Trump Just Started The Debt Spiral

0:00 So, the debt spiral just started and the bond market is now breaking. This is happening all over the world, not just in the US. >> We have inflation totally in control and we've done a great job. >> The cost of war with Iran hitting Americans hard in the wallet. The numbers driven in large part by soaring fuel costs driven by the Iran war. >> Everything we just described, the fiscal recklessness, the monetary recklessness, all that. No other country could have pulled that off. And it's fun and it's great while it lasts, but it enables you to keep digging and digging and digging into a deeper hole until the consequences come to bear.

0:45 >> Right now, the world owes $365 trillion. The US owes roughly 40 trillion of that, and it's growing by about $82,000 every second. just the interest now costs more than a trillion dollars a year. And so the obvious question is, well, how is that going to get paid back? And a couple days ago, Trump shared his answer with the world. He told Time magazine, quote, certain levels of inflation will also pay off that debt very rapidly. So he's saying that the way to pay off this debt is through inflation, which is basically a way of saying we make the really big number smaller. And how governments have historically done that is through the creation of more money. And so if that is the plan, then this will also shrink your savings and your paycheck numbers as well. That is inflation. Now the people who are lending all this money, the bond market, they understand that this is a Ponzi scheme. So they're like, "Okay, if you're going to do that to us, if you're going to inflate away the debt after we lend you our money, pay us more money because if inflation is going to be higher than what you're paying me, I'm not going to be buying your bonds. I will not lend you money."

1:57 And that is why the interest rate on the 10-year debt just got to the highest level since 2002. Britain's 30-year went over 6% for the first time since 1998. Japan's hit the highest level ever recorded as well. And because of that, things like the US housing market have slowed down to levels that we have not seen since 1995. Now, the US government back in September was like, "Okay guys, stop asking us for more money. Stop demanding a higher rate." And that is why Scott Bessant, the Treasury Secretary, challenged the bond market when he said, "I am the house now.

2:35 >> I have asymmetric information." Like, "I am the house now." Right? He said, "Bet against me if you want." He's basically saying, "Fine. If you're going to sell our debt, I'm going to buy all of it." Right? I will not be incentivizing you guys with a higher interest rate. So the bond market's like, "Oh, you're going to be buying all our debt if we sell it." Okay, bet. We are selling. And Scott's like, "What do you mean?" Right? So he started to increase the buying of those bonds from 2 billion to 4 billion to 6 billion. And the bond market's like, "Dude, 6 billion? You do know how big the bond market is, right? We are talking trillions here. You're going to need substantially more money if you want to challenge us. So that is the dynamic at play here. The market is betting against him. It's selling and it doesn't want to buy new Treasury bonds and as a result, interest rates are skyrocketing. Scott Besson has admitted, "You guys win. I can't set the equilibrium price." Shortly after that, of course, interest rates reached those 24-year highs. Now, if you're like Andre, I don't care about any of this. I don't own any bonds. This does not affect me. The truth is, we are all paying for this whether we own a bond or not. And that's because the average mortgage rate right now is about 7.3%.

3:55 Which means borrowing money for everything is more expensive. Also, companies are hiring a lot less than they did before. Partially because if you take the AI companies out of the stock market, everything else is down more than 5% since August. Look what's happening. So, here's the overall market. Looks pretty flat. Up 0.4% since the peak in August 24th. But if you look at just AI related stocks and chip stocks, they're not surprisingly up 9%. We all know what's going on out there. If you take those out of the index and you look at everything else that's in the stock market, the market is actually down 5.4% in just over a month. And this situation with the bond market is happening all around the world in every developed economy. So this debt problem is everywhere except for one place and that place is China. In China, interest rates are going down and the question is why?

4:53 If the whole world is in debt, who does it owe all this money to? And if the world owes it to itself, then why can't we just wave a magic wand and say poof, no one owes anyone anything, right? And the answer is what I want to show you in this video. 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 debt again. So, this is another one of those very nerdy complex finance 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 it helps you out. But let me just start with China.

5:28 Over the last year, the rate that the US government pays to borrow for 10 years went up by more than a full percentage point, which doesn't sound like a lot, but it's huge. The same thing happened in places like Japan, France, South Korea, but in China, it actually went down. China's government borrows for 10 years at only 1.7%. The US pays over 5%. How? The explanation you'll hear for why that is is mostly because of oil, right? There's a war. Oil is expensive. Expensive oil means inflation and inflation means lenders want to be paid more. But that doesn't fully explain it because China is the biggest oil importer in the world. It got hit by the same oil shock as everyone else. If this was about oil, China's rates should be going up as well, but they're not. So, something else has to account for this. Here's what that might be. There's two reasons.

