The Global Debt Spiral Has Started
In a Nutshell
The global debt spiral is accelerating as governments worldwide—led by the US—face collapsing bond markets and interest costs exceeding $1 trillion annually, with the US borrowing $82,000 per second to service its $40 trillion share of the $365 trillion global debt. Central banks and governments are responding by pushing inflation to erode debt burdens, but this triggers higher bond yields (US 10-year at 24-year highs), mortgage rates above 7%, and a market where AI stocks mask a 5.4% decline in everything else. China stands apart with falling rates and tangible growth measured by quadrupled electricity production, while the US protects asset prices through bailouts, shifting losses to savers and taxpayers in a system where the top 10% own 67% of wealth and interest payments flow upward.
These notes were generated by AI and may contain inaccuracies.
The debt spiral has just begun and the bond market is now collapsing. This is happening all over the world, not just in the United States. The figures are largely driven by higher fuel costs due to the Iran war. Everything described, the financial and monetary recklessness, is something no other country could do.
"It's fun and wonderful as long as it lasts, but it makes you keep digging deeper until the consequences appear."
Currently, the world owes $365 trillion. The United States owes about $40 trillion of that, and it's growing by about $82,000 every second. The cost of interest alone now exceeds one trillion dollars annually. The obvious question then is: how will all this be paid for?
Two days ago, Trump shared his answer with the world. He told Time magazine, as quoted: "Certain levels of inflation will pay off this debt very quickly." So he is saying that the way to pay off this debt is through inflation, which simply means making the large number smaller. Governments have historically done this by printing more money. If that is the plan, it will also reduce savings and payroll numbers.
Now, the people who are lending all this money, i.e. the bond market, realize that this is a "Ponzi" scheme. So they say, "Okay, if you're going to do that to us, and get rid of the debt with inflation after you lend us your money, then pay us more." Because if inflation is going to be higher than what you're paying me, I won't buy your bonds. I will not lend you money. This is why the interest rate on 10-year debt has just reached its highest level since 2002. Britain's 30-year bonds have exceeded 6% for the first time since 1998. Japan's bonds have also reached an all-time high. Because of that, things like the U.S. housing market have slowed to levels not seen since 1995.
Last September, the U.S. government said, "Okay, folks, stop asking us for more money. Stop demanding a higher interest rate." That is why Treasury Secretary Scott Bessent challenged the bond market when he said: "I am the one in charge now. I have inconsistent information. I am the owner of the house now." He said, "Bet against me if you want." He's simply saying, "Okay, if you're going to sell our debt, I'll buy it all." Right? I'm not going to incentivize you with higher interest rates.
So, the bond market reacted, "Oh, you'll buy all our debt if we sell it?" Okay, we accept the bet. We sell. Scott wondered, "What do you mean? Is that right?" So, he began increasing his purchases of those bonds from 2 billion to 4 billion to 6 billion. The bond market responded, "Man, 6 billion? You are aware of the size of the bond market, aren't you? We're talking about trillions here. You would need much more money if you wanted to challenge us."
So, this is the dynamic that exists here. The market is betting against him. He is selling, and does not wish to buy new treasury bonds. As a result, interest rates are skyrocketing. Scott Bessent admitted, "You guys won. I can't put a price on equilibrium." Shortly after, of course, interest rates hit those highs we hadn't seen in 24 years.
Now, if you're saying, "Andre, I don't care about any of this. I don't own any bonds. This doesn't affect me." The truth is that we all pay the price for this, whether we own bonds or not. This is because the average mortgage rate is now around 7.3%, which means that borrowing money for everything has become more expensive. Also, companies are employing far fewer people than they used to. Partly because if you exclude AI companies from the stock market, everything else has fallen by more than 5% since August.
Look what's happening. So, here's the general state of the market. It looks quite stable, up 0.4% since its peak on August 24. But if you only look at AI-related and chip-related stocks, they are up 9%, which is not surprising. We all know what's going on there. If you exclude those from the index and look at everything else in the stock market, the market is actually down 5.4% in just over a month.
