The 1 Golden Rule for any Kind of Investing

It’s commonly understood that the 3 golden rules of real estate investing are location, location, and location.

It’s less commonly understood that there’s 1 golden rule for any kind of investing: purchasing power.

Total federal debt to GDP today is about 120% ($36T debt divided by $30T GDP). The Congressional Budget Office’s (CBO) figures from January (prior to the passage of OBBBA) say that 10 years from the ratio will be somewhere around 140%1. Unfortunately, that assumes 3% average interest rate on the debt and no recession. Adjust up your interest rate assumption, add in a recession, and the ratio goes much higher, and potential anxiety goes much higher, given the US dollar’s global reserve currency status and the number of entities around the world that hold Treasury notes and bonds (note that foreign investors hold about 1/3 of all U.S. Treasuries2).

Our calculations suggest that nominal GDP growth of about 6.5% per year will be needed over the next 10 years to get debt/GDP back to 100%. Back out the CBO’s real (after inflation) GDP assumption of 1.8% and you’re left with inflation of 4.7% per year. Maybe you think growth will be higher (OBBBA impact, deregulation, etc.) say 2.5% - but then we are still looking at 4% annualized inflation.

BTW 4% annualized inflation is a 33% reduction in the value of your dollars over 10 years. That is serious loss of purchasing power.

This is not theoretical - Treasury Secretary Bessent is telling us this is exactly what the plan is:

“And so we are going to grow the GDP faster than the debt grows, and that will stabilize the debt-to-GDP, which even Secretary Yellen and I agree is the most important number.”3

Nominal GDP growth and real GDP growth are connected by inflation. Real GDP growth has declined over time. Why? Higher debt levels tend to impede real growth. Massive amounts of new debt have been necessary just to maintain the political establishment’s desired 2% real GDP growth rate. So the only way to grow nominal GDP faster is to “run it hot” and tolerate higher inflation. Also part of the plan: a Federal Reserve chair who likes lower interest rates…and finding creative ways to soak up additional supply of Treasuries (e.g., stablecoins per the Genius Act). It has happened before, as the chart and table below indicate.4

Persistently high inflation – with policy engineered to push nominal growth and lower real interest rates – makes it more difficult to maintain and grow our purchasing power. 

Ray Dalio shared a LinkedIn post on July 1, 2025, titled “The Most Important Principle to Keep in Mind When Thinking About Large Government Debts and Deficits.”5 It’s a good primer on what governments do with large debts and deficits.

And what is the most important principle to keep in mind?

“When countries have too much debt, lowering interest rates and devaluing the currency that the debt is denominated in is the preferred path government policy makers are most likely to take, so it pays to bet on it happening.”6

Business owners and investors would do well to get reacquainted with investing’s golden rule of purchasing power.

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1. 2035 projected debt held by the public of 118% (of GDP) implies total debt to GDP of around 140% based on the relationship today between debt held by the public and total debt.

2. https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-2025-edition-20250718.html

3. https://transcripts.cnn.com/show/sotu/date/2025-05-18/segment/01

4. https://www.crestmontresearch.com/docs/Economy-GDP-R-By-Decade.pdf

5. https://www.linkedin.com/pulse/most-important-principle-keep-mind-when-thinking-large-ray-dalio-nozze/

6. Ibid.

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