5:00
So, the debt spiral has just begun and the bond market is now collapsing. This is happening all over the world, not just in the US. We have completely controlled inflation and have done a great job. The cost of war with Iran is hitting Americans' wallets hard. The figures are largely due to the sharp increase in fuel costs due to the war with Iran. Everything we just described, the fiscal recklessness, the monetary recklessness, all of this- no other country could have done this. It's fun and great while it lasts, but it allows you to keep digging a deeper hole until the consequences hit.
The world is currently $365 trillion in debt. The US owes approximately $40 trillion of this amount, and the debt is growing by $82,000 every second. Interest alone now costs over a trillion dollars a year. And so the obvious question is: how will it be paid for? And a few days ago, Trump shared his response with the world. "Certain levels of inflation will also pay off that debt very quickly." So, he says that the way to pay off this debt is through inflation, which essentially means making a very large number smaller. And the way governments have historically done this is by
creating more money. And if that's the plan, it will also reduce your savings and the amount of your paychecks. This is inflation. Now the people who borrow all this money, the bond market, understand that it's a financial pyramid. So they say, "Okay, if you're going to do this to us, if you're going to devalue the debt with inflation after we've lent you the money, pay us more." Because if inflation is higher than what you pay me, I won't buy your bonds. I won't lend you money. And that's why the interest rate on 10-year debt just hit its highest level since 2002. British 30- year bonds exceeded 6% for the first time since 1998. Japan's also reached the highest level in the history of observations. And because of that, things like the U.S. housing market have
slowed to levels we haven't seen since 1995. Now, the US government back in September said, " Okay, guys, stop asking us for more money." " Enough to demand a higher rate." And that's why Scott Bessant, the Treasury Secretary, challenged the bond market when he said, "I'm in charge now." I have asymmetric information. Now I'm the boss here. And he said, "Bet against me if you want. He is essentially saying, "Okay, if you are going to sell our debt, I will buy it all back. Yes? I will not incentivize you with higher interest rates. So the bond market responded, " Oh, so you're going to buy all of our debt if we sell it?" Okay, deal. We sell. And Scott is like, "What do you mean?" "Yeah? So he began to increase the purchase of these bonds from 2
billion to 4 billion, and then to 6 billion. And the bond market is like, "Dude, 6 billion? You understand how big the bond market is, right? We're talking trillions here. You'll need a lot more money if you want to challenge us. "So, that's the dynamic at work here. The market is playing against him. He is selling and does not want to buy new Treasury bonds. And as a result, interest rates are rising rapidly. Scott Bessant admitted: "You won. I can't set an equilibrium price. " Shortly after that, of course, interest rates hit those same 24-year highs. Now, if you're thinking, " Andre, I don't care about any of this. I don't have any
bonds. This doesn't concern me. "The truth is, we all pay for it, or not. And that's because the average mortgage rate is now around 7.3%, which means it's become more expensive to borrow money for everything. In addition, companies are hiring far fewer workers than before. Partly because if you exclude AI companies from the stock market, everything else has fallen more than 5% since August. Look what's happening. So, here is the overall market. Looks pretty stable, up 0.4% from its peak on August 24. But if you look only at stocks related to AI and chips, they are, unsurprisingly, up 9%.
We all know what is happening around us. If you remove them from the index and look at everything else in the stock market, the market actually fell 5.4% in just one month And this bond market situation is happening all over the world, in every developed economy. So, this debt problem is everywhere. Except for one place. And this place is China. In China, interest rates are falling. The question is why? If the whole world is in debt, then who does it owe all this money to? And if the world owes them to itself, why can't we just wave a magic wand and say, "Poof! Nobody owes anyone anything." Isn't that right? And I want to show you the answer to that in this video. So, with that in mind, let's begin.
