My conjecture is that traders are starting to digest what motivates the administration’s DOGE and tariff proposals. And there’s a particular trade that could benefit as more realize this: gold. The government’s average interest rate on the massive Federal debt is currently 2.78%, but not for long. The problem is that a disproportionate percentage of the debt and carrying the lowest coupons is maturing soon. As the chart below shows, nearly $9 trillion matures this year with an average coupon of 0.9%, $3.8 trillion in 2026 with an average coupon of 2.8%, and $2.7 trillion in 2027 with an average coupon of 3.06%. So, the Federal government must refinance $15.5 trillion in debt by the end of 2027 at substantially higher rates. Additionally, the federal government continues to run a $2 trillion annual deficit. So, interest rates on existing debt will rise, and the debt will continue to rise as a function of the primary budget deficit. Here’s a look at the impact on Federal interest expense through YE2027 These are very big numbers, but to put them into context, based on these projections, 2027 interest expense would be about $ $15,000 per taxpayer — just for interest on the Federal debt. Former Treasury Secretary Janet Yellen issued short-term debt instruments like Treasury bills (T-bills) over longer-term securities during historically low interest rates which created enormous exposure to refinancing risk in the event that interest rates should rise. Aggressive government spending and money printing caused a sharp spike in inflation. By 2022, the Federal Reserve had to begin aggressively raising interest rates. As short-term debt was refinanced at these higher rates, interest expense exploded. With $9 trillion due in 2025, Treasury Secretary Scott Bessent must issue new debt to pay off the old. The annual interest expense on this portion jumps from less than $90 billion to nearly $360 billion at 4%—a $270 billion yearly increase on that tranche alone. Flooding the market with new debt to refinance could push yields higher if demand weakens, compounding the problem. Some fear this could strain the Treasury market’s capacity, risking a “rate crisis.” Ray Dalio, founder of Bridgewater Associates, one of the world’s largest hedge funds, has been warning that this U.S. debt crisis could cause an “economic heart attack” within the next three years. The prior administration’s unusual means of funding the government lit a stick of dynamite in the Federal budget, and the current administration must try to defuse it. There’s an immediate need to make aggressive spending cuts to help offset sharply rising interest expenses resulting from the prior administration’s funding mistakes and a need to raise revenue without cratering the economy. This isn’t only because cutting government spending tends to inflame those who are cut, but because government spending is one of the inputs in the GDP formula (but not government interest expense). GDP = C (private consumption) + I (business expenditures) + G (government spending) + NX (net exports). To get to a sustainable fiscal condition, a 3% deficit according to Bessent, in addition to aggressive spending cuts, the government needs to raise revenue, but the administration cannot raise taxes nationally because the Constitution grants Congress the power to set taxes, regulate commerce, raise revenue, and impose import tariffs but Congress enacted statutes in 1930, 1962, 1974, and 1977 granting authority to the President to impose tariffs. Increasing tariffs is among the few revenue-enhancing powers the Executive branch has, but if you look at the GDP formula you’ll notice net exports is also an input. If increasing tariffs reduces the trade deficit, that would be a potential offset to the negative GDP consequences of cutting government spending. We currently import ~ $4.1 trillion in goods annually and export perhaps $3.3 trillion or so. Assuming tariff increases reduced those imports to $3.5 trillion and raised $350 billion in tariff revenue, even if exports fell 5%, the trade imbalance would shrink $435 billion, helping GDP in addition to the tariff revenues helping the budget. If you don’t believe the administration is trying to thread the needle of raising revenues, cutting spending, and maintaining sentiment with policies that help support GDP, look no further than Commerce Secretary Howard Lutnick’s comments on March 2nd when he said, “They count government spending as part of GDP. So I’m going to separate those two and make it transparent.” We might liken the administration’s predicament to riding a unicycle across a high-wire while juggling during an earthquake while half the audience is throwing rotten fruit at them. I’m not even sure it’s possible. What must one do if both parties fail to recognize the urgent need to reduce the deficit and hedge against the risk that the current efforts devolve into inconsequential spending cuts, inconsequential decreases in trade imbalances, inconsequential boosts to growth in the “real” (productive) economy and instead we experience the “shocking” developments Ray Dalio describes as “imminent” if we don’t act? The trade Some folks are betting on this eventuality by purchasing precious metals. Gold recently breached $3,000/oz for the first time. In other debt crises in history, the local currency has often been significantly devalued. Gold has risen ~90% since the 2022 lows, as has silver and the miners, and there’s a strong case for each. @GC.1 1Y mountain Gold futures, 1 year One way to play this with options is with calendar spreads. For example, one could buy a January 2026, slightly in-the-money 45 strike call in the VanEck Gold Miners ETF (GDX) for about $5.90, or 13% of the underlying stock (ETF) price, and sell a nearer-dated April 25th weekly 50 strike call against it for ~$.50. Those willing to purchase GDX at a slightly lower price could supplement the premium collected by also selling a downside April 25th weekly 41.5 strike put for ~$.46. The premium on the “short strangle” in late April would offset 16% of the premium associated with the purchase of the longer-dated call. However, it does take on greater risk and capital requirements than the simple call diagonal would. If you’ve made it this far, you’ve absorbed a lot, but understanding the mechanics beneath the surface may make the things we see a bit more comprehensible, even if that understanding isn’t particularly comforting. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. 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