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Hello everyone! With you, Graham. So, it's crazy, but the United States is in trouble. Seriously, I never thought I'd say this, but just as Ray Dalio predicted, we are starting to see the beginning of a national debt spiral where interest rates are rising out of control. The United States is forced to borrow even more money just to service the debt it already has, which creates even more debt, which forces the US to borrow even more money. And don't worry, something will break soon. After all, demand for U.S. government debt is now so weak that interest rates are soaring at the fastest pace in decades. Our deficit has grown by another $2 trillion this year alone. And now Ray Dalio believes we have officially reached the point of no return, and a
1930s-style financial crackdown awaits us. That's why we really need to discuss what exactly is happening, why it's so serious, what impact it has on stocks, real estate, and the entire market, and most importantly, what you can do today to prepare. Because if you do nothing and this continues, your money could be next. Before we get started, I just ask-it's completely free-that you click the like button and subscribe. I hate to ask this. This adds extra seconds to the video when I could just get to the point. This helps a lot. And as a thank you for that, here's a picture of a black swan. So, thank you very much, and also a big thank you to Incogni for sponsoring this video, but more on that later. So, speaking of where
this whole problem starts, we need to discuss the national debt. For those who don't know: as of now, the United States is over $40 trillion in debt, and this amount is so huge that it grows by $6 billion every day. However, strangely enough, the biggest problem here is not the amount of debt, but the amount of interest we have to pay. You see, for a long time the United States could borrow money almost for free, at 0% interest, so they borrowed and spent money they didn't have and couldn't afford. And the idea was that interest rates would stay low or even go down so that when it came time to pay off the debt, you could just refinance it and continue in the same vein. But the opposite happened. Today, interest rates are
the highest since 2002. And now, as a result, the US government is forced to pay outrageous interest rates that it absolutely cannot afford. And this leads to what some call a debt spiral. In this case, the logic is that the more we have to borrow, the higher the interest we have to pay. This means that the larger the deficit, the more we have to borrow, and therefore the higher interest we pay. Do you see the problem here? For example, the Congressional Budget Office now projects that interest will cost $2.1 trillion per year by 2036. This is such a huge amount that we would have to cut our entire military budget just to keep the situation from getting worse. Now, as for how we pay off all this debt: contrary to popular belief, we don't just
print money out of thin air. Instead, we issue Treasury bonds-which is essentially the U.S. way of saying, "We'll give you a promissory note, you lend us money, and we'll pay it back with interest in full by a certain date." The problem here is that because the government is forced to borrow so much money, it needs to find buyers, a huge number of buyers, who will take on all this debt. And what if suddenly these buyers say, "You know what? We don't want to borrow at 4% anymore. Inflation is rising. Your situation is no longer so attractive. Now we want 6%." Well, the United States will have no choice. They would have to pay 6%, or to put it simply, would you lend money to your neighbor
Joe, who makes $55,000 a year, spends $66,000, has $ 350,000 in debt, and pays $9,000 a year in interest? The answer is probably no. Well, if you multiply those numbers by a hundred, then, no kidding-that's the US government. Unfortunately, this is just the tip of the iceberg, because the biggest problem here is not how much we owe, but who is lending us money. And at some point, if they back down, something will break, leading to a danger zone. That's the thing. Our debt only works when someone else wants to buy it. And now there are four specific factors at work that coincided at the same time, starting with the first one- fewer foreign buyers. Here is the reality. For decades, countries like Japan and China have been among our largest
investors. But recently, China's assets fell to their lowest level since 2008. Japan's assets fell by another $12.8 billion while it was busy defending its own currency. And the assets of France and Canada fell by a combined $75 billion in just one month. To be fair, some of this decline is simply bond depreciation, but the trajectory is still the same. It is going down, which is made worse by a second factor: supply has exploded. Unfortunately, at the same time that there are fewer buyers, the United States needs a lot more money. For example, according to the Congressional Budget Office, we borrowed $2 trillion in just the first 11 months of the fiscal year. And now AI companies are borrowing hundreds of billions of dollars themselves,
competing for the same pool of buyers as the US government debt market. And this is exacerbated by a third factor: inflation is not going away. Here's how you should think about it. With the Middle East conflict pushing up oil prices, inflation at 3.4%, and the Fed raising interest rates for the first time since 2023, why would a bond investor freeze money for 10 years if they believe the dollar is depreciating, more of it will be printed, and inflation could be even higher in the future? This brings me to the part of the story that everyone should be paying attention to, and that is number four: the fall of the US dollar. This is a question that no one wants to ask. What will happen when the rest of the world stops trusting US debt like it used to?