Hello, my name is Andre Jih. I hope you are all right. Come for the finances, stay for the debts. Again. So this is another one of those very clever and complex financial videos. So if you fall asleep, I don't blame you. Just press the J button on your keyboard to go back 10 seconds and hopefully that will help. But let me start with China. Over the past year, the interest rate the U.S. government pays on 10-year borrowing has risen by more than a full percentage point, which sounds like a small amount, but it's actually a huge number. The same thing happened in countries like Japan, France, South Korea, but in China it actually decreased. The Chinese government is borrowing for 10 years at only 1.7%. The US pays over 5%. As? And
the explanation you'll hear about this is mostly about oil. They said there's a war going on, oil is expensive, expensive oil means inflation, and inflation means creditors want more payments. But this does not explain everything completely, because China is the largest importer of oil in the world. He suffered from the same oil shock as everyone else. If it were just about oil, China's rate should also be rising, but that's not happening. So there must be something else that explains this. Here's what it could be. There are two reasons. The first one is on this graph right here. This graph shows how much electricity each country produces. Which, by the way, is one of the most objective indicators of real economic growth. Because it is very difficult to fake a
power plant. It's very easy to overestimate what economists use to measure the economy, a metric called GDP. This is because the GDP of Western countries is supported by an illusion. The magic trick is that we move money from place to place, but nothing productive necessarily happens. That's right, a great example of this is high-speed rail in California. Billions of dollars have been spent on consultants, lawyers, and environmental agencies, and the train is still not here. But the money changed hands. So we say, "Look, our country's GDP is growing. We're extremely productive." "And so if you really want to measure a country's real growth and productivity, it's better to measure something real, namely how much energy it consumes. This also applies to China,
because no one fully trusts their GDP figures. But since 2005, the electricity consumption trend in the US has remained virtually unchanged. In China, it has more than quadrupled. This is partly because the US is becoming more efficient and moving production overseas, but mostly because China has been borrowing for 20 years to build, while much of the US's borrowing went to finance wars and bail out banks. The second main reason why rates are lower in China has to do with their approach to money. In particular, with their attitude towards the housing market. Back in 2016, Xi Jinping stated that housing is for living, not for speculation. In 2020,
China solidified this rule by setting strict borrowing limits for developers. The country's largest developer, Evergrande, has declared default. It was later liquidated. Housing prices have plummeted, and the Chinese government has allowed this to happen. Of course, China also wasted a lot of money. Many of those apartments were empty, no one lived there. But the difference is that. In the US, when the housing market crashes, the whole system is bailed out. This is necessary. After 2008, the Fed bought over a trillion dollars in mortgage bonds. In 2020, they did it again. And now, despite mortgage rates over 7%, US home prices magically
remain higher than they were a year ago. How is that? Because in the US, housing is collateral that serves as the foundation for the entire banking system. That's why, no matter who is in power, they will not let this system fall. And when something has to give way, the US protects investors by allowing the dollar to take the hit. This leads to inflation. This hurts people like depositors and bondholders. This means that rates are rising. For about a decade, this was mostly reflected in house prices and stocks, but since 2020 it has been reflected in the prices of everything. In China, everything is the opposite. China is not bailing out its investors. It
allows assets to fall in price. The people who suffer losses are those they call speculators, such as their developers and those who bought a second or third apartment as an investment. That's the difference. To be fair, Chinese depositors can't even take their money out of the country, so a significant portion of it ends up in government bonds anyway, whether they want it or not. But the bottom line is that the US really likes to bail out asset prices. So when we print money, it pours into real estate and stocks, causing asset prices to rise, causing inflation, so rates rise to compensate. I hope that's clear. Again, if not, press the J key on your keyboard to go back 10 seconds. OK.