6:22 First one is on this chart right here. This chart shows how much electricity each country makes, which is one of the most honest measures, by the way, of real economic growth. Because it's very hard to fake a power plant. It's very easy to inflate what economists measure economies with, which is something called the GDP. That's because the GDP of Western nations has been propped up by an illusion. Right? The magic trick is that we shuffle money around, but nothing productive necessarily happens, right? A great example of this is the California highspeed train. Billions of dollars were spent on consultants and lawyers, environmental agencies, and there's still no train, but money traded hands.

7:06 So, we say, see, our country's GDP is going up. We're super productive. That's why if you really want to measure the real growth and productivity of a country, it is better to measure something that is real, which is how much power it is using. And that goes for China, too, cuz nobody fully trusts their GDP numbers either. But since 2005, the US electrical output line is basically flat. China's has more than quadrupled. Now, part of that is the US getting more efficient and moving its factories overseas. But most of that is because China spent 20 years borrowing money to build things. While a lot of what the US borrowed money went to funding wars and bailouts for the banks.

7:51 Now, the second major reason why China's rates are lower relates to how they think about money, specifically their relationship to their housing market. See, back in 2016, Xi Jinping said that houses are for living in, not for speculation. In 2020, China enforced this rule by putting hard limits on how much property developers could borrow. The biggest developer in their country, which is called Everrand, defaulted. It was eventually liquidated. Home prices went down dramatically, and China's government allowed it to happen. Now, China's wasted plenty of money, too. A lot of those were apartments nobody lived in. The difference though is this, right? In the US, when housing falls, the whole system gets a bailout. It has to. After 2008, the Fed bought more than a trillion dollars of mortgage bonds. In 2020, it did it again. And right now, with mortgage rates above 7%.

8:53 US home prices are still magically higher than they were the year before. How? It's because in the US, housing is the collateral that is the foundation for the whole banking system. That is why no matter who's in charge, they will not allow it to fail. And when something has to give, the US protects the investors and lets the dollar take the hit. That is inflationary. It hurts people like the savers and the bond holders. That means rates go up. For about a decade, that mostly showed up in the price of houses and stocks. But since 2020, it's been showing up in the price of everything. Now in China, it's the opposite. China does not rescue its investors. It lets the assets fall. The people who get hurt are what they call the speculators, like their developers and people who bought a second and third apartment as an investment. That's the difference. Now, to be fair, Chinese savers can't even move their money out of the country. So, a lot of it ends up in their government bonds anyway, whether they like it or not. But the point is is that the US really likes to rescue asset prices. So, when we print money, that money piles into houses and stocks and therefore asset prices go up, therefore inflation. So, rates go up to compensate. I hope all of that makes sense. Again, if it doesn't, press the J button on your keyboard to go back 10 seconds. Okay. Now, let me show you what's already happening inside the US and how it's about to affect all of us.

10:26 Now, before we keep going, I want to show you something. In past videos, I've shown you how the same story gets told differently depending on where you read it. But there's a bigger problem, and that's the stories you'll never see at all. Every day, news outlets decide what to publish and what to skip. And a lot of that comes down to what their audience wants to hear. And that's where today's sponsor, Ground News, comes in. Ground News is an app that shows you the same story from hundreds of outlets. And it tells you which ones lean left, right, or center along with their ownership details and factuality rating.

10:52 And they have a feature called Blind Spot, which shows you the stories that one side of the political spectrum is barely covering. Here's what's on it right now. First, stories with little to no reporting on the left. A report that a US college unintentionally advanced Chinese surveillance. 23 sources covered it. 55% of them lean right, 40% are center, and only 5% lean left. So, if most of your news comes from left-leaning outlets, there's a good chance you've never heard about it. Now, flip it. Stories with little to no reporting on the right. Zambia says it'll sign a $3.6 billion health deal with the US after stripping out the patient data clauses. 25 sources covered it. 56% lean left and only 17% lean right. So, two stories, both involving the US, and which one people saw depended on which bubble they were in.

11:39 And you can't have an opinion on a story that you were never shown. And that's what blind spot makes visible. I use ground news when I'm researching for these videos to check what I might be missing, not just how something is being told. If you want to see the full picture of global events and not just one side, go to ground.news/jick, or click the link below. You'll get 40% off the Vantage plan, which is the one I use, and you'll be supporting independent journalism and the channel.

12:01 Thank you to Ground News for sponsoring this segment. And now, let's get back to it. So, here's what ends up happening. This was written, by the way. On June 26th, 2016, 3 days after the Brexit vote, Jeffrey Epstein emailed Peter Teal. He said, quote, "You and I both agreed zero interest rates were too high. And as I said in your office, finding things on their way to collapse was much easier than finding the next bargain." In the same email he wrote, quote, "Brexit just the beginning." And Tiel asked of what, Epstein said, "The return to tribalism, counter to globalization, amazing new alliances."

