. So if jobs, dry up and people leave a city or town. And the population dwindles, of course, that's going to cause home prices in that specific location to plummet. The other risk is a surplus of building, but we are at no risk of that. We have the opposite problem. We have a severe, severe housing shortage. And it will take years to turn that shortage around. So if you want to protect your money from inflation, real estate is a really good option. The drawback is there's a

a huge barrier to entry. Now, yes, you can invest in REITs, although those have different characteristics than homes that you would directly own yourself. For homes that you directly own yourself, you want to target low cost of living areas where the barrier to entry is much, much, much lower. Live in California, buy in Indiana. In any event, going back to gold and going back broadly to the rise in value of assets that are inflation hedges, or the investor flight into assets that inflation hedges. I think what we're seeing overall, when we look at all of these different asset classes, real estate, gold, treasuries, is that investors are worried about inflation. And even though the current rate of inflation is only 2.3% right now for the trailing 12-month

period as of April, there are very, very real worries that that number might inch higher, which is why the average consumer expects inflation in the year ahead to be 6.6% of according to data from the University of Michigan, as of their May 2025 study. Now, the University of Michigan every month has a Consumer Sentiment Index, and the good news about the survey is that consumer sentiment in May stayed stable. It held at the same value in May that it had in April. That's another way of saying the good news is that it did not decline. It held steady.

Now, the bad news is we're holding steady at 2022 lows. So sentiment is in the toilet, but it's not getting worse. And consumer expectations around what people think inflation will be for the upcoming year is 6.6%. I mean, it's given that we're at 2.3 right now, it's not going to be that high. But there is, of course, that disconnect between what the data shows and how people feel. And what the University of Michigan Consumer Sentiment Index says and why I love this survey so much is it really takes stock of how people feel because that is the lived reality on the ground. And now we have a way of quantifying and putting into a data set that lived reality.

And why that matters is because it gives us a way of measuring it month over month and seeing if things are trending worse, better, or the same. And the good news for May is that we are holding the same as we were for April. Given that these monthly first Friday episodes are monthly economic reports, I try to steer away from emphasizing any news that might be hot at this particular moment, but that may not have the longevity to reflect on what's happening at a monthly basis. That said, I would be remiss if I didn't talk about the one big beautiful bill, which was recently passed by the House of Representatives and now needs to go to the Senate. Its key provisions are as follows. It extends the 2017 Tax Cuts and Jobs Act, the TCJA, which, as I discussed with Bob Elliott at the beginning of April, that is a widely anticipated extension of an existing tax cut.

It also includes a number of spending cuts and increases the work requirements for some people who are receiving taxpayer-funded benefits. It enhances research and development R&D deductions for businesses and crucial. And crucially, it allows for immediate expensing of certain items that businesses would otherwise need to depreciate. This is referred to as Section 179, and the bill increases Section 179 expensing. It also increases the child tax credit to $2,500 per family. It removes taxes on tips as well as taxes on overtime pay. It includes tax cuts for seniors.

it streamlines permitting, particularly for construction and development, and it reverses electric vehicle mandates. It is expected, it is widely projected to grow GDP, although there is disagreement on the question of, to what extent will it grow GDP? It is also projected to increase the size of the national deficit by several trillion dollars. That's according to the Congressional Budget Office. There is, however, a debate as to whether or not the CBO's numbers can be trusted based on their methodology. So the CBO will first create an economic forecast that's based on current law, based on the status quo. And that forecast requires using the status quo to make projections about GDP, unemployment, inflation, interest rates, everything that we discuss in these monthly updates. And then the real work is then creating budget projections or revenue projections based on all of that forecasting.