Now let me show you what is already happening inside the US and how it will affect all of us. Before we continue, I want to show you something. In past videos, I've shown how the same story is covered differently depending on where you read it . But there's a bigger problem-these are stories you'll never see at all. Every day, news outlets decide what to publish and what to skip, and in large part it depends on what their audience wants to hear. And this is where the sponsor of today's episode-Ground News-comes into play. Ground News is an app that shows the same story from hundreds of publications and indicates which ones lean left, right, or center, as well as providing data about their owners and credibility ratings. They
have a feature called "Blind Zone" that shows stories that are barely covered by one side of the political spectrum. That's what's there now. First, stories that are almost never covered by left-wing media. Report that an American college inadvertently facilitated Chinese surveillance. 23 sources covered this: 55% of them lean to the right, 40% to the center, and only 5% to the left. So, if you mostly consume news from left-wing sources, chances are you've never heard of it. And now the opposite. Stories that are barely covered by right-wing media. Zambia says it will sign a $3.6 billion health deal with the US after removing clauses
on patient data. 25 sources covered this: 56% lean left and only 17% right. So, two stories, both related to the US, and which one people saw depended on which information bubble they were in. You can't have your own opinion about a story you've never been shown. And this is exactly what the when I prepare materials for these videos to check what I might have missed, not just how it's being told. If you want to see the full picture of world events, not just one side, go to ground.news/jic or click on the link below. You will receive a 40% discount on the Vantage plan I use, and you will also support independent journalism and this channel. Thank you to Ground News for sponsoring this segment, and now back to the topic. So, here's what ultimately happens. By
the way, this was recorded in writing. On June 26, 2016, 3 days after the Brexit vote, Jeffrey Epstein wrote an email to Peter Thiel. He said, and I quote, " You and I both agreed that zero interest rates were too high. And as I said in your office, it's a lot easier to look for something that's going to crash than it is to look for the next good deal." In the same letter, he wrote, and I quote: " Brexit is just the beginning." Thiel asked, "What exactly?" Epstein replied: "Return to tribalism, opposition to globalization, surprising new alliances." Here is the answer. Every major crisis is an opportunity for someone, and
that's much more effective than trying to find a good deal now. The largest banks emerged from 2008 larger than they were before, despite the crisis. So, any way out of these spirals leads to the same place. Wealth moves upwards. Now let me show you how it actually works. What you see is a graph that summarizes all debt in the United States: government, corporate, bank, and household. Today, this amount is 370% of the economy. 20 years ago it was 368%. So, the total amount of debt in the US has remained virtually unchanged for 20 years. The only thing that has changed is who holds this debt. If you look at 2008, the orange
line is the private sector. And after the financial crisis, it goes down. The blue line is the public sector, and it goes up sharply from that point. So, the debt has n't disappeared. It simply passed to the state, and the state is you, because you are the one who pays taxes. Okay, here's the second graph. It shows who is paying for it right now. The blue line is what the government pays in interest as a share of the economy. It has doubled in 4 years. It is at its highest level in over 60 years. The orange line is large corporations. Their expenses are the lowest since 1962. So, the population is paying record amounts of interest, and big business is paying the least in 60 years.