This situation with the bond market is happening all over the world in every advanced economy. Therefore, this debt problem exists everywhere. Except for one place. This place is China. In China, interest rates are falling. The question is why? If the whole world is in debt, who does it owe all this money to? If the world owes itself, why don't we just wave a magic wand and say, "Phew! Nobody owes anybody anything, right?"
Over the past year, the rate the US government pays to borrow for 10 years has gone up by more than a full percentage point, which might not seem like much, but it's huge. The same thing has happened in places like Japan, France, and South Korea, but in China, the rate has actually gone down. The Chinese government is borrowing for 10 years at just 1.7%. Whereas the US is paying more than 5%. How? And the explanation you'll hear about the reason for this is mostly oil. You say there's a war, oil is expensive, expensive oil means inflation, and inflation means lenders want more. But that doesn't fully explain it because China is the world's largest oil importer. It was hit by the same oil shock that everyone else experienced. If it were just about oil, China's rate would also be rising, but it isn't. So there must be something else to explain this.
Here's what that might be. It's two reasons. The first is in this chart here. This chart shows how much electricity each country produces. And it's one of the most reliable measures of real economic growth, by the way, because it's very difficult to fake a power plant. It's very easy to inflate what economists use to measure economies, which is called GDP. That's because the GDP of Western countries is underpinned by an illusion. The magic trick is that we move money around, but nothing productive is necessarily happening. True, a great example of this is the California high-speed train. Billions of dollars have been spent on consultants, lawyers, and environmental agencies, and yet there's still no train. But the money hands were exchanged. So we say: "Look, our country's GDP is rising. We are highly productive."
For this reason, if you really want to measure a country's true growth and productivity, it's best to measure something tangible, which is the amount of energy it consumes. This also applies to China, because no one fully trusts its GDP figures either. But since 2005, the electricity production line in the United States has remained essentially stable. In China, however, this production has more than quadrupled. Now, part of that is due to the United States becoming more efficient and moving its factories overseas, but most of it is because China spent 20 years borrowing money to build things, while much of what the United States borrowed went to finance wars and bank bailouts.
The second major reason behind the low interest rates in China relates to how they think about money. Specifically, their relationship with their housing market. In 2016, Xi Jinping said that homes are for living, not for speculation. In 2020, China enforced this rule by placing strict limits on the amount of money that property developers can borrow. Their country's largest real estate developer, called "Evergrande," has defaulted on its debts. It was eventually liquidated. House prices have fallen dramatically, and the Chinese government has allowed this to happen. And now, China has also wasted a lot of money. Much of that money went to apartments that no one lived in. But that's the difference, isn't it?
In the United States, when the housing sector collapses, the entire system gets a bailout. It is necessary. After 2008, the Federal Reserve bought more than $1 trillion in mortgage-backed securities. And in 2020, he did it again. And now, with mortgage rates above 7%, U.S. home prices are still magically higher than they were a year ago. How? Because housing in the United States is the collateral that forms the basis of the entire banking system. For this reason, regardless of who is in charge, they will not allow it to collapse. When something has to be sacrificed, the United States protects investors and lets the dollar bear the consequences. This causes swelling. It harms people such as savers and bondholders. This means higher interest rates. For about a decade, this was mainly reflected in house and stock prices, but since 2020, it has started to appear in the prices of everything.
But in China, it's a completely different story. China does not bail out its investors. Instead, assets are allowed to decline. The people who are harmed are those they call speculators, such as real estate developers and people who bought a second and third apartment as an investment. That's the difference. To be fair, Chinese savers can't even move their money out of the country, so much of it ends up in their government's bonds anyway, whether they like it or not. But the takeaway is that the United States really likes to bail out asset prices. So, when we print money, that money accumulates in homes and stocks, and consequently asset prices rise, and then inflation, and rates rise to compensate.
