Part 8/11:
Political and Election Year Dynamics
The upcoming electoral cycle adds another layer of complexity. Governments tend to increase deficits around election years, with primary deficits rising sharply to fund campaigns and policy promises. The current deficit is close to $2 trillion annually, and with 2026 midterms on the horizon, fiscal policy could become even more expansionary.
Coupled with the debt refinancing challenges, this environment creates a perfect storm: increased debt issuance, potential YCC adoption, and global easing policies all pointing toward a possible liquidity explosion by 2026.