Amid the intersection of U.S. debt pressures and policy shift expectations, markets are experiencing a profound paradigm transformation.

Bank of America Chief Investment Strategist Michael Hartnett recently stated that policymakers, in response to debt challenges, may turn to currency debasement as the core pathway, with discussions of unconventional tools like yield curve control (YCC) returning to the forefront. Against this backdrop, gold and cryptocurrencies are gaining strategic value as assets to hedge against dollar debasement and inflation risks.

As the world enters a new round of monetary easing cycles, market expectations for the Federal Reserve joining the "rate-cutting party" have reached their peak. Since the beginning of 2025, 88 central banks globally have implemented rate cuts, marking the fastest pace of easing since 2020. These expectations have driven asset prices including stocks, credit, gold, and cryptocurrencies to record highs, as investors prepare for dovish signals from the Fed Chair at the Jackson Hole Global Central Banking Conference.

However, Hartnett's core thesis is "Disruption = Debasement." He believes that increasing discussions about Fed independence, higher inflation targets, sector-specific price controls, and gold revaluation all point in the same direction: policy disruption will aim to weaken the dollar to facilitate easier financing of America's massive debt and deficits.

For investors, this means the appeal of holding long-term government bonds is declining, while historically overvalued stock and credit markets also face risks. Hartnett suggests investors should increase allocations to gold and cryptocurrencies to seek shelter in what could be a prolonged dollar bear market in the coming years.

**Policy Shift Imminent, Dollar Debasement May Be Inevitable**

Hartnett believes the U.S. government's desire to achieve economic prosperity and asset bubbles in 2025-2026 is viewed as the most convenient path to reverse debt and deficit trends. This potential policy objective makes shorting the dollar a clear investment theme heading into 2026 and beyond, with expectations that the Dollar Index (DXY) will fall below 90.

As of publication, the Dollar Index declined 0.36% to 97.85.

This expectation explains why global investors continue to avoid long-term government bonds, flooding into stock and credit markets that are already at historically high valuations. Data shows the S&P 500's price-to-book ratio has reached a record 5.3 times, surpassing the peak of the dot-com bubble era, while its forward price-to-earnings ratio stands at 22.5 times, in the 95th percentile since 1988.

Meanwhile, U.S. investment-grade A+ credit spreads are just 64 basis points, in the 98th percentile over the past 30 years. Investors appear to universally embrace "Anything but Bonds" compared to fixed income.

Hartnett notes that beyond the AI boom, factors driving high valuations include currency debasement (favorable to nominal assets), demographic changes (millennials and Gen Z are more inclined to accumulate wealth through stocks), and global consumption rebalancing from the U.S. to other parts of the world.

**Jackson Hole Meeting: Beware of "Sell the Fact"**

Despite widespread market expectations for Fed Chair Powell to signal dovishness at the Jackson Hole conference, Hartnett warns investors that this could be a classic "buy the rumor, sell the fact" trading opportunity. He believes market sentiment is already extremely optimistic ahead of the meeting, with any dovish rhetoric likely fully priced in, potentially triggering profit-taking afterward.

Behind the market's desire for Fed rate cuts lies the reality of U.S. fiscal pressure. Data shows the average maturity of U.S. Treasury debt is 5-6 years. To stabilize annual interest payments of up to $1.2 trillion, 5-year Treasury yields need to fall below 3.1%. This provides strong motivation for the Fed to adopt accommodative policies, or even eventually implement yield curve control, reinforcing market expectations for rate cuts.

**Gold and Cryptocurrencies: New Portfolio "Safe Havens"**

Under the broad trend of dollar debasement, Hartnett believes gold, cryptocurrencies, commodities, and emerging markets will be the biggest winners, as investors actively seek tools to hedge against inflation and dollar debasement. A popular market saying aptly describes the current mindset:

"I just hope markets rise more than currencies fall."

According to Bank of America's August Global Fund Manager Survey (FMS), current investor allocations still have enormous room for improvement. The survey shows only 9% of fund managers hold cryptocurrency exposure, with a weighted average allocation of just 0.3% of assets under management (AUM). In contrast, 48% of investors hold gold, with allocations representing 2.2% of AUM.

Regarding energy markets, Hartnett presents a long-term view that differs from mainstream opinion. He believes current oil and natural gas prices (down 41% since March) have already priced in expectations of the Russia-Ukraine conflict moving toward peace. He further analyzes that the Trump administration's geopolitical strategy aims to reduce energy prices for American consumers.

According to Hartnett's view, if the U.S. cooperates with Russia to jointly develop cheaper, safer Northern Sea routes and collaborate on extracting Arctic oil (15% of global unproven reserves) and natural gas (30% of global unproven reserves), this would mean an even deeper energy price bear market lasting until 2026. While expectations around such agreements may bring short-term price rebounds, the long-term trend points toward lower energy prices.