GM. This is Milk Road Macro, the newsletter stacking headlines higher than the national debt.

Here’s what we got for you today:

• ✍️ Government debt and deficits just get bigger and bigger

• 🎙️ The Milk Road Show: Crypto Is Macro Now: Bitcoin’s Role in the New Global Order w/ Noelle Acheson

• 🍪 The US has lifted recent export license requirements for chip design software sales in China

Grayscale, the OG crypto asset manager. Check out Grayscale’s ‘BTC’ ETP.

GOVERNMENT DEBT AND DEFICITS JUST GET BIGGER AND BIGGER (P1)

“The biggest narrative shift since covid” is continuing.

The US Government is “running it hot” - very hot.

Only a handful of months ago, we were looking at drastically reduced US Government spending and slashing deficits (bearish for risk assets).

Now, we are looking at dramatically expanded debt and deficits (likely bullish for risk assets).

A new version of President Trump’s “One Big Beautiful Bill” just passed the Senate this week.

And it involves taking on even more debt than the previous recent House version of the bill.

The Senate bill as written would likely increase total Government debt by more than $4 trillion through 2034.

And would likely increase Government budget deficits every year over the next decade.

I previously labeled this “the biggest narrative shift since covid” - and it really is.

Put simply, bigger Government deficits, while unsustainable in the long-term, are generally stimulative and likely to be a bullish factor for risk assets in the medium-term.

Major US stock indices are (so far) behaving almost exactly like they did post-covid in 2020 - just a massive V-shaped rally.

So, what’s in the new bill?

What does it mean for debt levels?

And how will the bill be financed? (This is the most important bit).

Let’s take a look…

So, what’s in the new Senate spending bill?

The new Senate bill makes deeper cuts to safety-net programs, speeds up the elimination of clean energy tax breaks, and benefits businesses with permanent tax breaks.

The bill includes various provisions, such as a higher limit on tax deduction, exemptions from taxes on tip income, cuts to Medicaid spending, and new funding for defense and immigration enforcement.

Other provisions include tax breaks for electric vehicles, auto loans, and semiconductor manufacturers, as well as changes to the child tax credit, consumer protection, and food aid programs.

What does the new bill mean for debt levels?

Simply put, it means a lot more debt.

The new Senate version of the bill would likely add an additional $1 trillion to debt levels relative to the version that passed the House only a few weeks ago.

The Committee for a Responsible Fiscal Budget, an independent policy organization, predicts the bill could push the US Government budget deficit to around 7% of GDP for the next five years at least.

And this assumes no recession during that time period.

These forecasts largely do not take into account tariff revenue - which may pull these deficit predictions down a bit, depending on tariff levels.

This scale of deficit spending has historically only been reached during serious emergencies (1940s World War 2, 2009/2010/2011 Great Financial Crisis, 2020/2021 covid pandemic).

The bill also front-loads costs, and back-loads savings.

GOVERNMENT DEBT AND DEFICITS JUST GET BIGGER AND BIGGER (P2)

Will the bill pass the House this week?

President Trump has set a deadline of July 4 to fully pass the new bill into law.

The bill has been altered by the Senate since passing the House a few weeks ago.

Now it is back in the House, where policymakers will have to approve the current bill, or make alterations.

Because the new bill pushes debt levels even further, there are several conservative House Republicans that are not happy.

House Speaker Mike Johnson can afford to lose only three Republican votes in the face of unified Democratic opposition, if all members are present and voting.

At the time of writing, the bill had not yet been passed.

Just after 3am Washington time on Thursday, Mr Johnson said: “We have the votes. We’re still going to meet the deadline”.

How will the bill be financed?

More debt issuance needs to be financed.

In recent days, President Trump has made some interesting comments about the Treasury’s debt issuance schedule. 

He said he has instructed the Treasury not to issue debt with a maturity above 9 months (only issue short-term T-bills). 

Now, Trump says a lot of things, and it’s difficult to distinguish what might actually be true.

He also may have misspoken.

But for now, let’s assume this is true - what would happen?

Doing what he’s said here would be pure debt monetization.

The effects on markets would essentially resemble Quantitative Easing.

In my opinion, this would be a “close your eyes and buy all risk assets” scenario (not financial advice).

T-bills are very close to cash, they have low duration risk, and are often financed through balance sheet expansion by financial institutions.

There is massive demand for T-bills, and issuing more T-bills expands the financial system’s ability to take on leverage.

Heavy T-bill issuance is thought of as a textbook debasement tactic and is generally stimulative to the economy and asset markets.

Shifting to issuing only T-bills would result in the cancellation of more than $3 trillion of planned longer-dated Treasury coupon auctions over the next nine months.

It would essentially be “Yield Curve Control”, cutting off supply of long-term US Treasuries.

This would likely cause a cascade of investors “shifting out along the risk curve”:

• With no new coupon debt, the buyer of longer-dated US debt has to buy something else, for example investment grade credit. 

• The seller of investment grade credit might then buy high-yield credit. 

• The seller of high-yield credit might then buy equities.

• The seller of equities might then buy bitcoin, and the cascade goes on and on.

If the Treasury decides to issue only T-bills, financial conditions would likely ease rapidly.

Ultimately, I think it is probably unlikely that the US Treasury would make the dramatic shift to entirely T-bill issuance, despite Trump’s recent comments.

Trump’s comments are likely an exaggeration, or he did not fully explain what he meant.

But the comments probably still need to be taken somewhat seriously.

The Treasury could feasibly tilt the “debt issuance mix” to include more T-bills, and less long-term coupons, which is still stimulative but on a smaller scale.

T-bill issuance as a share of total debt issuance shot up during 2020 and also 2023, propelling risk asset markets higher.

It has stabilized over the past 18 months.

Wrapping up

There appears to be no political appetite among US policymakers to reduce debt levels.

Debt and deficits just get bigger and bigger.

However, the most important thing to watch, from my perspective, is how this debt is financed.

“Yield Curve Control” style policies, like shifting issuance towards T-bills, are stimulative to asset markets.

Also likely bad news for the US dollar, and probably inflation as well.

This may well be the biggest story over the coming months.

Keep a close eye on the Government’s debt issuance strategy.

That’s it for this edition - catch you for the next one.

BITE-SIZED COOKIES FOR THE ROAD 🍪

Trump has announced a trade deal with Vietnam, with 20% tariffs on imports from the Asian country, lower than the previous 46% level set in April. Dozens of other economies, including the EU and Japan, are still scrambling to make their own deals.

The US has lifted recent export license requirements for chip design software sales in China. The US informed the world’s three leading semiconductor design software providers that government licenses for business in China are no longer needed.

Corporate treasuries have surpassed ETFs in bitcoin accumulation for the third consecutive quarter. Public companies acquired approximately 131,000 BTC in Q2 2025 - an 18% increase from the previous quarter - compared to an 8% uptick, or 111,000 BTC, among ETFs.

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