Post-Election Reality Check: Structural Inflation, Debt, and Portfolio Adaptation

The midterm elections handed Democrats control of both chambers of Congress, but the fiscal and inflationary pressures facing the U.S. economy remain firmly in place. After an initial relief rally, markets dropped sharply with big tech and semiconductor companies seeing the most damage. Jim Puplava of Financial Sense Wealth Management attributes the sweeping election results primarily to two forces: cumulative inflation that has hit households far harder than official statistics suggest, and the war with Iran. More importantly, he argues that inflationary pressures are structural and will remain a persistent challenge regardless of which party holds power in Washington.

Listen to full podcast conversation here: Blue Wave, Red Ink: The Election Is Over. The Borrowing Isn’t

The Inflation Voters Actually Feel

Official figures show consumer prices have risen nearly 31 percent since January 2020, so an item that cost $100 then costs about $131 today. Puplava dismisses the headline CPI as largely irrelevant to household experience. “If inflation was only 3.7 percent [year-over-year], I don’t think what we saw happen on Tuesday would have happened,” he said. In his view, the overall figure hides much steeper increases in the costs households notice most: new and used vehicles and auto repairs, grocery staples like beef, eggs and coffee, utilities like electricity and natural gas, and housing.

These increases have fallen hardest on middle- and lower-middle-class households. Puplava argues that many everyday essentials have risen far more than the overall figure since 2020. He adds that consumers judge prices by how much more they pay now vs. a few years ago in cumulative terms, not by year-over-year rates, which is what economists focus on. Voters are fed up with the cost of living, Puplava says, and will turn to anyone who offers a fix, even one that doesn’t work.

Why Inflation Is Structural

Puplava saw this coming. Since 2020 he has warned that massive monetary and fiscal stimulus, combined with fractured supply chains, would push the economy into a new era of higher inflation, and events have proved him right. The national debt has climbed from about $23 trillion at the start of 2020 to more than $40 trillion today, an increase of over $17 trillion in less than seven years. And the borrowing is speeding up: the Congressional Budget Office projects that debt held by the public alone will reach $56 trillion by 2036, and Puplava believes even that figure is too low. Trade policy adds more fuel, as tariffs push prices higher at the very moment fiscal discipline has disappeared.

Diversifying supply chains away from China—the cheapest producer of many goods, including vehicles—and protecting domestic producers means accepting higher costs, since those alternatives are more expensive than Chinese production. “We’re trading off cheap Chinese goods for U.S.-made goods, which are going to be…more expensive,” he said. Labor unions, regulation, and environmental rules in the United States make full reindustrialization difficult, locking in the inflationary bias for years.

Demographics add further pressure. Roughly 11,000 baby boomers turn 65 each day—about 4.1 million a year during the peak period from 2024 through 2027—and by 2030 the entire generation will have reached retirement age, sharply increasing claims on Social Security and Medicare. Despite the clear need for fiscal restraint, neither party, Puplava argues, wants to make the necessary adjustments. “The question from one party to another isn’t, ‘Do we increase or decrease spending?’ It’s just, ‘Where do we spend?’”

Democratic Priorities and the Deficit Trajectory

With Democrats taking control of both the House and Senate, Puplava expects the spending to accelerate, not slow down. The wish list is long: reviving the expired ACA subsidies, reversing Medicaid cuts, expanding Medicare benefits, restoring tax credits, subsidizing universal childcare and pre-K, creating paid family leave, offering $25,000 in down-payment assistance to some first-time homebuyers, bringing back the clean-energy subsidies rolled back last year, making community college tuition-free, and increasing utility assistance. Republicans have their own priorities, led by a bigger defense budget. Either way, the direction doesn’t change. Roughly three-quarters of federal spending is already locked in through entitlements and interest on the debt, and the Congressional Budget Office projects that share will reach 80 percent within a decade.

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The financing math is unforgiving. Interest on the debt is already heading toward $1.3–1.5 trillion as roughly $10 trillion in maturing debt rolls over alongside new deficits. Puplava sees the annual deficit moving from around $2 trillion toward $2.5 trillion or higher before additional programs, and potentially $3 trillion or more if much of the Democratic agenda advances. Proposed revenue measures—rolling back certain tax cuts, raising the corporate rate from 21 percent to 28 percent, higher capital-gains and investment-income taxes, and increased IRS enforcement—will not close the gap. “You could tax and confiscate all the wealth of every billionaire, and you would not be able to balance the budget,” he said. Entitlement cuts are politically impossible. The result, in his view, is eventual Federal Reserve monetization of debt and inflation moving into the high single digits. Independent measures using older methodologies like John Williams’ ShadowStats show inflation running much higher than official measures suggest.

Credit Markets, Sector Rotation, and Portfolio Positioning

Puplava’s firm reduced technology exposure before the election, guided by credit-market signals. “Credit leads the equity markets,” he noted. Rising credit-default swaps and widening spreads indicated stress, particularly around capital-intensive AI and semiconductor companies. Much of the planned U.S. data-center capacity sits in states now under Democrat control, where tighter regulation or freezes are likely; companies have already signaled they can build elsewhere. The firm is now overweight defensive and value sectors—healthcare, consumer staples, utilities, and financials—while maintaining energy exposure as a hedge against geopolitical risk, especially involving Iran.

Puplava cautions against panic. The economy does not show immediate recession signals, and labor markets remain resilient; the move is primarily a sector rotation rather than a broad collapse. Institutional positioning is washed out, raising the risk of sharp short-covering rallies. Corporate buybacks authorized in large amounts, combined with the end of blackout windows, could support a year-end rally. Historical patterns after midterm elections have been favorable. The larger playbook, he believes, resembles the post-2000 period, when capital rotated into inflation-sensitive and hard-asset areas.

The Next Pivot and the Adaptation Imperative

Puplava identifies three pivots: the 2020 shift into an inflationary environment, the recent political shift, and the coming pivot to Fed debt monetization. Hard assets—commodities and precious metals—have been a core holding since 2020; he believes the best performance lies ahead. Traditional 60/40 portfolios and passive bond funds are vulnerable. Puplava warns that inflation will steadily wear away the wealth of anyone who sticks with the old playbook. In his view, investors have a simple choice: adapt to the new regime, invest accordingly, or pay the price for standing still.

The message is consistent with the analysis Puplava has offered since 2020: inflation and multi-trillion-dollar deficits are structural features of the decade, not temporary political outcomes. Investors who position for the rotation into cash-generative, defensive, and real-asset exposures while avoiding excessive leverage and speculative growth will be better prepared for the regime that is already unfolding.

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