So, for example, they'll project employment slash unemployment and they'll project wages and then run estimates of how many people are going to be in what tax bracket and therefore how much money are they going to be pulling in through taxes. they'll project imports, and then they'll calculate how much the nation will collect in customs duties at our current rates based on our projected level of imports. So they're running projections on all of these factors that are very much in flux, right? For example, imports in April decreased by 16.3% as compared to March. So even looking at the current law and current status quo, it is quite challenging, to make these projections because even doing this point in time analysis, so much is still in flux even month over month. They then have the challenge of first creating a baseline projection,

which is based on the assumption that current law remains in place, and then they'll extend that baseline projection out over a 10-year period, and then they'll contrast that to a new proposal in order to see what the effect of that new proposal may be. So it's tremendously difficult work, tremendously complicated work, and historically, CBO projections have been generally considered reliable, but of course not perfectly accurate. And so historically, they have tended to overestimate revenues in the short term with an average error rate of 1.2% for budget year projections and an average error rate of 5.6% for six-year projections. That's according to their own data. In any event, they have projected that this new bill, which just passed the House and still

needs to be reviewed by the Senate, if passed, would add $2.4 trillion to the deficit over the next 10 years. And this has led to, and I'm going to make the understatement of the year right now, this has led to disagreement about the bill within the administration, even among former insiders. The fight that is erupting right now is in some ways a fight between those who are concerned about the deficit and those who are concerned about how much debt the nation holds versus those who are interested in the stimulatory effects of tax cuts, which can be a lever that leads to more jobs, more R&D, and more GDP. growth. So the argument is cut the debt on one side and grow the economy on the other side. I'll reference back to something that we talked about in the interview with Bob Elliott, the former Bridgewater Associates, head of Ray Dalio's investment team. In that interview, we talked about how when we're talking about the economy, there are multiple levers or tools.

So tariffs are a tool, tax cuts are a tool, government spending is a tool, the Fed setting interest rates, that's a tool. And so we've got these tools that we often talk about in a vacuum. You know, we will have a discussion about the implications of the Fed setting interest rates. We'll have a discussion about the Fed's monetary policy, and we'll have that discussion typically in isolation. And then we switch gears and we talk about tax cuts, pros and cons, in isolation. And then we switch gears again and we talk about government spending, pros and cons. pros and cons in isolation.

And so we have all of these discussions that tend to be siloed. And it is enormously complex to understand what it means when all of these factors coalesce together. How do tariffs interact with tax cuts, interact with the Fed's interest rates? That's a question that's very difficult to answer. And so it is much easier for the mainstream media to talk about the dollar. fight, the drama, which these days looks like a reality TV show, that is a much more entertaining story and a much more easily digestible story than asking, how do these levers all impact one another? It's much, much easier to say, hey, look, look at the bromance breakup. But underneath

that, there is a debate that is happening between the deficit hawks, you know, those who are tremendously, tremendously worried about the balance sheet of the nation and the record levels of debt that we're holding versus the people who are worried about our ability to compete with China and they want to see our economy grow faster and particularly they want to see our tech industry, AI development, grow faster so that we can maintain our edge. There's an underlying debate that gets overshadowed by the silliness. And that's largely because silliness is shareable on social media. Silliness generates clicks. And so, on this first Friday in June, that's where we stand. Thank you for being an afforder. If you want to talk

to other members of the community, head to afford anything.com slash community, completely free. And if you want to chat with me, subscribe to our newsletter, afford anything.com slash newsletter, and just hit reply to any of the emails. You can send a note to me directly. Again, that's afford anything.com slash newsletter, totally free. I read every email, although I can't always respond. You can also, speaking of social media where serious debates take a backseat to silliness, you can also find me on Instagram at Paula P-A-U-L-A-N-T.

Finally, don't forget to share this episode with the people in your life, friends, neighbors, colleagues, the people at your kids' soccer team, the people at the baseball game, the people you meet on vacation, share this with your loved ones, your liked ones, your tolerated ones. Share this with people you know and with strangers you don't know, because that is the most important way that you spread the message of F-W-I-R-E. Thank you again for being an abhorter. My name is Paula Pant. This is the Afford Anything podcast, and I'll meet you in the next episode.