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So there seems to be a global sovereign debt crisis and countries are selling their US debt and this is really bad. Watch the bond market. The bond market is the basis. It's the backbone of all markets. Markets have a bad case of the bond blues and there's no quick relief in sight. The bond market is front and center. We're seeing yields at the highest levels in decades. Yet we see the stock market keeps rallying. In fact, is again in the money today. Should we be nervous or not? This happens when investors stop trusting that governments could pay their money back. So they want higher and higher interest rates to keep lending their money to them, which makes
the problem even worse. And how we know this is happening is because the interest rate or the yields of the bond market are all going up right now. For example, the US 30-year Treasury bond yield just hit over 5%. The highest level since July 2007, right before the financial crisis, and the interest rate, or the yield on the most important bond in the US, which is the 10-year bond, that has also gone up 75 basis points since the Iran war has started. Now, if you don't know what any of that means, I will explain it. But I want to start with a prediction that the market is making right now. Chris Waller, who was one of the first people to vote for rate cuts, he's now saying he's prepared to
vote for rate increases if the war goes on and inflation does not come down. Here's a line from his speech. I can no longer rule out rate hikes further down the road if inflation does not abate soon. And that is especially true if measures of inflation expectations, some of which have risen lately, show signs of becoming unanchored. It's what's about to happen to the cost of borrowing money. Because right now, the market is predicting a rate increase by January 2027. In fact, we are over 70% odds that interest rates will go up, which is the opposite of what everyone thought would happen. Cuz a year ago, everyone on Wall Street was betting that the Federal Reserve would lower rates
three, four, maybe five times by now. Goldman Sachs was saying this. The bond market was predicting it. That was allegedly the reason why Trump wanted Kevin Worsh as the new Fed chair so that he could lower interest rates. But that's not what happened. Here's what happened instead. Two of America's biggest foreign buyers of debt are now selling US government debt. Right? And it's not just them. It is also Taiwan, Saudi Arabia, India, the UAE, Norway, and Singapore. They're selling as well. At the same time, oil has been above $100 a barrel for about 2 months now. There's also something called the PPI inflation, and that just hit 6%. Which is the highest level since 2023. And
something called the CPI, which is the consumer price index that measures inflation. That's back up to 3.8%. For reference, we want two, not 3.8. Right? So, the combination of all these things has created what economists call the trap. Right? The trap is that the Federal Reserve cannot lower interest rates because if they do, it would break the bond market. And a broken bond market would affect everyone. It is our mortgage rate. It's our credit card interest rate. It's the cost of every loan, every student loan, every business loan in America. And it is also the US government's ability to pay things like social security, Medicare, and the military without either raising our
taxes or printing more money. It also affects the stock market. And it's not just happening in the US. It is also happening all across the world. Right now, bond yields are hitting multi-deade highs in countries like the UK, Germany, France, Canada, Australia, and Italy. In fact, Japan's 10-year bond yield has gone almost vertical on this 20-year chart. The Bank of Japan is basically losing control of its own bond market. And when Japan loses control of its bond market, it has to sell US treasuries to defend their currency, the yen, which puts even more pressure on US bond yields. This makes that Federal Reserve trap much worse. So, in this video, I want to explain exactly what's
happening, why it's happening, and what it means for the stock market, for gold, and for Bitcoin. So, with that said, let's get into it. Hi, my name is Andre Jick. Hope you're doing well. come for the finance and stay for the sovereign debt crisis. Now, before I explain why this is happening, I just want to give you a sense of how big the bond market actually is because stocks usually get all the attention. But the global bond market is worth $140 trillion. It is the biggest financial market on earth. So, let me explain the basics of how this works and what's happening so that the rest of this video makes more sense.
