Deutsche Bank revives 19th-century economics to explain why US deficits won’t shrink anytime soon

Knut Wicksell never got his face on a banknote. He never trended on social media. But 128 years after the Swedish economist published his theory on interest rates and economic instability, Deutsche Bank just built an entire research report around his ideas. And the conclusions matter for anyone holding dollar-denominated assets, including Bitcoin. The bank’s July 8 report, titled “US deficits: A new twist on Wicksell,” argues that the gap between the US economy’s “natural rate of interest” and the returns available in broader capital markets is so wide that money will keep pouring into America whether policymakers want it to or not. In plain English: the US economy generates such attractive returns, especially in tech, that global capital can’t resist the gravitational pull, making deficit reduction and dollar weakening nearly impossible. The Wicksell spread, explained without a textbook In 1898, Wicksell proposed that economic trouble brews when the interest rate set by central banks drifts away from the “natural rate,” which is basically the return investors can earn by putting money to work in the real economy. Deutsche Bank’s twist is applying this framework to modern US fiscal...