Trump plans to grow his way out of $40 trillion debt crisis—it’s a ‘fantastic story’ but virtually impossible, says top budget economist

The U.S. national debt topped $40T and the focus is shifting from the debt level to the debt-to-GDP ratio (currently ~122%). While Trump/Bessent argue the U.S. can “grow its way out,” Wharton’s Kent Smetters says the growth plan is “pretty clearly” not feasible, warning that debt-market credibility matters and panic could trigger a “bank run.” Bond-market stress is already visible: the 30-year Treasury risk premium pushed above ~5.3% and Bessent reportedly conducted $4B+ in unscheduled buybacks as the midterms approach.

Analysis

The market’s real variable here is not the debt headline; it is the term premium. If investors begin to believe fiscal management is drifting, the first casualty is not Treasuries outright but long-duration equity multiples, because the discount rate rises faster than nominal growth can offset it. That makes TSLA the cleaner short-expression than a broad index: its valuation still depends on cash flows that sit several years out, so a sustained move in the 30-year yield above the recent stress zone can compress the stock without any change in deliveries.

The consensus is overestimating how much AI-led growth can improve the fiscal math. Productivity gains help GDP, but they also lift wages, healthcare costs, and benefit formulas, so the budget does not mechanically heal even in a stronger economy. That means the path of least resistance is a slower, chronic repricing of risk rather than a sudden crisis: higher real rates, more Treasury supply pressure, and less tolerance for speculative cash-flow stories.

V is a relative beneficiary only in the narrow sense that nominal spending and inflation support payment volumes, while its balance sheet is largely insulated from fiscal stress. But it is not a true hedge to debt-market dysfunction; if higher rates start biting consumer demand or travel, the positive nominal effects fade quickly. The contrarian risk is that this turns into a credibility event before it becomes a macro event: if Treasury auctions stabilize or the 30-year yield backs off, the rate-sensitive short can reverse fast.

Key Decisions for Investors

• Short TSLA vs long V as a 1-3 month relative-value pair: TSLA carries the higher duration risk and should underperform if the 30-year term premium stays elevated; V is a lower-beta nominal GDP beneficiary.
• Buy TSLA put spreads 4-8 weeks out on any strength if the 30-year Treasury yield remains above 5.25%-5.30%; risk/reward favors defined-risk downside exposure rather than outright short equity.
• Set a tactical cover signal on TSLA if the 30-year yield drops back below 5.0% or Treasury buybacks clearly calm auction demand; that would falsify the immediate term-premium thesis.
• For investors needing equity exposure, rotate incremental capital from TSLA into V on drawdowns: this captures nominal-spend resilience without the same multiple sensitivity to higher discount rates.