The Impact of Macro Money Cycles
The Impact of Macro Money Cycles
In business we are accustomed to the familiar ebb and flow of economic cycles. Dealing with short cycles becomes second nature for seasoned business leaders. Now we are quickly approaching a period of adjustment in the long cycle that will make you uncomfortable. The problem with long cycles is that they last 70-80 years so no one has ever experienced a full cycle!
Disregarding major disruptions mature free market economies go through cycles on about a 6 year timeline. Economic growth takes off mainly due to the availability of cheap money for investment so companies and consumers take advantage. This is obviously good because over decades of these growth periods the additive impact is that our economies expanded. In the typical cycle the economy starts running “a little too hot” where inflation increases and unemployment decreases. Normally at this point central banks intervene to reduce the money supply by increasing short term interest rates thereby recalibrating the economy to the point of a short term recession. This is also good because it puts a governor on runaway growth. You have known this to be true pretty much your entire career.
You have seen headlines about mature economies taking on continually mind numbing levels of debt. Sometimes you may have read a particularly detailed article on why we should be paying attention (like The Economist “Governments Going Broke” special report published October 18, 2025) that do a great job of ringing the warning bells. Let’s get behind the headlines and talk about the culminating issues with the impact on our future business environment.
This is a government debt problem, not a central bank policy problem. Over decades governments in countries with stability and growing economies project confidence about the future. They are fine with borrowing money to fund government spending based on the assumption that capital markets will buy the debt at a reasonable enough interest rate. This is true for a long time period over which government gets comfortable that the debt demand from investors is high enough to continually increase spending. That has worked for so long that we are all numb to the magnitude of the debt issued. It is helpful to look at some numbers (keeping in mind that there are many ways to measure debt, they all lead to the same place) so we start with debt load as a percent of GDP:
In the early 1970’s the U.S. had $370B of debt or 34% outstanding debt as a percentage of GDP. In modern economies this is a very sustainable level that can be managed with an interest rate driven monetary system. There are the short cycles built in, but overall the economy grows over time particularly with additional help from productivity gains.
A lot of things have happened between 1970 and now with the one constant being that the U.S. government increased debt to incredible levels. We now have $37T of debt or 119% outstanding debt as a percentage of GDP. Most mature economies in the world have eye popping numbers too, but sheer size of the U.S. economy overwhelms pretty much everything.
By 2030 the U.S. will probably have over $40T of debt or 138% outstanding debt as a percentage of GDP. This is in the danger zone. Especially putting into context that annual interest payments on debt in 1970 were $33B and in 2030 will be $1.3T. A large chunk of government income must go to just paying interest. This is a big problem!
We are at the cusp of a forced debt deleveraging to readjust the financial system to a more sustainable debt level. Mature economic countries don’t directly default on outstanding debt by not paying maturing securities. Instead the central bank is forced to issue more debt thereby increasing inflation to intentionally devalue the previously issued debt. This is a roundabout way of default which avoids catastrophe, but will need 4-5 years of careful devaluation to manage through. This makes for a tough economy with several years of recession. If there is a silver lining it is that the U.S. will fare better than other countries because of the integration of the U.S. dollar into global trading mechanics and the perceived safety of U.S. debt in other countries foreign reserves.
Phew. That is a lot to cover with just a few words and numbers! So what does this all mean for the business environment? We most likely have a few more years of national economic stability barring any odd disruption. As we get closer to 2030 we should expect:
Inflation continuing to increase and stay at an elevated level for a long while. The inflation that you have known your entire career is mostly based on cost of materials, cost of labor, cost of services. Moving forward we will face the addition of latent inflation caused by the monetary situation. Get used to paying more for things and increasing your prices quite frequently. Between now and 2030 compounded expect cumulative inflation of around 30% and then elevated inflation through the late 2030s.
Interest rates will be at levels that you haven’t had to deal with in your career. The central bank mechanisms for accessing capital will inflate interest rates as a primary byproduct. Don’t be shocked that very high borrowing costs will be the norm, something at least 6% and probably much more.
The flood of public debt into the monetary system to pay interest and deleverage debt will crowd out availability of private lending. Even with government debt being “more risky” than historically it will still be seen as safe compared to corporate debt. Therefore it will be more difficult for businesses to get financing for both operational cash and capital investments.
All of this combined with the effects of Demographics and Geopolitics makes for a cloudy future at minimum. Now is the time to do a deep strategic review of your vulnerabilities and preparedness.
Let’s have an extended conversation about these expectations including going deeper into the research and thinking. Bringing it all together while focusing on your particular needs will give you the insights that you need. An engagement with Economics Designed expands your ability to evaluate your potential strategic actions.
This is the power of strategically designing the economics of your business!
Note: The above is not a book review, but if you want a Masters level course in complex monetary systems thinking there are two books to read to start with. First Ray Dalio’s “How Countries Go Broke” in which he describes the 6 year cycles vs “The Big Cycle” at extreme depth. Second is “Our Dollar, Your Problem” by Kenneth Rogoff where he explores the core issues that central banks across the globe are faced with as well as the monetary mechanisms that are involved. I read and reread both of them (trust me, to really understand the rereading is required!). They, along with others that apply their brains at the highest level of how money works, are core references as I fold their thinking specifically into impacts on businesses in the near future.