For decades, the United States had a huge advantage as the dollar was considered the reserve currency worldwide. Treasury bills were treated as cash. But now, as budget deficits rise, inflation remains stubbornly high, and countries like China and Japan are reducing their Treasury holdings, investors are starting to wonder: Is U.S. government debt as attractive as it once was? That's why, in terms of what happens next, what you can do about it, and when it officially becomes a problem for everyone-that's what you came for. Because if this continues, we will all pay for it soon. Before we get to that though, with so much uncertainty in the market, most people are focused on protecting their money. But protecting your privacy is often overlooked.
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identifying information. This way you can actually see what exactly needs to be removed, instead of just guessing. So, if you want to delete your personal data, contact Incogni by going to incogni.com/graham and using the code Graham at checkout to get a 60% discount on the annual plan. Plus, they're available risk-free for 30 days, so anyone can try the service and get a full refund if you're not happy with the results. Again, the link is below along with Graham's code. Thank you very much. Now let's get back to the video. Good. So, when talking about what is happening, and the impact it will have on stocks, housing, and the entire economy, we need to discuss the "doom loop". When it comes down to it, Warren Buffett
explained it probably better than anyone else. He said that every time the risk-free rate changes by one basis point, the value of every investment in the country changes. Or, to put it simply, higher interest rates don't just affect the bond market. This literally changes the price of every single asset in our entire economy. Starting with the first: stocks become less attractive. Just think. If you can earn 6% risk-free from the government, why would you pay 30 times the profit to a company that only returns 3%? In fact, according to Doug Cass, the additional return investors received from owning stocks compared to bonds turned negative back in May. And this was when 10-year Treasury bonds were yielding about 4.5%.
Furthermore, the situation worsens at number two: growth stocks are taking the biggest hit. Why, you ask? Well, when interest rates are rising, investors are much more interested in earning money today than in the future. So, companies whose value is based on huge profits 30 years from now look much less attractive. And this tends to hit the technology sector, growth stocks, and real estate the hardest. This is especially noticeable when it comes to some of the largest companies in the entire market. Also, at number three, mortgages follow Treasury bond yields. Recently, the average 30-year mortgage has already reached 7.5%, compared to about 6% a year ago. So, for a $400,000 house with a 20% down payment, that's an extra $250 per month or $3,000 per year
more than 6 months ago. And when enough buyers start counting, the numbers simply collapse. But then we have number four: companies pay a lot more for loans. According to Reuters, approximately $4.2 trillion in corporate debt is due to mature between 2027 and 2031. So, imagine a company borrows a billion dollars at 3%. That's $30 million a year. But now interest rates are 6.5%. That extra $35 million in interest doesn't come out of nowhere. They are deducted from profit. They come at the expense of development, workers, and income. And this, of course, hits stocks. Even worse, at number five, government interest payments. The Congressional Budget Office already projects that interest costs will be about $2.1 trillion per year by 2036. By the way, this
forecast was made back in February, when 10-year Treasury bonds were yielding about 4%. So, if interest rates stay high for longer, the government is forced to pay more interest, which means it has to borrow more money to pay them, leading to the issuance of even more debt at a potentially higher rate. And it's a whole vicious cycle that ultimately leads to number six: banks and bondholders suffer losses. In this case, if you bought 10-year Treasury bonds at 3%, and now the new bonds are yielding 5.3%, no one will pay full price for your 3 % bonds. So, the price should go down. Multiply that by the entire banking system, and the picture doesn't look very good. For example, just a few months ago, banks had about $325 billion in unrealized losses on
securities. That's why most people don't even realize. And also what you can do today to stay ahead of these events. We need to talk about an exit plan. To be clear, I won't try to pretend that I know exactly how everything will play out, but I think it's very important to understand both sides, both points of view, so that you can come to your own conclusion. As for the pessimistic scenario that everything will go awry, that is a pretty clear prospect. Throughout history, any company that borrows too much money ends badly. In an ideal world, if the only goal were to reduce the debt, Washington would simply cut spending and raise taxes. However, the problem is that both parties have had