In previous videos, I showed you how the same story is told differently depending on where you read it. But there is a bigger problem, which is the stories you will never see. Every day, the media decides what to publish and what to ignore, and much of that comes down to what their audience wants to hear. And this is where our sponsor today, Ground News, comes in. Ground News is an application that shows you the same story from hundreds of sources, and tells you which ones lean left, right or center, along with details of their ownership and an assessment of their accuracy. They have a feature called "Blind Spot," which shows you stories that are barely covered by one side of the political spectrum.
Here's what's on it now. First, stories with little or no coverage from the left. A report indicates that an American college inadvertently contributed to enhancing Chinese surveillance. It was covered by 23 sources, 55% of which lean to the right, 40% to the center, and only 5% lean to the left. So, if most of your news comes from left-leaning outlets, there's a good chance you've never heard of them. Now, reverse it. Stories with little or no coverage from the right. Zambia says it will sign a $3.6 billion health deal with the United States after removing patient data clauses. It was covered by 25 sources, 56% leaning to the left, and only 17% leaning to the right. So, two stories, both involving the United States, and what people saw depends on the bubble they live in. You cannot form an opinion about a story that has never been presented to you. This is what makes the "blind spot" visible. I use Ground News when searching for these videos to check what I might be missing, not just how the story is told. If you want to see the full picture of world events and not just one side, go to ground.news/jic or click on the link below. You will get a 40% discount on the Vantage plan, which is the plan I use, and you will also be supporting independent journalism and this channel.
So, here's what happens in the end. By the way, this was actually written down. On June 26, 2016, three days after the Brexit vote, Jeffrey Epstein sent an email to Peter Thiel. He said, and I quote: "You and I agreed that zero interest rates were too high. And as I told you in your office, finding things that are going to break down is much easier than finding the next winning deal." In the same letter, he wrote: "Brexit is just the beginning." Thiel asked him, "The beginning of what?" Epstein replied: "A return to tribalism, anti-globalization, and amazing new alliances." And now I know the answer. Every major crisis is an opportunity for someone, and it is far more effective than trying to find a good deal right now. The largest banks emerged from the 2008 crisis larger than they had been before, despite the crisis. Therefore, every way out of these spirals ends with the same result. Wealth moves upwards.
What you are looking at is a graph that compiles all the debt in the United States, such as the debt of governments, corporations, banks, and households. Today, this total represents 370% of the size of the economy. Twenty years ago, it was 368%. So, the total size of the debt in the United States has not changed substantially over 20 years. What has actually changed is who bears these debts. If you look at 2008, the orange line represents the private sector. After the financial crisis, this line began to decline. The blue line represents the government side, and from that exact moment, it began to rise directly. So, the debts never disappeared. The debt has simply been transferred to the government, and the government is you, because you are the one who pays the taxes.
Okay, here's the second graph. It shows who is paying the price for this now. The blue line represents what the government pays in interest as a share of the economy. This number has doubled in 4 years. It is now at its highest level in more than 60 years. The orange line represents large companies. Their share is the lowest since 1962. So, the public is paying record amounts of interest, while large corporations are paying their lowest amount in 60 years. Using Simon Dixon's framework, you can now see that money is being stolen. It is concentrated in the financial industrial complex, which of course includes the largest banks, asset managers such as BlackRock, Vanguard, and State Street, and the people at the top who own the most assets. So, when they win, they keep the profits, and when they lose, those losses are transferred to the government, i.e., the public, which is all of us. This is what you are looking at in this graph.
Well, the question here is: to whom exactly is all this money being paid? Some believe that the United States owes money to China, but China owns less than 2%. About three-quarters of the US government debt is owed to entities within the United States. It's your retirement account, your pension fund, and what your bank does with your money. It's social security. That is why no one can wave a magic wand to abolish religion, because the people we will abolish religion for are ourselves. Even this is not technically equal. The richest 10% of Americans own 67% of the total wealth in this country. While the poorest half owns only 2.6%. The wealthier you are, the more likely you are to own those bonds, which means that interest is not just a cost, but also a payment, and it comes from your taxes, which everyone pays of course, and goes to whoever owns the majority of the bonds. Therefore, they do not cancel the debt, nor can they do so, nor can they repay it. And so we are now facing what is called a debt spiral. This is the situation where the state is forced to use a credit card to pay off another credit card.