Okay. So, what is a sovereign debt crisis? Why is it being called that? So the word sovereign just means government. Like a king used to be called a sovereign because it was the highest authority in the land. So sovereign debt just means government debt. The money that governments borrow to pay for everything they do. Things like roads, military, social security, all those things, right? Governments borrow this money to pay for all those things. And the way they borrow it is by selling something called a bond. A bond is an IOU. The US government says, "Give me your money today and in 10 or 30 years from now, I'll give it back plus I'll pay you something extra, some interest." Right? Now, the common misconception is that the yield is
decided by the government. But it is not. It is decided by whoever is willing to buy the bond, which is the market. What is the market? Well, the market is made up of a lot of different players. things like foreign countries, private investors, pension funds, basically anyone with money to lend. And when those investors feel confident, aka when they feel like they could trust the government to actually pay them back on time, they will accept a low yield, a lower interest rate. That's because they feel safe. But when investors start getting nervous, when they look at the government and they're like, I'm not sure you can pay me back this time or I think inflation is going to go up more
than what you're going to pay me. They're like, pay me more. Right? That demand leads to higher interest rates, aka a higher yield before they'll hand you over their money. Same way that a bank charges you a higher interest rate on a loan if your credit score is bad. Right? The worse the risk, the higher the rate. Now, a sovereign debt crisis is what happens when that nervousness kind of reaches a tipping point. When investors all around the world start demanding so much yield and so much interest that the government can barely afford to borrow. And when you can barely afford to borrow, you can't pay your bills. And when you can't pay your bills, you either have to raise taxes,
cut spending, or print money. And historically, every single time this has happened, governments chose to print money because it's the only option that's sort of invisible. It doesn't require anyone to vote for something they don't want. And the reason this is so important, even if you've never bought a bond in your life, is because the yields are the foundation that every other interest rate in the economy is based on. When Treasury yields go up, mortgage rates go up, car loan rates go up, right? Credit card rates go up, business loans get more expensive, the cost of running the government goes up, which means less money for things like social security, Medicare, and for everything else. So, when we hear the
30-year Treasury just hit its highest level since 2007, what that really means is the market's trust in the US government's ability to manage its own debt is at the lowest point in roughly 20 years. And when you see that yields are going to multi-deade highs everywhere, including the UK, Germany, France, Japan, Canada, Australia, what that tells you is that this is not just a US problem. This is a global problem. Investors are losing confidence in governments all around the world. So the question then is why are they losing confidence? And there's a couple reasons. But before I get into that, this segment is brought to you by Kickoff. Here's something worth thinking
about considering everything we talked about. If governments are going to devalue the dollar over the next decade, then the cost of borrowing money is going to matter more than ever. And the single biggest factor in what interest rate you get on a mortgage or a car loan is your credit. And that's where Kickoff comes in. Kickoff is a credit building tool that helps you build credit safely and easily. No credit check to apply, no interest, no hidden fees. Their affordable monthly plans start at just $5 a month and are specifically designed to improve key credit factors like payment history and utilization. On-time payments get reported to all three credit bureaus automatically, and it's
the number one credit building app in the app store. Kickoff users who started with credit under 600 and made on-time payments saw an average increase of 25 points in their very first month and up to 86 points after their first year. Right now, Kickoff is giving my audience 80% off your first month, which is as low as a dollar to get started. Click the link in the description down below or go to getkickoff.com/andre to get started. Thank you kickoff for sponsoring this segment. And now let's get back to it. So here's why investors are losing confidence and why rates are going higher. The first reason is inflation. The cost of life is going up. So investors are like, "Pay me more
money." Okay. The second reason is that the countries who used to be our biggest lenders are pulling back. They're selling our debt. So we're like, "Why are you selling? What if we paid you more with higher yield?" Right. Okay. The third reason is that the math of how much these governments around the world have collected is finally starting to catch up with them. So, let me break down each of these points. Inflation, right? Since the war started in Iran, oil has been above $100 a barrel. Now, it's being managed and it's being manipulated through the paper markets, but the physical price of oil is going up. And remember, oil is the cost of making everything. It's fertilizer, it's
shipping, it's manufacturing, it's the food. And that is why since the start of the war, crude oil is up 60%. Jet fuel is up 58%. Gasoline up 52%. European natural gas is up 54%. Fertilizer up 20%. Right? All of these costs flow into the prices of things we buy. Which is also why something called the PPI, that's the producer price index, or how much it costs for businesses to make things. that just went up to 6%. The highest level since 2023. And it's also why something called the CPI, which is the price we pay at the store, that's back up to 3.8%. Remember, their target is supposed to be two. We're almost double that right now. Now, you might be thinking, okay, hold on. If oil is up
60%, and gas is up 52%. How is PPI only 6%. Are they lying? Seems way too low. It's a really good question. And the way to understand it is oil doesn't directly go into our cereal boxes, right? It goes into the truck that delivers things and the factory that processes it, the plastic packaging. And by the time it filters through the whole supply chain of the economy, the price increases get diluted across all the other costs like labor, rent, equipment, which by comparison have not moved up as much yet. So a 60% oil increase does not necessarily become 60% PPI increase. to get spread out. So that's good. However, fertilizer prices going up 20% are not going to show up in our grocery bill for
