Welfare State Meets Mr. Bond Market: Rising Yields Put Socialism's Promises On Borrowed Time
All-In Podcast hosts Chamath Palihapitiya, Jason Calacanis, David Sacks, and David Friedberg recently discussed the "socialism point of guaranteed return," a troubling threshold at which economic deterioration drives voters to reject socialist policies and embrace free markets.
They pointed to rightward shifts in South American presidential elections as evidence of that political shift, with Brazil likely to flip right in the runoff election later this month.
The hosts suggested France may have already crossed the threshold (See EU bond market meltdown), while warning that the US remains in a phase where progressive policy failures generate demands for more and more government spending rather than a change in direction.
All-In's David Friedberg explained:
Friedberg continued:
He pointed out:
Continuing Friedberg's thought: Socialist failures have piled up in South America and sparked a once-in-a-generation shift, with voters booting out left-wing socialist regimes for market-friendly right-wing. In fact, Bank of America's Michael Hartnett pointed this out in something we've been telling readers for months about the Latin America political transformation:
So why is socialism failing around the world today?
Well, these welfare spending commitments and massive deficit spending can only happen in a low-rate environment. Those days of MMT discussions are long gone, as government bond yields have spiked globally since Covid-19 and keep rising, while higher borrowing costs make it much harder for heavily indebted welfare states to sustain. Hence, yields in developed countries with massive welfare states are blowing out as markets see socialists as a new major risk to stability.
"The recent sharp increase in global interest rates is exposing the unsustainable reality of fiscal policy across most developed economies. The US and France are now in the spotlight, but the argument applies to Japan, the UK and many others. We argue that time-inconsistent fiscal policies are at the root of the problem, exposing debt dynamics to multiple equilibria," BofA's head of global economics research, Claudio Irigoyen, wrote in a note on Friday.
Irigoyen noted, "Policymakers will have a tough time coordinating into the good equilibrium unless politicians show resolve to swallow the bitter medicine. The problem is the political inability to adjust fiscal policy when the financing conditions that accommodated larger deficits disappear."
In other words, skyrocketing government bond yields make a heavily indebted welfare state much harder to maintain, and this has unleashed a shift in the Americas from left to right and a possible coming political transformation in Europe, which Nomura analysts have described as "lurching" to the right over the 18-month election cycle.
AfD's rise in Germany and Le Pen's lead in French polls are the direct result of the failed and crumbling welfare state, disastrous left-wing deindustrialization policies, and mounting state failures that now leave governments facing difficult choices between higher taxes, reduced benefits, and even more borrowing.
Perhaps this explains why the far left in France is rioting: they see the writing on the wall that all the spending commitments for their glorious welfare state are likely to come undone under a potential Le Pen government.
Socialists are caught between a rock and a hard place because, if they don't deliver a larger and larger welfare state to their constituents, then the whole idea of not working and receiving free stuff comes crashing down.
The political pendulum has swung from left to right across the Americas and now Europe. Socialism can no longer be maintained in a high-rate environment. Maybe the ultimate knockout for the welfare state will be persistently high rates.
Tyler Durden Sun, 10/11/2026 - 21:00
Continue reading...
[ H/T ZeroHedge ]
All-In Podcast hosts Chamath Palihapitiya, Jason Calacanis, David Sacks, and David Friedberg recently discussed the "socialism point of guaranteed return," a troubling threshold at which economic deterioration drives voters to reject socialist policies and embrace free markets.
They pointed to rightward shifts in South American presidential elections as evidence of that political shift, with Brazil likely to flip right in the runoff election later this month.
The hosts suggested France may have already crossed the threshold (See EU bond market meltdown), while warning that the US remains in a phase where progressive policy failures generate demands for more and more government spending rather than a change in direction.
All-In's David Friedberg explained:
Friedberg continued:
He pointed out:
Continuing Friedberg's thought: Socialist failures have piled up in South America and sparked a once-in-a-generation shift, with voters booting out left-wing socialist regimes for market-friendly right-wing. In fact, Bank of America's Michael Hartnett pointed this out in something we've been telling readers for months about the Latin America political transformation:
So why is socialism failing around the world today?
Well, these welfare spending commitments and massive deficit spending can only happen in a low-rate environment. Those days of MMT discussions are long gone, as government bond yields have spiked globally since Covid-19 and keep rising, while higher borrowing costs make it much harder for heavily indebted welfare states to sustain. Hence, yields in developed countries with massive welfare states are blowing out as markets see socialists as a new major risk to stability.
"The recent sharp increase in global interest rates is exposing the unsustainable reality of fiscal policy across most developed economies. The US and France are now in the spotlight, but the argument applies to Japan, the UK and many others. We argue that time-inconsistent fiscal policies are at the root of the problem, exposing debt dynamics to multiple equilibria," BofA's head of global economics research, Claudio Irigoyen, wrote in a note on Friday.
Irigoyen noted, "Policymakers will have a tough time coordinating into the good equilibrium unless politicians show resolve to swallow the bitter medicine. The problem is the political inability to adjust fiscal policy when the financing conditions that accommodated larger deficits disappear."
In other words, skyrocketing government bond yields make a heavily indebted welfare state much harder to maintain, and this has unleashed a shift in the Americas from left to right and a possible coming political transformation in Europe, which Nomura analysts have described as "lurching" to the right over the 18-month election cycle.
AfD's rise in Germany and Le Pen's lead in French polls are the direct result of the failed and crumbling welfare state, disastrous left-wing deindustrialization policies, and mounting state failures that now leave governments facing difficult choices between higher taxes, reduced benefits, and even more borrowing.
Perhaps this explains why the far left in France is rioting: they see the writing on the wall that all the spending commitments for their glorious welfare state are likely to come undone under a potential Le Pen government.
Socialists are caught between a rock and a hard place because, if they don't deliver a larger and larger welfare state to their constituents, then the whole idea of not working and receiving free stuff comes crashing down.
The political pendulum has swung from left to right across the Americas and now Europe. Socialism can no longer be maintained in a high-rate environment. Maybe the ultimate knockout for the welfare state will be persistently high rates.
Tyler Durden Sun, 10/11/2026 - 21:00
Continue reading...
[ H/T ZeroHedge ]
