Guest Post by Chris MacIntosh
While on the topic of US Treasuries and debt, it’s worth reminding ourselves that ultimately every debt crisis ends the same way.
Debt gets monetised, the currency gets debased, and creditors — who aren’t stupid — demand higher rates to compensate for debasement they can see coming from a mile off.
Higher rates mean a bigger interest bill. A bigger interest bill means more monetisation.
It’s hard to reverse that trend, especially once it’s been underway for years.
This is not me with some crystal balls (I assure you, neither are crystal) giving you a forecast. It’s just arithmetic, and the arithmetic is already showing up in the auction results.
The US Treasury sold 30-year bonds at the highest auction yield since 2007. The 30-year itself is back above 5.00% and heading the wrong way fast. Back in early 2022 the same maturity was pricing at roughly 2.00%. In under four years, and the government’s long-end borrowing cost has more than doubled.
On a debt pile north of $40 trillion, every basis point compounds into real money that has to come from somewhere. That somewhere is new issuance, monetised by a central bank that’s the buyer of last resort now that foreign demand has been thinning out for the better part of a decade.
There’s a second force piling on top: the AI surveillance-state buildout.
Hyperscalers are flooding the corporate bond market to fund chips and data centres, competing directly with the Treasury for the same pool of long-duration money. Uncle Sam isn’t just fighting his own deficit any more. He’s fighting Big Tech’s capex cycle for buyers.
Having two enormous borrowers chasing a shrinking pool of long-term lenders is a recipe for structurally higher rates, not the kind of blip that fixes itself once “supply normalises.”
And it’s not just America…
Japan’s staring down its own debt wall with a lot less room to move — a central bank pinned to the zero bound for a generation, a currency that’s been bleeding for years, a bond market that can’t tolerate real rate rises without the interest bill eating the budget alive.
When Japanese yields rise, the JGB market — the world’s second-largest sovereign bond market, and the funding engine behind the global carry trade — can only be refinanced by the Bank of Japan printing to soak it up. That’s currency devaluation with a different label, coming from one of the three central banks that actually moves global liquidity.
Sovereign debt can only be serviced through money creation, which debases the currency.
This debasement forces higher yields.
Higher yields raise the bill, and a bigger bill forces more printing.
There’s no version of that loop that ends with a stronger currency.
The only open question is who breaks first… and gold doesn’t need that question answered to know how to price itself in the meantime.
Zoom out to debt-to-GDP and it gets worse. Official projections show US federal debt climbing from roughly 126% of GDP today to 175% by 2056… and that’s the government’s own number, from an institution with an unbroken track record of underestimating exactly this kind of problem.
It’s worth noting that every prior version of this forecast has been revised upward. I see no reason this one breaks that trend.
We’re already back at the peak reached during the Second World War, when the US was financing a war on two fronts. Except this time there’s no victory on the horizon — just multiple ongoing conflicts (Russia, Iran), an ageing population, a welfare and entitlement state that dwarfs anything that existed in 1946, and a structural deficit that persists whether times are good or bad.
The 1946 spike had an ending: the war stopped, the economy grew, and the ratio came down over thirty years. This one doesn’t have an ending in sight, because the drivers — military spending, Social Security, Medicare, interest on the debt itself — don’t stop. They simply compound.
And 175% is the on-balance-sheet debt only. It doesn’t account for the roughly $100 trillion in unfunded Social Security and Medicare liabilities — promises made with no funding mechanism attached. Bring those onto a present-value basis and the real number makes 175% look quaint.
And yet Treasuries remain the reserve asset of the entire global financial system.
Every pension fund, every central bank, every bank balance sheet on the planet still treats the 30-year as the risk-free rate everything else gets priced off. That’s the actual contradiction underneath all the auction data above: the market’s demanding 5% to lend to a government whose own trajectory shows debt-to-GDP nearly doubling over three decades, while everyone keeps calling that same government’s paper “riskless.”
Those two things cannot both be true forever. Something gives.
Either yields keep rising until something breaks… or the currency gets debased to make the debt serviceable (or, more likely, both).
Gold is getting repriced upwards as a result of all this, and it’s clear those sneaky Chinese have figured it out as well. Good for them!
Editor’s Note: The bond market is starting to price in the consequences of America’s debt problem. If the government responds with more money creation, the pressure on the dollar could intensify—and that is exactly the kind of environment where gold has historically mattered most.
In this free video, legendary investor Doug Casey explains why he believes gold remains one of the most important assets to own as the financial system comes under strain—and why most investors still misunderstand what is happening.
Click here to watch Doug Casey’s free gold video.