12:40 There you go. Every major crisis is an opportunity for someone, and it's a lot more effective than trying to find a good deal. Right now, the biggest banks came out of 2008 bigger than they went in despite the crisis. So, every road out of these spirals ends up in the same place. Wealth moves up. And let me show you how this actually works. What you're looking at is a chart that adds up all the debt in the US, like the governments plus corporations, banks, and households. Today, that total is 370% of the economy. 20 years ago was 368. So, the total amount of debt in the US has basically not changed that much in 20 years. What's actually changed is who is holding that debt. If you look at 2008, the orange line is the private sector and after the financial crisis, it comes down. The blue line is the government side and from that exact moment, it goes straight up. So, the debt never went away. The debt just moved to the government and the government is you because you're the one paying the taxes. Okay, here's the second chart. It shows who's paying for this 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's at the highest level in more than 60 years. The orange line is the big corporations. Theirs is the lowest since 1962.

14:14 So the public 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 that money is being stripped. It's being concentrated into the fick, the financial industrial complex, which of course is the biggest banks, asset managers like Black Rockck, Vanguard, and State Street, and the people at the top who own most of the assets. So when they win, they get to keep the profits and when they lose, those losses get moved to the government, aka the public, which is all of us. That's what you're looking at on this chart. Okay. So then the question is, well, who is all of this money owed to exactly? Some people think the US owes it to China, but China holds less than 2%. About 3/4 of the US government debt is owed inside of the US. It's your 401k. It's your pension fund. It's what your bank does with your money. It's social security. That's why no one can wave a magic wand and cancel the debt because the people we'd be cancelling on would be ourselves. And even that is not equal. Technically, the top 10% of Americans own 67% of all the wealth in this country. The bottom half owns 2.6%.

15:32 And the more wealth you have, the more of those bonds you probably hold, which means the interest isn't just a cost. It's also a payment. And it comes out of your taxes, which of course everybody pays. And it goes to whoever holds the majority of the bonds. So they don't cancel the debt. They can't. And they can't pay it off. And so now we have potentially what's called a debt spiral. That's where the country has to use a credit card to pay off its credit card.

16:01 And what makes that worse is of course the interest rate. That's the US government right now. It spends more than a trillion dollars a year just on interest. It's borrowing about $2 trillion a year. So a huge part of the new borrowing goes to pay the interest on the old borrowing. It's getting worse because the government doesn't borrow all of it at once. Its debt constantly comes due and it has to be borrowed all over again. More than $8 trillion of it comes due in the next year. Right now, the government is still paying under 4% on average cuz a lot of that debt came from when rates were lower. But the new debt costs around 5%. So every month, old cheap debt gets swapped for new expensive debt. Luke Groman from FFTT says that once it all resets, the interest bill gets to around 2 trillion a year. And that's about 40 cents of every dollar the government collects in taxes. Unfortunately, increasing interest rates is not going to fix it.

17:02 If the inflation is coming from oil or from a war, interest rates are not going to solve that. Raising rates does not create more oil. In fact, the speaker of Iran's parliament said this in a post that got millions of views. He said, "Let's see if a hike could open the straight of Hermuz or produce a single barrel. You can't 25 basis points at chokepoint." meaning you can't fix a blocked shipping lane with raising interest rates. Now, when the Fed raises those rates, the people that feel it the most is of course the government, which of course is you. So, there's two ways out of this. keep rates high, aka pay more in interest to the people holding the assets and the government pays more, or lower the rates and print more money and the price of houses and stocks go up, which is great if you own all those things, but it's not if you don't, right? And if the whole thing comes crashing down for some reason, it's the people with cash and access to cheap money that will buy what everyone will be forced to sell. Okay? So, if the debt can't be cancelled and it's not going to be paid off, well then is this just slowly going to keep getting worse or will something actually break? And if it does, when is that going to happen? And what is that going to look like for everyone? So, let's get into some of the fun stuff and speculate a bit on what this might look like. I want to show you a tweet from someone who spent 30 years trading US interest rates. And I just want to say that I can't verify all of this, but his logic makes a lot of sense, especially to a lot of very intelligent macro researchers who suspect he might be right. But his answer is yes, this breaks and probably very soon. The 30-year rate is at 5.6% right now. He says that we will soon see 6%, maybe 7% and within the next 6 months, we find out what it looks like when the Treasury market breaks. He compares where we are today to the Fed in September 2007, one year before the 2008 crash. His whole argument basically comes down to this idea of what's called a fulcrum. So think of a seessaw, right?

19:14 The fulcrum is the point in the middle that everything sort of balances on. Now in the financial system, that is the US Treasury market, aka the bond market. Every loan, every mortgage, right, every stock price depends on it. And his rule as a trader is that you never mess with this fulcrum. But we did. And here's what happened. The way the system used to work since 2009 is that the official inflation number was around 3%. He believes the real number today is closer to 8%. Now, if bonds pay you 5% and real inflation is 8, then a giant corporation is technically borrowing money at -3%.

