Howard Marks: the Treasury is treating a fever with an ice pack (2026)

Howard Marks published a memo on Oaktree Capital's website on Tuesday, September 22. Its title is "Shall We Repeal the Laws of Economics – Part III," third in a series he began in September 2024. The memo takes up the Treasury's recent attempt to hold down long-term interest rates. 1

The practical section opens with a question a friend put to Marks the month before. The friend, Marks notes, is "not an investment professional, but a nationally known entrepreneur," and the question was: "Should I sell my stocks?" 1

His answer, in the memo's own words:

"The problem we face isn't a problem with the U.S. stock market or with U.S. companies. It's a problem with U.S. fiscal management, and ultimately a potential problem with the U.S. dollar." 1

Compressed, the argument runs like this: buying bonds can hold the printed yield down for a while, and the forces that pushed that yield up are still in place. From there Marks draws a narrower conclusion for a portfolio than the alarm around the deficit suggests. He told his friend to keep the stocks, and to look for the risk in the dollar instead.

What the Treasury did

On August 17 the 30-year Treasury yield closed above 5.3%, a level it had last reached 19 years earlier. 1 Two days later the Treasury announced it would at least double the maximum size of its "liquidity support" buybacks in the 10-to-20-year and 20-to-30-year sectors, from $2 billion to at least $4 billion an operation. The change took effect September 9 and runs through November 4. 2 Marks writes that Treasury Secretary Scott Bessent signaled the next day he was willing to go further, close to a "whatever-it-takes" promise. 1

On September 9 the Treasury raised the figure again, to as much as $6 billion for one operation, triple the normal size, and said later operations would run at least $4 billion. 3 The long end of the market sold off on the news: CNBC reported the 30-year rising about five basis points that morning through the 5.3% level.

A government has concrete reasons to want long-term rates lower. Those rates set the price of mortgages and business loans, and they set what the Treasury pays on the debt. Total public debt outstanding stood at $40.07 trillion on September 24. 4

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The 30-year Treasury yield, June 1 to September 25, 2026, from the Treasury's daily par yield curve. It closed at 5.31% on August 17, dipped to 5.19% on August 19, the day of the buyback announcement, and finished September 25 at 5.49%. 5

Why Marks calls it an ice pack on a fever

Here is his verdict on the buybacks:

"I view this action as an attempt to improve the interest-rate picture cosmetically. It may constitute a response to the effects of rising rates enumerated above, but it can't be described as solving the underlying problem." 1

Three reasons follow. The first is that the effect can be short-lived.

"My vision is of a column of water in the ocean. Its upward thrust can keep a ball suspended above the surface for as long as it continues. But as soon as the water stops being pumped upward, the ball will fall." 1

The pumped water stands for the Treasury's buying, and the ball for the bond price that buying holds above where the market would otherwise put it. When the buying stops, the price returns to the level the market's own supply and demand set.

The second reason is that the buying leaves the causes of the rise in place. Marks lists them: inflation above target, at 3.7% on the PCE measure in July against the Fed's 2%; a federal deficit near 6% of GDP while unemployment sits at 4%; net interest above $1 trillion a year; and rising demand for capital from the AI buildout on top of the government's own borrowing. McKinsey & Company puts worldwide data-center spending related to AI at more than $5 trillion through 2030. 1 The Federal Reserve raised its benchmark rate to 3.75%-4% on September 16, by a 12-0 vote, and said inflation "remains elevated." 6

The arithmetic points one way:

"The simplest rule of economics is that increased demand for something causes its price to rise. It's entirely understandable, therefore, that this growing demand for capital should put upward pressure on the price of money: interest rates." 1

The third reason is that announcements work largely on psychology, and their force fades. Marks cites a September 9 note from Evercore ISI, which found the market underwhelmed and yields moving higher anyway. He puts the whole judgment in one sentence:

"The goal shouldn't be to get interest rates down. It should be to respond to the factors pushing rates up. Forcing rates down by buying bonds is like a doctor applying an ice pack to a patient with a fever. The ice pack may lower the patient's temperature, but the patient isn't likely to get healthy until the underlying cause of the fever has been dealt with." 1

Marks has company in that reading. Stanley Druckenmiller made the case against the buybacks in a Wall Street Journal opinion piece on August 24, and Marks quotes him:

"Every basis point of artificial yield suppression is a subsidy to procrastination. . . . Whatever this operation saves in basis points, it will cost multiples in delay. . . . Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding." 1

Druckenmiller ran George Soros's Quantum Fund in 1992, when it bet against the Bank of England's defense of the pound; Marks notes the trade reportedly made about $1 billion. 1

Is the debt a problem?