another 3 to 6 months. The supply chain has a delay built into it. And you can see that in this chart. This is where commodities are lagging behind fertilizer prices. Fertilizer moves first and then the commodities. Which means the 6% PPI reading we're seeing right now is just an early warning. Right? The full effect of what's happened to commodity prices since February has not shown up in stores just yet, but it's still coming. Now, hold on. Why then does the bond market care about inflation? It cares because if you lend your money to the US government at 4 12% interest for 10 years, but inflation is at 3.8% and it's going higher, you are barely breaking even in real terms. And most people don't even
believe the inflation reading anyway. That's the government's inflation report. So, it's probably a lot higher. Not to mention, they're thinking 10, 20, 30 years ahead. So, we are taking risk with our money, lending it to a government that's $39 trillion in debt, and our real return after inflation is almost nothing. So, what do you do? You say, "Pay me more money or I'm not buying your bonds." That is reason number one why yields are going up right now. Now, there's a second reason why investors would want more money and demand a higher bond yield. And it's because the bond market is also made up of countries. Countries that used to be America's biggest lenders, aka the
buyers of our bonds. And they are now pulling back, specifically China and Japan, which are two of our biggest lenders. So, let me start with China. At their peak, China held about $1.3 trillion in US Treasury bonds. Today that number is down to 650 billion which is the lowest level since 2008. Now that is not to say that China is dumping or panic selling but it is to say that this has been a 17-year trend. It's been happening for a long time and they're not dumping it all at once because that would collapse the value of their bonds and they wouldn't do that. That's why they're selling a little bit every year, but it's accelerating. And every time they sell a US Treasury bond, that is
one less buyer in the market, which means the US has to pay more to find a replacement buyer. More supply, less demand means higher prices to borrow. Right? That's China. Now, Japan is a different story. Japan is the biggest foreign holder of US treasuries at around $1.1 trillion. And Japan has been selling them as well. But the reason Japan has been selling US treasuries is because it desperately needs dollars. It needs dollars to defend its own currency, the yen. Right? And it's because they need to buy oil as well. And that's why since 2022, Japan has spent over $200 billion buying yen and
selling dollars, aka treasuries. That's to stop their yen from collapsing. So to put this in context, in the first quarter of 2026, they have sold more US treasuries than they've sold in the last four years or so. So in a way, Japan is actually being forced to do this because in order to defend the strength of their currency, they have to sell US treasuries. And of course, to buy oil, they need dollars. And where do they get dollars? They get dollars by selling US assets. But selling US treasuries also pushes US yields higher. and higher yields make the dollar stronger relative to the yen, which means Japan has to sell even more treasuries to defend it. It's a doom loop. So, how does Japan get out of it?
They get out of the loop the same way the US has to. The only way Japan can break this doom loop is to increase their own interest rates. That's why three of their board members already voted to increase their rates at the last meeting in May. The outlook report indicates that the BOJ is very concerned about upside risks in prices. Three board members opposed the governor's proposal to maintain the rate and called for a rate hike. I believe chances of raising the rate at the next policy meeting in June are quite high unless the Middle East situation becomes very chaotic. But there's a problem with Japan increasing interest rates. And to sort of understand it, there's a chart I want to show you. This right here, this orange
line, is Japan's GDP, aka the size of their whole economy. It's sitting at roughly the same level that it was in 1992, right? But their money supply, which is the amount of yen in circulation, this blue line right here, that has tripled over that same time period. Meaning they have printed three times more money over 34 years and their economy has gone nowhere. This is what happens when you get trapped in a cycle of borrowing and printing and borrowing and printing just to stay afloat. And because of that, Japan has accumulated a debt to GDP of around 260%. Right? That means for every dollar of economic output that Japan produces, it owes $260 in debt. The US, for comparison, is at roughly 120% of debt to GDP. And we
think that's bad. By some measures, our national debt is over 120% of gross domestic product, which according to historians, it once you get over 100, it's unsustainable and unreoverable. So when Japan raises interest rates, the cost of their 260% debt load goes up by a lot. It means they have to pay even more in interest on a debt that's already huge relative to their economy. Which means Japan raising rates to save the yen could also break their own bond market. And that's why Japan's 10-year bond yield has gone almost vertical on a 20-year chart. So all of this is basically a complicated way of saying that investors are now predicting a world where Japan has no good options
left. So that is reason number two why rates around the world are going up. China is exiting US treasuries. Japan is being forced to sell to keep its currency alive. And both of them selling means the US government bonds have less buyers which means the US has to incentivize more buyers with higher yields. And the question is who's going to be the new buyers? The new buyers will have to be Americans themselves through things like pension funds, market funds, and eventually the Fed. And that brings us to reason number three. Okay, reason number three why rates are going up is because the US government is spending money it doesn't have. That's it. And it has been for a very long time. The bill is now so big