19:59 So, they're essentially getting paid to borrow money. What they do is they borrow money, they buy back their own shares, earnings per share go up, and the stock goes up as well. And he says that actually answers an impossible question. That question is, how is the US stock market worth more than every market in the world combined, especially when China's caught up in so many technologies? And his answer is the US got access to cheap money leaning on the bond market which was effectively fueled by the most rock solid stable asset in the world real estate. So the bond market holds up everything. And who is holding up the bond market? For a long time it was China. But China now owns less than half the treasuries that it did at the peak. He says, "We've seen this before. In the 2000s, money drained out of the market where banks lent money to each other. And in 2008, that market blew up." He thinks the Treasury market has been on the same path since 2017.

21:08 And then he says they messed with the fulcrum. This January, with the government borrowing around $2 trillion a year and the economy running hot, the administration forced Fanny May and Freddy Mack to buy $200 billion of mortgage bonds, which he says was about getting those rates down before the midterms. Mortgage rates dropped below 6%. And his claim is that the big buyers piled in without protecting themselves, and that pushed long-term rates lower than they should have been. Well, then the Iran war hit, oil went up, and it started to unwind. Everything since then, like the buybacks and Scott Besson saying that he's the house. He says that delayed it, but it didn't change the course. So, that's his prediction. The 30-year is at 5.6% right now. Very soon it could be 6%, then potentially 7%. And he says within 6 months we might find out what the Treasury market looks like when it breaks. Right? He compares it again to September 2007, a year before the crash. Now, how bad is that going to be and will that happen? I don't know.

22:19 But it seems like every major financial crisis is another opportunity for someone. And that's very interesting because there was a post from an anonymous account that claims to be a Bank of Japan insider. Now, nobody's verified this, but what it said recently was, quote, "If only we could delay the collapse of the current economic order until it coincides with a global catastrophe." How convenient that would be. AI, quantum computing, energy crisis. Pick whichever one you like.

22:52 That sounds ominous. What does that mean? And why would anybody want to do that? Here's a possible answer. Let's do a thought experiment. Again, purely hypothetical, and we're just going to go crazy on this one. Imagine that you're one of the powerful central planners. You know that nothing works, right? Social Security, Medicare, Medicaid, veterans benefits, and interest together already cost more than every dollar the government makes. And you know that the way out of that is inflation, right?

23:19 Print more money cuz the president just basically admitted it. And you know what the problem with that is? Inflation is going to take money away from all the people who saved money, right? And if people see you do this on purpose, they get angry. They revolt. So here's the first thing that a catastrophe might do for you. And why you might want one is that it turns this theft into a rescue, right? Because printing money to erase your debt is stealing from savers. But if you print that money in the middle of a disaster, well then that's doing what's necessary to help save people, right? The second reason why you might want to do it and time it with an event is that inflation doesn't actually fix the biggest promises, right? You can inflate away a bond's purchasing power, but you can't inflate social security or Medicare obligations away because those go up with prices. They are what L Groman says are hard currencies, right?

24:20 They're hard assets. They go up with inflation. So the only way to shrink them is to change the deal. It's to cancel on people, which are things like retire later, right? Get less, wait longer for care, or have less people to worry about, right? In an emergency, people accept these kinds of things. And this isn't even a new idea. This has happened before. After World War II, US debt was 106% of the economy. It was just about where it is today. By 1974 though, it was magically 23%. How did they shrink their number? A big part of how they did that was they capped interest rates at 2 1/2%. So they paid their bond holders 2.5% but inflation went as high as 19%. So people who bought war bonds got paid in dollars worth a lot less. It was sold to them as the cost of winning the war. In 2020, rates were at 0%. Inflation went to 9%.

25:24 And the debt burden dropped again. But this time, conveniently, there was a pandemic. To explain it, right? Then of course, all of this sort of connects to agenda 2030 if you're paying attention. Because a crisis is the only time people accept a new system. That's when they accept big changes. They're open about this. In June 2020, Claus Schwab called the pandemic, quote, "a rare but narrow window of opportunity to reflect, reimagine, and reset our world." So, if you zoom out, it seems to look like the world's chest pieces already sort of lined up. They're put in place for something to happen. Whether that's an energy crisis, that one's already here.

26:04 It's already getting the blame for inflation. There's also AI, millions of people losing jobs, right? quantum computing, which is an attack on the whole financial system, getting ready to move everyone onto a 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 more about Agenda 2030, I made a whole video about it. And if you want to know how I'm preparing for all of this, you can watch those videos in the premium member section where I post a day early and I make extra content. It helps me make more videos like this one and take on fewer sponsors. So, thanks again for being a subscriber and I'd love to hear your thoughts and see you here next time. Take care.