Now, using Simon Dixon's framework, you can see how the money is being pumped out. They are concentrated in the FIC, the financial- industrial complex, which, of course, includes the largest banks, investment firms like BlackRock, Vanguard, State Street, and the people at the top who own most of the assets. So, when they win, they keep the profits, and when they lose, they shift the losses to the government, that is, to the public, that is, to all of us. And that's exactly what you see on this graph. Okay, then the question arises: who exactly is owed all this money? Some think the US owes it to China, but China owns less than 2%. About 3/4 of the US national debt belongs to domestic creditors. These are your retirement savings, your pension funds,
this is what the bank does with your money. This is social security. That's why no one can wave a magic wand and cancel a debt, because the people we would owe are ourselves. And even that is technically uneven. The top 10% of Americans own 67% of all the wealth in this country. The bottom half owns 2.6%. And the more wealth you have, the more bonds you are likely to own, which means that interest is not just an expense, it is also income, paid out of your taxes, which everyone pays, and it goes to those who own the most bonds. So, they don't write off the debt, they can't, and they can't repay it. And now we have what is potentially called a debt spiral. This is when a country is forced to use a credit card to pay off debt on another card. And
the situation is, of course, made worse by the interest rate. This is what is happening to the US government right now. It spends over a trillion dollars a year on interest alone. It borrows about 2 trillion a year. Therefore, a significant portion of new borrowing goes to pay interest on old debts. The situation is getting worse because the government is not borrowing all of this at once. His debts are constantly in need of repayment, and he has to borrow them again. Over $8 trillion in debt is due next year. The government is still paying less than 4% on average now, because much of the debt was taken out when rates were lower. But new debt costs about 5%. So every month, the old cheap debt is replaced with a new
expensive one. Luke Gromen of FTTP says that after a full reboot, interest bills will reach around 2 trillion a year. And that's about 40 cents out of every dollar the government collects in taxes. Unfortunately, raising interest rates will not solve this problem. If inflation is caused by oil or war, interest rates will not fix it. Raising rates doesn't create more oil. In fact, the speaker of Iran's parliament made this statement in a post that has garnered millions of views. He said, " Let's see if the rise can open the Strait of Hormuz or produce even a barrel." You can't "25 basis points" solve the bottleneck problem. This means that you won't fix a blocked shipping lane by raising interest rates. So when the Fed
raises these rates, the government, of course, feels it the most, and therefore you. So there are two ways out of this situation. Keep rates high, meaning pay more interest to asset owners, which forces the government to pay more, or lower rates and print more money, which causes house prices and stocks to rise, which is great if you own them, but not so great if you don't, right? And if all of this starts to collapse for some reason, it will be the people with cash and access to cheap money who will buy up what everyone else will be forced to sell. Okay, so if the debt is impossible to cancel and it doesn't get paid, will it all slowly
get worse, or will something eventually break? And if so, when will that happen? And what will that look like for each of us? So let's move on to something more interesting and speculate a little on what this might look like. I want to show you a tweet from someone who traded US interest rates for 30 years. I want to say right away that I can't confirm all of this, but his logic is very apt, especially for many smart macro researchers who suspect he's right. But his answer is: "Yes, it will break, and probably very soon." "The 30-year rate is now 5.6%." He says we'll see 6% soon, maybe 7%, and over the next 6 months we'll find out what happens when the Treasury bond market breaks down. He compares our situation today to the Fed in September 2007, a
year before the 2008 crash. His entire argument boils down to the idea of what is called a fulcrum. So imagine a swing. So, a fulcrum is the center on which everything rests and balances. In the financial system, this is the U.S. Treasury bond market, or bond market. Every loan, every mortgage, and every stock price depends on it. And his rule as a trader is that you can never touch this fulcrum. But we did it. And here's what happened. The system has operated since 2009 in such a way that the official inflation rate was around 3%. He believes the real figure today is closer to 8%. If bonds yield 5% and real inflation is 8%, then a giant corporation is technically borrowing money at -3%. So, they are essentially being paid for what they borrow. They borrow
money, buy back their own shares, earnings per share increase, and the stock price also goes up. He says, "This effectively answers an impossible question." " The question is: How is the U.S. stock market worth more than all the world's markets combined, especially when China has caught up with them in many technologies?" "His answer: The U.S. gained access to cheap money through a bond market that was effectively fueled by the safest asset in the world- real estate." So, the bond market holds everything. And who supported the bond market? For a long time it was China. But China now holds less than half of its Treasury holdings compared to its peak. He says, " We've seen this before." In the 2000s, money flowed out of the market where
