Speaking with CNBC on Tuesday, hedge fund legend Paul Tudor Jones said the two candidates have handed out tax cuts and spending pledges “like Mardi Gras beads.”

Whoever wins next month—and his best guess is Trump—will soon find out that bond markets will revolt before allowing any of their checks to be cashed.

“We’re going to be broke really quickly unless we get serious about dealing with our spending issues,” said the billionaire investor and philanthropist, who first made a name for himself correctly predicting the Black Monday crash in October 1987. 

Citing the $35 trillion national debt, Tudor Jones said the federal government owes seven times its annual tax revenue take. And government debt is only sustainable until it isn’t.

“Financial crises percolate for years, he argued, “but they blow up in weeks.”

‘Economic kayfabe’

Tudor Jones likened the current situation to kayfabe, a word from the professional wrestling world in which spectators know everything performers do is scripted and fake, but they pretend like it’s real anyway. 

In this case, the Treasury market is happy to play along, acting like the U.S. is still good for the money even though, deep down, investors know it is not. 

This precarious state of equilibrium won’t last forever, though. At some point, a catalyst will force bondholders to recognize that the emperor has no clothes, which is what economists call a Minsky moment.

“It’s this economic kayfabe, and the question is: after this election, will we have a Minsky moment here in the United States,” Tudor Jones said, “where all of a sudden there’s a point of recognition, that what’s going to happen—what they’re talking about—is actually fiscally impossible.”

Uncle Sam’s $20 trillion capital flight risk

While the U.S. fiscal dilemma is broadly similar to that of other indebted industrialized nations, such as Japan, it has a greater risk of capital flight.

That’s because, by his reckoning, Uncle Sam owes $20 trillion more to foreign creditors than they do to the U.S. 

If America owned just as many assets abroad as it had liabilities, foreign creditors would have a vested interest not to repatriate their money.

This limits the maneuvering room for the incoming administration next year.

“The next president is going to come in, whoever that is, and they’re looking at: ‘Okay, I’ve got 20 trillion dollars that could have wings on it, as well as I’ve got a fiscally unsustainable path, what do I do?’,” he said. 

Trump and Harris seen as ‘least suited’ for tough job ahead

Tudor Jones believes Trump is on track to win next month, citing a favorable shift in polls—rather than what he feels are biased bets placed on Polymarket.

But he took the former president’s economic record, what many view as his greatest electoral asset, to task.

He argues that Trump first put America on this downward fiscal trajectory with his profligate 2017 tax cut before lockdown-era spending during the pandemic, which blew a hole in the country’s balance sheet.

Now there’s nothing but 7%-8% budget deficits “as far as the eye can see”, according to Tudor Jones.  

“Between Trump and Harris, you probably have the two people least suited for the job ahead of them,” he said. 

Fed must stimulate to offset government spending cuts

To stabilize the debt-to-GDP ratio, Tudor Jones believes the Trump tax cut must expire, payroll taxes should rise by 1%, and households earning $200,000 or more must be taxed at 49.5%—just for starters.

That’s why he doubts either candidate’s spending promises, including Trump’s plan to extend his tax cut beyond 2025, will ever materialize.

“Those have ZERO chance of being enacted in my mind,” he told CNBC. “The Treasury market won’t tolerate it.”

Once the federal government realizes it has no choice but to rein in its spending to keep Treasury yields from spiking, Tudor Jones believes the Federal Reserve will have to step in with stimulus of its own.

“If we’re trying to stabilize debt-to-GDP, we want to run the most dovish monetary policy that we can without letting inflation become too much of a tax on the citizenry,” he said. 

Buy Gold and Bitcoin, avoid fixed income—and sell long bonds

Tudor Jones plans to increase his holdings in hard assets and avoid debt securities that don’t account for inflation.

“I’d likely hold a mix of gold, Bitcoin, commodities, and Nasdaq stocks,” he said, “and zero fixed income.” He also intends to bet against long-term bonds like the 30-year Treasury, which he believes underestimate the risk of rising inflation.

The 30-year Treasury currently offers just 36 basis points more than six-month T-bills, a gap Jones sees as inadequate given the inflation risk. While the government can always repay its debt by printing money, Jones questions what those future dollars will be worth.

“All roads lead to inflation,” Tudor Jones said. “That’s historically the way every civilization has gotten out is that they inflated away their debts.”