Disorder Will Come – As Confucius Warned

With incessant deficit spending, governments must finance the new debt at virtually no cost to avoid default. That is why we are seeing $18 trillion of negative-yielding government bonds with no Western borrower paying above 2% for any maturity.

How absurd rates are is reflected by for example Greek versus US rates for 30-year bonds. Greece just launched a 30 year massively oversubscribed bond issue at 1.95%. For comparison, US 30% year bonds yield 2.36%. Both these borrowers are virtually bankrupt but it is absurd that a very financially weak Greece can borrow at a lower rate than the US.

So the government bond market is the biggest bubble of them all. That won’t stop it from expanding further.

Just take the US. When Trump was elected in November 2016, US debt was $20 trillion. Based on history I forecast that it would reach $28t in January 2021 and $40t in 2025. At the time most market observers found this forecast preposterous but sadly they hadn’t studied history which told us what would happen.

US GOVERNMENT DEBT $50 TRILLION IN 2025

Based on the current situation of the US economy and the forecasted deficits and credit expansion, $40 trillion in 2025 is too low and we are now looking at a US debt of $50t.

Remember that when Reagan took over in 1981, US debt was under $1t. So 44 years later the debt is forecast at $50t in 2025. That is an astounding compound annual growth rate of 28% of US debt between 1981 and 2025. And this figure doesn’t include potential defaults in credit or derivative markets which could increase the $50t exponentially. Total US debt of $84 trillion can never be repaid and nor can it be serviced at non-manipulated market rates.

When bubbles burst, the domino effect is incalculable. In addition to debt default of $10s of trillions, derivative defaults, which are very likely, could add $100 of trillions and more.

I am sure that the Fed and other central banks are already cranking up the printing presses or expanding the memory of their computers to cope with all the additional zeros.

HYPERINFLATION IS A CURRENCY EVENT

There are a number of respected market observers who believe that we will not see high inflation or hyperinflation. In their analysis, they conveniently avoid the currency effect.

As I point out regularly, every single event of hyperinflation in history has arisen as a result of the currency collapsing. It is not the increase in demand for goods and services, nor the central bank interest rate policy that causes hyperinflation.

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