What makes it worse is, of course, the interest rate. This is the current situation of the US government. It spends over a trillion dollars annually on interest alone. It borrows about two trillion dollars a year. Therefore, a large portion of the new borrowing goes towards paying off the interest on the old borrowing. The situation is made worse because the government does not borrow the entire amount at once. Its debts are constantly due for repayment, and it must be borrowed again. More than $8 trillion of that debt is due to be repaid next year. Currently, the government is still paying less than 4% on average because much of that debt came from a time when rates were low. But the cost of the new debt is about 5%. So, every month, cheap old debts are replaced by expensive new debts. Luke Gruman of FTTB says that once everything is reset, the interest bill will reach approximately $2 trillion annually. This equates to about 40 cents of every dollar the government collects in taxes.
Unfortunately, raising interest rates will not solve this problem. If inflation is caused by oil or by war, interest rates will not fix it. Raising interest rates does not lead to increased oil production. In fact, the Speaker of the Iranian Parliament mentioned this in a post that garnered millions of views. He said: "Let's see if raising interest rates will open the Strait of Hormuz or produce a single barrel." You cannot solve a bottleneck problem with 25 basis points. That is, you cannot fix a closed shipping lane by raising interest rates. Now, when the Federal Reserve raises those rates, the one that suffers the most is the government, which is of course you.
So, there are two ways out of this situation. Either keep prices high, meaning pay more interest to asset holders and the government incurs higher costs, or lower prices and print more money, which drives up the prices of homes and stocks, which is great if you own them, but not so great if you don't, right? And if everything collapses for some reason, it is the people who have liquidity and access to cheap money who will buy what everyone else will be forced to sell.
Well, if the debt cannot be cancelled and will not be repaid, will the situation continue to slowly deteriorate or will something actually collapse? And if that happens, when will it happen? And what will this look like to everyone? So, let's look at some of the fun aspects and guess a little about what this situation might look like. I want to show you a tweet from someone who has spent 30 years trading US interest rates. I would just like to say that I cannot verify all of this, but his logic seems very logical, especially to the many intelligent macroeconomists who suspect that he may be right. But his answer is: "Yes, this will collapse, and probably very soon." The interest rate for a 30-year term is currently 5.6%. He says we will soon see 6%, maybe 7%, and within the next six months, we will find out what a Treasury bond market crash looks like. He compares our situation today to that of the Federal Reserve in September 2007, one year before the 2008 crash.
His entire argument boils down to the idea of a so-called "pivot point." So, think about the swing. That's right, the fulcrum is the central point on which almost everything is balanced. Now, in the financial system, this point is the U.S. Treasury bond market, or what is known as the bond market. Every loan, every mortgage, and indeed every stock price, depends on it. His rule as a trader is to never tamper with this pivot point. But we did it. Here's what happened. The way the system has worked since 2009 is that the official inflation figure has been around 3%. He believes the true figure today is closer to 8%. Now, if the bonds pay you 5% and real inflation is 8%, then the giant corporation is effectively borrowing money at -3%. So, they are essentially getting money in exchange for borrowing money. What they do is borrow money, then buy back their shares, so the profits per share increase, and the share price also increases. He says, "This actually answers an impossible question." That question is: How is the U.S. stock market worth more than all the other markets in the world combined, especially with China catching up in many technologies? His answer is: The United States got cheap money by relying on the bond market, which was effectively backed by the most stable and robust asset in the world, real estate. So, the bond market supports everything. Who was supporting the bond market? For a long time, it was China. But China now holds less than half the Treasury bonds it held at its peak.