there is no realistic way to pay it off. So here's the only number you need to look at. The US government has 39 trillion in official debt. It adds roughly 2.5 to that number every year. And to put that in perspective, that's roughly half of everything the government makes in taxes before it spends a dollar on anything like the military, social security, roads, right? Half of all the tax revenue just goes towards covering this new debt that gets added every year. Now, on top of the official debt, there are tens of trillions of dollars more in promises that are already made to American citizens for things like Medicare, Medicaid, Social Security, pensions, that's not even counted in this $39 trillion number yet. But the point is
that the math doesn't work. And the people who buy government bonds, the ones lending us the money, right? They could see the math and they're like, "Well, there's only one way this ends, and that is the government has to print money to cover for what it can't pay, which means inflation, which means your money is worth less, which means they want to be paid more in interest before they'll lend that money. That's why yields are going up." And believe it or not, the US has been here before. In 1970, the government was looking at the same impossible math. They couldn't raise the taxes, right? They couldn't cut benefits without losing their elections and upsetting people. So, they
did what governments always do. They picked the invisible option. They inflated their way out. They lowered the purchasing power of the dollar through inflation. And what that meant was an older person who was making $400 a month in social security was still making $400 a month. But that $400 bought them less and less every year. The purchasing power of the US dollar dropped about 50% from 1970 to 1980. Half of the dollar's value was lost in just 10 years. And during that same decade, gold went from $35 an ounce to $850 an ounce. So when bond investors are looking at these numbers and they're thinking the next 10, 20, 30 years ahead, they're seeing the government has no good options left
other than to print its way out. So this expectation of future money printing is why those interest rates are high. Cuz why would anyone lock up their money for 30 years at 5% if they believe their purchasing power would go down faster than that, right? They wouldn't unless the government paid you more. That's what the market is demanding right now. It is also, by the way, another possible explanation for why the stock market is still doing so well despite the world sort of falling apart. Cuz the stock market is also predicting this assumption that the Fed's going to print money. And when the Fed prints money, asset prices go up. So the stock market's like, I'm going to skip the crash part, okay? Cuz they're going to
bail me out anyway. So why interest rates are going up is because inflation's already here and more is coming through the supply chain. Two of the biggest foreign buyers of US debt are pulling back and selling. And three, the math of US governments have no exit that doesn't involve printing money. Right? All three of those things are pointing in the same direction, which is higher yields and higher borrowing costs. And here's what history says typically happens next. Normally, when the economy slows down or when something bad happens in the world, the Federal Reserve can just lower rates cuz lower rates means people borrow money, corporations borrow money, they hire more people, they spend more, the
economy gets a boost. Okay? But right now, that strategy is broken. It's broken because if the Fed cuts rates today with PPI at 6% and CPI at 3.8 and oil above $100 a barrel. It basically sends a message to every bond investor in the world. And the message is, hey, we care more about the economy than protecting your money over inflation, right? And when bond investors hear that, they're like, okay, well, I'm selling, right? I'm not going to hold your 30-year bond at 5% when inflation is going to be higher than that. So paradoxically, if the Fed tries to lower interest rates to stimulate the economy, bond yields could actually go up anyway cuz the bond market would revolt. You cut rates, bond market panics, yields go up, and borrowing
costs go up. So the thing that you're trying to prevent happens anyway. That is the trap of lowering rates while inflation's going up like it is right now. Now, on the flip side of that, if the Fed decides to raise the rates or even just keeps them where they are, we get a different problem because the US government is now paying more in interest on this $39 trillion in debt. And at the current rate, the yearly interest bill on that debt has crossed over a trillion a year just in interest. So, every time rates go up, that number goes up with it. So the Fed is sitting with an impossible choice. Do we lower the rates and break the bond market or do we increase rates and break the
economy? The side effect of raising rates is that you break the economy at a time when credit card delinquencies are already above 12%. Autoloan defaults are going up. Private credit markets are at risk. The housing market is significantly slowed down. And the stock market valuations are super high. So what's the government going to do? There's a clue. The stock market, remember, is always trying to predict the future. And here's what it's predicting. The stock market thinks that there's going to be a rate increase by January 2027. the odds of a rate increase are above 70% and going up. The market is basically saying that the Fed has lost control of the situation and the only thing they can do about it is
to raise rates so that people keep buying our debt, which means also charging you and I more to borrow money. Now, Kevin Worsh, who Trump wanted as the new Fed chair, specifically to lower rates, sort of finds himself in his new job with an impossible situation. But I think he has a plan. And this is the plan I want you to pay attention to. Under Kevin Wars, the Fed is now proposing a change to how they measure inflation. They're going to try to move away from something called the standard core PCE to something called the trimmed mean PCE. Right? This is convenient at a time when oil is up 60%. Because that new metric will strip out those extreme price increases. And on paper, it'll
show us a lower inflation number. So, I'll let you draw your own conclusions, but that is why the market is predicting a rate increase and all of that will have an effect on our wallets and our investments. So, let me explain what this could mean for the stock market, for gold, and for Bitcoin. So, let's start with the stock market cuz on the surface, the stock market looks amazing. It's basically at an all-time high and there's actually a logical reason for it. The stock market might be pricing in this assumption that when things get bad enough, the Fed is going to print money. And when it does, asset prices go up.