banks lent to each other, and in 2008, that market exploded. He believes the Treasury bond market has been on the same path since 2017. And then he adds: " They hit the fulcrum." This January, with the government borrowing about $2 trillion a year and the economy overheated, the administration forced Fannie Mae and Freddie Mac to buy $200 billion in mortgage-backed securities in what it said was an attempt to lower rates before the midterm elections. Mortgage rates fell below 6%. He claims that large buyers entered the market en masse without protecting themselves. And that pushed long-term rates lower than they should have been. Then the war in Iran began, oil prices rose, and the process of
reversal began. Everything that came after that, like the stock buybacks or Scott Bessant's declarations that he was in charge, he says, "only delayed the crash, but didn't change the course." So, that is his prediction. The 30- year rate is currently 5.6%. Very soon it could be 6%, then potentially 7%, and he says, "Within 6 months we can learn what the Treasury market looks like when it breaks down." He compares this again to September 2007, the year before the crash. So, how bad will it be and will it happen? I don't know, but it seems like every major financial crisis is an opportunity for someone. And this is very interesting because there was a
post from an anonymous account claiming to be a Bank of Japan insider. No one has tested this, but it recently said: "If we could postpone the collapse of the current economic order until it coincides with a global catastrophe, how convenient that would be." AI, quantum computing, the energy crisis- take your pick. That sounds ominous. What does this mean and why would anyone want to do this? Here is a possible answer. Let's do a thought experiment. Again, this is purely hypothetical, and we'll just let our imagination run wild on this one. Imagine that you are one of the influential central planners. You know nothing works, right?
Social Security, Medicare, Medicaid, veterans benefits, and interest combined are already worth more than every dollar the government earns. And you know that the way out of this is inflation, right? Print more money, because the president has essentially admitted it. And you know what the problem is here. Inflation will take money away from all the people who saved it. Isn't that right? And if people see you doing it on purpose, they'll get angry. They will rise up. So, here's the first thing a disaster can do for you. And why you might want her is that she turns this theft into salvation. Isn't that right? Because printing money to erase your debt is stealing from depositors. But if you print this money
in the middle of a disaster, well, then it's being done to help save people. Isn't that right? The second reason you might want to do this and tie it to an event is that inflation doesn't really solve the biggest promises. Is n't that right? You can depreciate the purchasing power of bonds, but you can't get rid of Social Security or Medicare liabilities because they rise with prices. This is what Luke Grommen calls hard currencies, right? These are hard assets. They grow with inflation. So, the only way to reduce them is to change the conditions. It's throwing people away, meaning things like retiring later, right? Get less. Waiting longer for help. Or having fewer people to worry about, right? In emergency situations, people perceive such things.
And this isn't even a new idea. This has happened before. After World War II, the US national debt was 106% of the economy. That's about the same as today. However, by 1974 it had magically fallen to 23%. How did they manage to reduce this figure? This was largely because they capped interest rates at 2.5%. So they were paying bondholders 2.5% while inflation was running at 19%. So people who bought war bonds got dollars that were worth much less. They were given this as the price of winning the war. In 2020, rates were at 0 %. Inflation rose to 9 %, and the debt burden fell again, but this time, conveniently, it was explained by the pandemic, right? Well, and then, of course, all of this is somehow connected to the " 2030 Agenda", if you pay
attention to it. Because a crisis is the only time when people accept a new system. That's when they agree to big changes. They talk about it openly. In June 2020, Klaus Schwab called the pandemic, and I quote, "a rare but narrow window of opportunity to reflect, rethink, and reboot our world." So, if you look at it more broadly, it seems like the chess pieces of the world are already arranged. They are prepared for something to happen. Is it the energy crisis that is already here? It is already being blamed for causing inflation.
There's also artificial intelligence, millions of people are losing their jobs, right? Quantum computing, which is an attack on the entire financial system, is preparing the transition of everyone to new digital money with a new digital identity, which is one of their goals by 2030. If you want to learn more about this and the 2030 Agenda, I made a separate video about it. And if you want to know how I prepare for all this, you can watch those videos in the premium subscribers section, where I publish content a day early and create additional materials. This helps me make more videos like this and attract fewer sponsors. So thank you for being with me, I'd love to hear your thoughts and see you here next time.
Take care of yourself. Of course