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[ H/T The Burning Platform ]
While on the topic of US Treasuries and debt, it’s worth reminding ourselves that ultimately every debt crisis ends the same way.
Debt gets monetised, the currency gets debased, and creditors — who aren’t stupid — demand higher rates to compensate for debasement they can see coming from a mile off.
Higher rates mean a bigger interest bill. A bigger interest bill means more monetisation.
It’s hard to reverse that trend, especially once it’s been underway for years.
This is not me with some crystal balls (I assure you, neither are crystal) giving you a forecast. It’s just arithmetic, and the arithmetic is already showing up in the auction results.
US Debt: Getting Repriced
The US Treasury sold 30-year bonds at the highest auction yield since 2007. The 30-year itself is back above 5.00% and heading the wrong way fast. Back in early 2022 the same maturity was pricing at roughly 2.00%. In under four years, and the government’s long-end borrowing cost has more than doubled.
On a debt pile north of $40 trillion, every basis point compounds into real money that has to come from somewhere. That somewhere is new issuance, monetised by a central bank that’s the buyer of last resort now that foreign demand has been thinning out for the better part of a decade.
There’s a second force piling on top: the AI surveillance-state buildout.
Hyperscalers are flooding the corporate bond market to fund chips and data centres, competing directly with the Treasury for the same pool of long-duration money. Uncle Sam isn’t just fighting his own deficit any more. He’s fighting Big Tech’s capex cycle for buyers.
Having two enormous borrowers chasing a shrinking pool of long-term lenders is a recipe for structurally higher rates, not the kind of blip that fixes itself once “supply normalises.”
And it’s not just America…
Japan’s staring down its own debt wall with a lot less room to move — a central bank pinned to the zero bound for a generation, a currency that’s been bleeding for years, a bond market that can’t tolerate real rate rises without the interest bill eating the budget alive.
When Japanese yields rise, the JGB market — the world’s second-largest sovereign bond market, and the funding engine behind the global carry trade — can only be refinanced by the Bank of Japan printing to soak it up. That’s currency devaluation with a different label, coming from one of the three central banks that actually moves global liquidity.
Sovereign debt can only be serviced through money creation, which debases the currency.
This debasement forces higher yields.
Higher yields raise the bill, and a bigger bill forces more printing.
There’s no version of that loop that ends with a stronger currency.
The only open question is who breaks first… and gold doesn’t need that question answered to know how to price itself in the meantime.
Not Getting Any Better!
Zoom out to debt-to-GDP and it gets worse. Official projections show US federal debt climbing from roughly 126% of GDP today to 175% by 2056… and that’s the government’s own number, from an institution with an unbroken track record of underestimating exactly this kind of problem.
It’s worth noting that every prior version of this forecast has been revised upward. I see no reason this one breaks that trend.
We’re already back at the peak reached during the Second World War, when the US was financing a war on two fronts. Except this time there’s no victory on the horizon — just multiple ongoing conflicts (Russia, Iran), an ageing population, a welfare and entitlement state that dwarfs anything that existed in 1946, and a structural deficit that persists whether times are good or bad.
The 1946 spike had an ending: the war stopped, the economy grew, and the ratio came down over thirty years. This one doesn’t have an ending in sight, because the drivers — military spending, Social Security, Medicare, interest on the debt itself — don’t stop. They simply compound.
And 175% is the on-balance-sheet debt only. It doesn’t account for the roughly $100 trillion in unfunded Social Security and Medicare liabilities — promises made with no funding mechanism attached. Bring those onto a present-value basis and the real number makes 175% look quaint.
And yet Treasuries remain the reserve asset of the entire global financial system.
Every pension fund, every central bank, every bank balance sheet on the planet still treats the 30-year as the risk-free rate everything else gets priced off. That’s the actual contradiction underneath all the auction data above: the market’s demanding 5% to lend to a government whose own trajectory shows debt-to-GDP nearly doubling over three decades, while everyone keeps calling that same government’s paper “riskless.”
Those two things cannot both be true forever. Something gives.
Either yields keep rising until something breaks… or the currency gets debased to make the debt serviceable (or, more likely, both).
Gold is getting repriced upwards as a result of all this, and it’s clear those sneaky Chinese have figured it out as well. Good for them!
Editor’s Note: The bond market is starting to price in the consequences of America’s debt problem. If the government responds with more money creation, the pressure on the dollar could intensify—and that is exactly the kind of environment where gold has historically mattered most.
In this free video, legendary investor Doug Casey explains why he believes gold remains one of the most important assets to own as the financial system comes under strain—and why most investors still misunderstand what is happening.
Click here to watch Doug Casey’s free gold video.
Tweet
Continue reading...
[ H/T The Burning Platform ]
