Hanno Lustig, "America's Risky Debt: What Markets See That Policymakers Don't" (Aspen Economic Strategy Group, 2026)

Disposition: stated (one economist's reading; it cites corroborating work by Krishnamurthy, Jiang et al.). Provenance: PDF text read from search results 2026-10-11; Raj Patel's gloss read in full in the browser.

What: argues that markets have repriced US Treasuries from safe debt to risky debt. Why: the sharpest primary evidence for the dollar-debt leg of macro-view, and it reframes that leg.

• The long-end Treasury convenience yield over AAA corporates and over hedged G10 sovereigns has roughly disappeared. The stock-bond hedge is broken, and stress events now mark Treasuries down instead of sending money into them. On large deficit-news days, 1997-2022, the Treasury portfolio lost ~21% of its value and the 10y yield rose ~4.33pp cumulatively (Gómez-Cram et al.).
• "Implicit fiscal dominance" loop: the Fed treats fiscal-driven sell-offs as plumbing problems and absorbs issuance. Lustig says this ends in financial repression or an inflation tax.
• https://www.economicstrategygroup.org/wp-content/uploads/2026/08/Lustig-2.pdf ; https://www.economicstrategygroup.org/publication/americas-risky-debt-what-markets-see-that-policymakers-dont/ (read 2026-10-11)
• Raj Patel (15 Sep 2026) plots this premium against finance's share of US corporate profits (BEA via FRED) and maps both onto Arrighi's systemic cycles: signal crisis 1968-79, financial expansion 1980-2007, terminal crisis 2008 onward. Patel calls his long series a back-of-envelope, LLM-assisted sketch. https://rajpatel.org/2026/09/15/the-rise-and-fall-of-americas-exorbitant-privilege/ (read in full 2026-10-11)
• Against: in IMF COFER the dollar's share of reserves was 56.77% in 2025Q4 (56.93% in Q3), and the Q2 2025 fall was almost all exchange-rate valuation. https://data.imf.org/en/news/imf%20data%20brief%20march%2027 (read 2026-10-11). Headlines from Reuters and CNBC (not read) say the dollar rallied as a haven in early March 2026 at the start of the Iran war.

Backlinks: macro-view, trail-2026-10-11-b