Marks gives the question two hands.

"On one hand, simply put, it doesn't seem reasonable that the U.S. can continue forever to spend more than it brings in. And as economist Herbert Stein once said, 'If it can't go on forever, it will stop.' You can't argue with that!" 1

"But on the other hand, it's hard to figure out what will render the U.S. unable to continue financing deficits by adding to its debt." 1

He spends more of the memo on the second hand. The debt is denominated in a currency the United States issues, and the dollar's position has no obvious successor: it was involved in 89% of foreign exchange transactions in 2025 and made up 57% of allocated official reserves in the first quarter of 2026, while the renminbi accounts for about 2%. Marks notes, citing a report from MUFG Bank, that gold has recently passed the dollar as the leading central bank reserve asset. 1

The risk he describes, then, takes the shape of debasement: debts repaid in dollars of weaker purchasing power. He closes that section by quoting Warren Buffett at Berkshire Hathaway's May 2025 annual meeting:

"Fiscal policy is what scares me in the United States... We don't know whether that means two years or 20 years, because there's never been a country like the United States." 1

What Marks tells investors to do

The memo returns to the friend holding the stocks. Selling them leaves the risk he has just described where it was, because the money has to go somewhere and most destinations are also in dollars.

"If you sell your U.S. stocks, where will you put your money? A bank? A money market fund? Bonds? If they're denominated in dollars, you haven't escaped the risk under discussion here." 1

Leaving that risk behind means one of three moves: assets denominated in other currencies; non-financial assets such as gold or non-U.S. real estate; or non-U.S. companies and cryptocurrencies. Marks attaches a cost to each. Companies elsewhere in the developed world grow more slowly, operate at smaller scale and face heavier regulation; emerging-market growth is less certain; and institutional money has done well staying in the U.S. for the reasons that made it attractive in the first place. 1

Business Insider's report on the memo led with the advice to keep the stocks, and it noted that Marks had questioned gold as a store of value in January. 7 He sums up the trade-off this way:

"Taking money out of the U.S. entails risks that could easily render it unsuccessful, especially if it's done to avoid a problem whose reckoning may be so far off." 1

What the memo leaves open

The memo makes no crisis call. "An acute problem (a failed Treasury auction or buyers' strike) seems improbable," Marks writes; what he describes is a chronic cost, already being paid. 1

It sets no date. Marks says nobody knows whether or when the issue comes to a head, and that moving out of dollar assets early "could easily look like a big mistake for a very long time." 1

It sets no allocation. Diversification away from the dollar may suit investors whose needs and goals sit outside it, he writes, and it shouldn't be done "on a great scale." The size, the instruments and the timing are left to the reader. 1

And the remedy it proposes sits with the government rather than the portfolio: higher income tax rates, especially at the top, fewer tax preferences, spending growth held below GDP growth, and faster productivity growth, with the added revenue kept from being spent. 1

What to check before acting on a fiscal warning

Ask where the money lands next. The risk Marks names is the purchasing power of the dollar, so the question that decides anything is what currency the money will eventually be spent in. Cash, money-market funds and bonds priced in dollars carry the same exposure as the stocks that were sold. 1
Watch the long end, not the policy rate. The Fed sets the overnight rate; the 30-year is priced by the market. That is why the buyback moved it for a day, and why the yield stood at 5.49% on September 25, above its level before the announcement. 5
Ask what an intervention changes about supply. The factors Marks lists are quantities of borrowing: the deficit, the net issuance that funds it, the capital the AI buildout absorbs. A measure that leaves those quantities alone works on the price rather than the cause. 1
Know what would end the chronic phase. Marks names the marker himself: a failed Treasury auction or a buyers' strike. Until one appears, the situation is Druckenmiller's invoice, a cost paid in higher yields. 1

Read Marks's memo: Shall We Repeal the Laws of Economics – Part III.