budget deficits for decades. So the idea that we can all come together to reduce the national debt and reach an agreement on this issue is practically impossible. That's why the next option to get out of this situation is to simply outgrow your debt. And this is, in fact, a very strong argument in favor of AI. In that case, if productivity increases rapidly, perhaps wages will increase, companies will become much more efficient, more profitable, and over time, debt will start to look much smaller compared to how much everyone earns. However, if there is no such growth, then the next way out, which Trump hinted at, is inflation. Both during and after World War II, the Federal Reserve effectively capped long-term interest rates for
nearly a decade, while inflation imperceptibly reduced debt relative to the size of the economy. In fact, Ray Dalio believes a similar scenario could happen again today. When rates are kept artificially low, they allow inflation to rise, and then after a few decades, everything balances out at the expense of ordinary people. Finally, if politicians don't solve the problem today, the market will simply do it for them. We saw this in the UK in 2022, when bond yields fluctuated so wildly that the Bank of England had to intervene for several days. And unfortunately, this is exactly the scenario Jamie Dimon warned about. But on the other hand, not everyone believes that we are heading towards a debt crisis, because after all, US Treasury bonds are the most liquid and
safe assets in the world, backed by a reserve currency and complete confidence in the US government. In addition, the demand for security remains high, and the Treasury crisis has So, there will either be a slow reduction in the national debt due to economic growth, or interest rates will continue to rise until someone or something is forced to intervene. So for my thoughts on all of this and how I'm preparing to get ahead of the curve, that's what you're here for. In general, from my point of view, there are only two scenarios. The best one is that oil prices will eventually fall, inflation will start to slow, the Fed will cut rates, and those high interest rates will return to 4%. But the worst case scenario is that buyers will continue to reject
bonds. Treasury yields will continue to rise to 6%. The Federal Reserve will be forced to intervene, and, you guessed it, that will mean massive money printing. Personally, I do not believe that this is a "black swan " event that will destroy our economy, because banks have sufficient capital and have been preparing for such a development for years. However, I get a little worried when people put everything into the stock market, assuming it's easy and free money because the printing press will keep running and asset owners will benefit, when there's a 5% return. This is a real fact. Eventually, yields will reach a point where money starts flowing out of the stock market into Treasury bonds, and that's when people will get a very rude
awakening. Also, regardless of stocks, now is the time when savings are finally paying off. Keep in mind that you haven't been able to get that kind of return on public debt for a long time. We have n't seen anything like this in over 20 years. And in 2020, these securities yielded less than one percent. So the ability to earn 5% or more without any risk is quite significant. That's why, as far as my actions go, I keep about 15%, maybe 20% of my money in these Treasury bonds. They bring in about 5% of revenue. And if the market falls, I sell some of the assets and buy them back on the market at a lower price. That's all. It's pretty boring, because 80% of my money is just S&P 500 index funds and international funds. In fact, if you want to see
my entire portfolio and track its daily performance, I'll leave a link to my Blossom Social in the description below. It's essentially an investment social network where people post their portfolios, and you can follow them, read the latest news, and see discussions. That's pretty cool. So if you want to follow my portfolio, it's all available to you. By the way, this application is completely free, it doesn't cost you anything. You can just download it and you're done-use it. Anyway, if you're wondering what to do with all this, my honest advice is-I wouldn't keep everything in the stock market right now. I would n't put all your money in one thing.
I think it's very important to be diversified right now. This means owning stocks, having a stake in real estate, international assets, treasury bonds, cash, and possibly cryptocurrency. That way, if one or two assets fall, you won't be left with anything. Because if something happens in the future, the main thing is to make sure you can survive it without selling your assets. So, thank you for watching. As always, like, subscribe, and if you want to see bonus videos from me every week in addition to the public ones, become a channel sponsor. You will also receive priority responses to comments in addition to these additional videos. So, thank you very much for that and see you next time
