How private balance sheets are quietly becoming tools of public policy.
KEY TAKEAWAYS
The real economic risk is the collision between political ambition and fiscal limits
Policy is increasingly being executed through leverage and dealmaking rather than legislation
Corporate balance sheets are quietly absorbing costs that would otherwise hit deficits
This approach blurs traditional boundaries between government and markets
Containment may matter more than clean or elegant solutions
MY HOT TAKES
Dealmaking has become a functional substitute for traditional fiscal policy
Shareholders are increasingly acting as shadow taxpayers
This framework reduces immediate pressure on the bond market
It introduces uncomfortable incentive distortions into capital allocation
Imperfect containment may still be preferable to outright fiscal chaos
You can quote me: “This is stimulus without a bond auction–and someone still pays.”
Stranger things. If you’re not a fan, you have surely heard of the Netflix hit Stranger Things. The series wrapped up a couple of weeks ago and everyone is still talking about it. As with most long-running hits, fans have become emotionally involved with the characters and plot. That said, the wrap up was bound to make some people happy, and others, not so much. Grab your popcorn and let’s dig in. Spoiler alert–maybe.
Really, everyone is talking about the final episode of the series. Not because it wrapped everything up neatly–it didn’t–but because it avoided the worst possible outcome. Two worlds, never meant to coexist (Hawkins and the Upside Down), came close to colliding. Vecna, the antagonist, wasn’t defeated with elegance or perfection. He was contained. The gates didn’t fully open. And that, in the end, was the victory.
That’s not a bad way to think about what we’re watching play out in markets and policy right now. The real risk isn’t any single bad actor or a gooey-faced headline-grabbing villain. It’s the collision between political ambition and fiscal reality. Between helping households and funding it the old-fashioned way–through deficits, debt, and promises that someone else will figure it out later. Avoiding that collision requires decisions that aren’t pretty, aren’t painless, and definitely aren’t free. But they may be effective.
What’s refreshing, if that’s even the right word, is the increasingly private-sector-like approach we’re seeing from President Trump, who appears to have Wizard-like powers in negotiations. Less legislation, more leverage. Less spending, more pressure. Deals with countries. Deals with companies. Caps, concessions, and negotiated outcomes that shift costs away from the federal balance sheet and onto someone else’s income statement.
Now, to be clear, this is where my own internal wiring starts to short-circuit a bit, as you might guess. I am, at the end of the day, an investor. I give my capital to companies and expect them to invest that capital into profitable ventures, not necessarily the welfare of any person, group of people, or… dare I say Government. I expect that everything that companies do is to advance shareholder value–full stop.
And yet, what we’re watching looks less like classic fiscal policy and more like…well, dealmaking. Take TSMC. Just yesterday, the conversation has moved well beyond incremental fab (that’s what we call factories in the semiconductor world) announcements. The administration and Taiwanese officials outlined a framework under which Taiwanese firms are expected to commit as much as $250 billion of investment into the US economy, with TSMC as the anchor tenant. That builds on–and meaningfully expands–the roughly $165 billion already earmarked for US semiconductor manufacturing and R&D, much of it centered in Arizona. This is not capital being deployed because domestic fabs suddenly offer superior economics. It is capital deployed because access, security guarantees, trade terms, and long-term geopolitical alignment were explicitly part of the negotiation. Folks, plain and simple, that is leverage!
The deals reframe the role of Taiwan as well. With an estimated 90% of the world’s most advanced chips still produced on the island, Taiwan’s economic leverage has quietly become strategic leverage. The evolving arrangement looks less like a traditional alliance and more like a joint venture with protection and preferential access on one side, manufacturing dispersion and capital commitment on the other. No single vote in Congress authorizes it. No line item shows up in the federal budget. But the economic consequences for the US are very real. Industrial policy is being executed not through appropriations, but through negotiated balance-sheet decisions made by global corporations responding to a changing geopolitical contract.
A similar logic applies to NVIDIA, where last year’s negotiations quietly introduced a new wrinkle: profit participation, pricing concessions, and access arrangements tied to national priorities. Call it profit sharing if you want or call it the cost of doing business in a world where your largest customer is also your regulator. Either way, the message was clear. Extraordinary profitability comes with expectations. Some of that upside now gets recycled back into domestic investment, supply-chain resilience, or compliance costs that don’t show up as taxes, but certainly behave like them.
Then there’s the more consumer-facing example: proposed caps on credit card interest rates. A 10% cap sounds simple and popular, and for many households it would be meaningful relief. But it’s not free. Banks would absorb the cost through lower margins, tighter underwriting standards, and reduced credit availability at the margin. Again, no new Treasury issuance. No deficit impact. The bill is paid quietly by shareholders and future borrowers rather than taxpayers. It’s literally stimulus without a bond auction!
As a Milton Friedman traditionalist, this is uncomfortable territory for me. Markets work best when incentives are clean and price signals are left alone, cleared by the free markets. Blurring the line between public objectives and private balance sheets risks dulling those signals. Shareholders didn’t sign up to be a shadow fiscal authority. Still, it’s hard to ignore the appeal of a framework that delivers economic support without immediately compounding debt or forcing the bond market to absorb yet another wave of supply.
Which brings us back to Stranger Things. The Upside Down doesn’t disappear. The town isn’t restored to some pristine version of itself. Damage is done. Costs are real. But the catastrophe everyone feared–the full collapse of the boundary–doesn’t happen. The worlds don’t merge. The system holds.
That may be the right lens for this moment. The boundary between government and corporations is thinner than many of us were taught to prefer, and that tension deserves scrutiny. But if the alternative is a far messier collision between political ambition and fiscal limits, then this imperfect containment may be the least bad option. No heroes. No villains. Just a recognition that keeping the gates from opening all the way sometimes matters more than how clean the solution looks on paper. Stay tuned, there is likely to be a follow-up series.
YESTERDAY’S MARKETS
Stocks rallied yesterday, carried higher by semiconductors which celebrated TSMCs success–it can’t make chips fast enough for the overwhelming wave of demand. “Perhaps the game isn’t quite over yet,” thought investors. Solid earnings from Goldman and Morgan provided a distraction from the still-ongoing battle of words between the banks and the President.
NEXT UP
Industrial Production (December) is expected to have picked up by 0.1% after increasing by 0.2% in November.
NAHB Housing Market Index (January) may have climbed to 40 from 39.
Important earnings today: PNC Financial and State Street.
Next week, earnings pick up and we get the Leading Economic Index, more housing numbers, GDP, Personal Income, Personal Spending, PCE Price Index, flash PMIs from S&P Global, and University of Michigan Sentiment. Markets are closed on Monday for Martin Luther King Day. Check back in on Tuesday and download weekly calendars to arm yourself against the demogorgons looking to snatch your profits.