The stock market is basically betting I don't need to crash cuz they're going to bail me out eventually. I'm going to skip that part. And historically, that bet has been right. But the Fed can't actually print money so easily this time without breaking the bond market. So the stock market might be pricing in something that might not happen. We don't know. But when you look at the actual value of the stock market right now, it looks very expensive by a couple different metrics. For example, something called the price to sales ratio is at a record high, right? Something called the price to book ratio is also at a record high. The forward price to earnings ratio is sitting at around 24 times, which is historically
very high. And the dividend yield is close to a record low at 1%. Right? which means you are paying maximum prices for minimum income. That is not a good combination under any circumstances. But it is especially bad when the riskfree rate, meaning what you can get today from a government bond is sitting at above 5%. It's probably going higher. Think about it this way. Why would you buy a stock that pays you 1% in dividends when you can buy a Treasury bond that pays you 5% with essentially no risk? Right? The only reason you would do that is if you thought the stock market would grow more than that at a time when the market is already at a very expensive value. Right now, there's also another thing about the
stock market that makes it historically expensive. It's called the Buffett indicator, but with Luke Groman's adjustment from FFTT. So, if you took the total value of the market, aka the market cap, and you divide it by something called the GDP, the economy, but then you adjusted it for the amount of federal debt that's been used to artificially boost that number. When you run this adjusted version, there have been exactly three moments in the last 70 years where the indicator has went above 100%. The peak of the dot bubble in the year 2000, the everything bubble peak in late 2021, and of course, right now. And in both previous cases, the market dropped between 25 to 47% from peak to bottom. And it took between 2 to
13 years to recover. And we're at that level again. So that's the stock market. Now, let's talk about gold. Under traditional financial theory, rising rates should actually hurt gold because higher interest rates means it makes more sense to hold cash or bonds, right? Because gold pays no interest. So money should technically flow out of gold and into assets that pay us interest and it is very possible that we could see that phase. Now gold is also still very expensive. And it's expensive because central banks around the world have been buying over a thousand tons of it in 2024 alone. And that's kind of interesting to me that banks are choosing gold over treasury bonds because they're not sensitive to
interest rates the way we are and they usually know things ahead of time. So I think they're making a bet a geopolitical diversification into another potential world reserve currency that is maybe backed by gold. That's just a theory, but you can watch that video somewhere up here that explains it. So gold is basically an insurance policy. And then there's Bitcoin, which is kind of different, but it's driven by the same idea. Bitcoin is essentially the same argument that in a world where every government's going to print money and every currency is going to lose purchasing power, you want something with a fixed supply that no government can inflate away or freeze. And how we know that countries want that and demand
that was just proven by Iran. They're demanding Bitcoin for their oil as insurance. And that's also a video you can watch in the member section which also talks about how low I think Bitcoin could go from here and at what price point it would take me to buy more Bitcoin. Now, if you want to see how I'm personally preparing for all of this and the specific assets I'm holding and what I'm doing with my own money, those videos are in the members section. I also post more videos there and you'll get access to the videos earlier than the main channel if that's useful. The link is down below. Thank you for the support. It allows me to take on fewer sponsors in the future and continue to
make videos like this one. In the meantime, I'd love to hear your thoughts about all of this. I hope you have a wonderful rest of your day. Smash the like button. Subscribe if you haven't already. I'd love to see you back here next week. I'll see you soon. Bye-bye.
