Thoughtful Money with Adam Taggart
Thoughtful Money with Adam Taggart

Lacy Hunt & Brent Johnson: The US Has Entered A New Inflationary Era That Will Prove Bad For Bonds

August 22, 2026

AI Summary

5 min read

The End of the Globalization Era: Why One Veteran Economist Now Sees Persistent Inflation

Lacy Hunt, a former Federal Reserve senior economist who spent decades warning about deflationary risks, has changed his mind. In his latest quarterly letter from Hoisington Investment Management, he argues the US has entered a fundamentally different economic regime—one defined by capital scarcity, deglobalization, and structurally higher inflation. The three-decade period from roughly 1990 to 2020, when disinflation and falling interest rates were the norm, is over.

What Changed: The Production Function Reversal

Hunt's pivot rests on one core analytical distinction: during the globalization era, the aggregate supply curve was shifting outward at an unprecedented rate. When the iron and bamboo curtains fell, hundreds of millions of workers entered the global labor pool. This enabled massive manufacturing hubs, concentrated supply chains, and immense economies of scale. As Hunt put it, "the supply and the aggregate supply curve was shifting outward very dramatically, unprecedentedly so." That outward shift meant even rapid money supply growth didn't produce inflation—there was simply too much stuff being produced too cheaply.

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What you'll learn

  • 1 (05:11) **Why the Pivot from Deflation to Inflation** - Lacy Hunt explains the core shift in his long-held deflation thesis, citing the end of globalization and a new capital shortage.
  • 2 (07:10) **Defining the Capital Shortage** - Hunt clarifies that "capital" means real savings from income, not Fed-created liquidity, and explains why the Fed cannot solve this shortage.
  • 3 (09:32) **The End of Globalization and the Production Function** - Hunt details how the shift from "just-in-time" to "just-in-case" inventory management changes the fundamental economics of production.
  • 4 (13:05) **Why AI Won't Save Us (Yet)** - Hunt addresses the common counterargument that AI productivity will offset inflationary pressures, explaining the timing mismatch.
  • 5 (15:22) **The Growing Fiscal Hole** - Hunt connects the exploding federal budget deficit to the capital shortage, noting that the deficit is far worse than official forecasts.
  • 6 (19:37) **The Danger of Rising Interest Expense** - Hunt warns that the government's interest expense is reaching a critical threshold that threatens the entire financial system.
  • 7 (21:55) **Treasury Meddling vs. Market Signals** - Hunt criticizes Treasury Secretary Bessent's recent plan to buy long-dated debt, calling it a "gimmick" that distorts crucial market signals.

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Guests on this episode

Brent Johnson

Show Notes

REGISTER FOR THOUGHTFUL MONEY'S FALL ONLINE CONFERENCE (OCT 17TH) at https://www.thoughtfulmoney.com/conferenceLacy Hunt, longtime deflationist and bond investor, has undergone a major pivot where he now assesses inflation as the bigger risk trend over the coming decade.That inflation, he expects, will be accompanied by higher bond yields than what we're suffering today.So he advises caution for today's investors, particularly for who own bonds.Brent Johnson of Santiago Capital, creator of the Dollar Milkshake Theory, joins me in asking Lacy a number of probing & clarifying follow-up questions.For an in-depth discussion about one of the most important trends out there regarding money & wealth-building, watch this video.#inflation #bonds #debt _____________________________________________ Thoughtful Money LLC is in the application process to be a Registered Investment Advisor Solicitor.We produce educational content geared for the individual investor. It’s important to note that this content is NOT investment advice, individual or otherwise, nor should be construed as such.We recommend that most investors, especially if inexperienced, should consider benefiting from the direction and guidance of a qualified financial advisor in good standing with the Financial Industry Regulatory Authority (FINRA) who can develop & implement a personalized financial plan based on a customer’s unique goals, needs & risk tolerance.IMPORTANT NOTE: There are risks associated with investing in securities.Investing in stocks, bonds, exchange traded funds, mutual funds, and money market funds involve risk of loss. Loss of principal is possible. Some high risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including a greater volatility and political, economic and currency risks and differences in accounting methods.A security’s or a firm’s past investment performance is not a guarantee or predictor of future investment performance.

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