He says, "We've seen this before." In the first decade of the millennium, money leaked out of the market where banks were lending to each other, and in 2008, that market burst. He believes the Treasury market has been on the same trajectory since 2017. He then says, "They've messed with the pivot point." Last January, with the government borrowing about $2 trillion a year and the economy running strong, the administration forced Fannie Mae and Freddie Mac to buy $200 billion in mortgage-backed securities, which it says was to lower those rates before the midterm elections. Mortgage rates have fallen below 6%. His claim is that major buyers rushed to buy without protecting themselves. This has pushed long-term rates down more than they should have been. Well, then the Iran war broke out, oil prices rose, and things began to fall apart. Everything since then, such as the buybacks and Scott Bessent saying he represents the organization, he says: "It delayed it, but it didn't change the course." So, these are his expectations. 30-year bonds are currently at 5.6%. The figure could soon reach 6%, and possibly 7%, he says: "In 6 months, we may discover what the Treasury market will look like when it collapses." That's right, he's comparing it again to September 2007, a year before the collapse.
Now, how bad would that be, and would it really happen? I don't know, but it seems that every major financial crisis is an opportunity for someone. This is interesting because there is a post from an anonymous account claiming to be from inside the Bank of Japan. Well, no one has confirmed this, but what was said recently is, to quote: "If we could delay the collapse of the current economic system to coincide with a global catastrophe, how appropriate would that be?" Artificial intelligence, quantum computing, the energy crisis - choose one. This looks ominous. What does that mean, and why would anyone want to do that? Here's a possible answer. Let's conduct a thought experiment. Again, this is purely hypothetical and we will exaggerate a little in this proposition.
Imagine you are one of the powerful central planners. You know that nothing works, don't you? Social Security, Medicare, Medicaid, Veterans' Benefits, and interest payments together cost more than every dollar the government makes. And you know that the way out of that is inflation, right? More money was printed because the president essentially admitted it. And you know what the problem is with that. Inflation will take money away from all the people who have saved money. Isn't that so? If people see that you are doing this deliberately, they will be angry. They will revolt. So, here's the first thing a disaster might do for you. The reason you might want it to happen is that it turns this robbery into a rescue operation. Isn't that so? Because printing money to erase your debts is stealing from savers. But if you print that money in the middle of a disaster, well, that's doing what's necessary to save people. Isn't that so?
The second reason you might want to do that and link it to an event is that inflation doesn't actually fulfill the biggest promises. Isn't that so? You can reduce the purchasing power of bonds with inflation, but you cannot reduce Social Security or Medicare obligations because they rise with prices. It's what Luke Gruman calls hard currency, isn't it? These are difficult assets. It rises with inflation. Therefore, the only way to reduce it is to change the agreement. Abandoning people, like retiring later, right? Get smaller amounts. Longer wait to receive care. Or perhaps there are fewer people to worry about, right? In emergency situations, people accept such things. This isn't even a new idea. This has happened before. After World War II, the United States' debt reached 106% of its economy. The ratio was roughly the same as it is today. But by 1974, it had magically become 23%. How did they reduce that number? A large part of how they do this is by setting interest rates at 2.5%. So, they paid bondholders 2.5% while inflation reached 19%. Thus, those who
Those who bought war bonds received money of much less value. It was marketed to them as the cost of winning the war.
In 2020, interest rates were at 0%. Inflation rose to 9% and the debt burden fell again, but this time there was a pandemic to justify it.
All of this is related to the 2030 Agenda if you've been paying attention. Because crises are the only time when people accept a new system. That is the time when they accept major changes. They speak openly about this.
In June 2020, Klaus Schwab described the pandemic as "a rare but narrow window of opportunity to reflect, reimagine and reset our world."
If you look at the bigger picture, it appears that the world's chess pieces are already aligned. It was placed in its position, waiting for something to happen.
Whether it's an energy crisis or not, that one already exists. She is indeed to blame for the current inflation. There's also artificial intelligence, and millions of people losing their jobs, isn't there?
Quantum computing is an attack on the entire financial system, in preparation for moving everyone to a new digital currency with a new digital identity, which is one of their goals by 2030.
If you want to know more about this and the 2030 Agenda, I made a whole video about it. If you want to know how I prepare for all of this, you can watch those videos in the premium members section where I post a day in advance and create additional content. This helps me make more videos like this and reduce the number of sponsors.
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