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In the turbulent intersection of global economics and politics, George Karahalios, a successful real estate investor and contributing editor to Marc Faber’s The Gloom Boom and Doom Report, warns that it’s no longer politicians or central bankers who hold the ultimate power—it’s the bond market. Here’s what he had to say in a recent discussion on the Financial Sense Newshour with Jim Puplava.

The Illusion of Free Markets

Karahalios starts with a bold claim: “We don’t live in free markets. We live in an illusion of free markets.” He traces this back to 1971, when Nixon severed the dollar’s tie to gold, unleashing the Federal Reserve’s ability to print money without immediate consequences. This, combined with America’s push for global democracy and capitalism, set the stage for today’s imbalances. “We used our reserve currency status to our advantage,” he says, but it backfired. Institutions like the IMF and World Bank, meant to lift the world, enabled China’s rise after it pegged its yuan to the dollar in 1995. This peg allowed China to subsidize manufacturing, siphon U.S. jobs, and recycle trade surpluses into American assets, inflating markets while suppressing Treasury yields. Puplava nods to Ross Perot’s “giant sucking sound,” noting how manufacturing and intellectual property flowed East, leaving America’s middle class hollowed out.

China’s Peg and the Fed’s Blind Spot

The 1995 currency peg was a game-changer, Karahalios argues, because it shielded the Fed from the fallout of money printing. Normally, excessive liquidity weakens the dollar, but China’s peg meant they’d buy U.S. debt, keeping yields low and asset prices high. “The Fed was effectively controlling both ends of the curve,” he explains, meaning short- and long-term interest rates. This fueled false booms—tech in 2000, housing in 2008, and government spending in 2020—while debt-to-GDP soared from 30% under Reagan to 120% today. The Fed’s narrow focus on its dual mandate (price stability and employment) ignored the bigger picture: a ballooning national debt and a shrinking middle class. “The Fed should have told Congress to fix its spending problem,” Karahalios laments, warning that total government spending now exceeds 40% of the economy, edging toward a command-and-control system far from the Founding Fathers’ vision.

Trump’s Populism: A Double-Edged Sword

Enter Donald Trump, the populist president Karahalios likens to “Dr. Frankentrump,” a mad scientist tackling global trade imbalances. In his Dear Lollipop article for Marc Faber’s newsletter, Karahalios uses a Socratic dialogue between Trump and the bond market to highlight the stakes. Trump’s aggressive tariff plan, initially echoing McKinley’s 1890s policies that led to the Panic of 1893, rattled markets. But when yields spiked on “Liquidation Day,” April 2, Trump pivoted, scaling tariffs to 10% for allies and 30% for China. “To Trump’s credit, when those yields rose to near 4.5%, he relegated Navarro to the back room,” Karahalios notes, praising Trump’s responsiveness. Yet, he critiques Trump’s brash style—threatening to annex Canada or buy Greenland—which stokes nationalism and alienates allies. “I wish he’d enlisted allies to join the fight rather than demonize them,” he says, suggesting a Mar-a-Lago accord to gradually devalue the dollar could restore balance.

The Bond Market’s Veto Power

Karahalios and Puplava agree: the bond market holds the reins. With $7 trillion in debt maturing at higher rates, interest costs could hit $1.4 trillion this year. “The bond market is going to have a lot more say with any American president,” Puplava warns, citing the UK’s Liz Truss, ousted after a bond market revolt. Karahalios sees rising 10-year yields (near 4.5%) as a sign of skepticism—perhaps over Trump’s spending cuts, tariff disruptions, or a fading Pax Americana. “Are yields rising because the market senses the era of the U.S. dollar as reserve currency is winding down?” he asks. Foreigners selling U.S. assets or central banks hoarding gold (like China) signal a multipolar world where the dollar’s dominance wanes. This shift, Karahalios warns, could be chaotic, as a rapidly weakening dollar might destabilize global debt markets.

Gold, Real Estate, and a Stock Picker’s Market

What’s an investor to do? Karahalios sees gold as a hedge, though not a screaming buy at $3,200 an ounce. “It’s not grossly undervalued anymore,” he says, noting the gold-to-Dow ratio (13:1) is near historical norms. Still, gold could spike if markets falter, especially as central banks diversify away from dollars. In real estate, his bread and butter, he’s cautious. Multifamily residential properties, once trading at 4-5% cap rates, are falling to 6% as loans roll over at 7%. “It seemed like it was going to levitate forever, and it did, until it didn’t,” he quips, drawing parallels to the stock market’s lofty 22-25 P/E ratios. If tariffs spark a slowdown, bond yields might dip, tempting the Fed to ease, but a bond market rebellion could force yield curve controls, ushering in volatility. “This will put an end to passive investing and make it a stock picker’s market,” he predicts, echoing Puplava’s call for active management and commodities.

A Chaotic Transition Ahead

Karahalios paints a world at a tipping point, where unsustainable debt, trade wars, and a rebellious bond market force a reckoning. Trump’s real-world experience—lobbying politicians, surviving bankruptcy—gives him an edge, but the task is Herculean. “The plan is to inflate our way out of it,” Karahalios says of the $37 trillion debt, but a smooth dollar devaluation is tricky. Puplava ties this to Neil Howe’s Fourth Turning, where institutions crumble, and new ones emerge. Will Trump’s reforms spark a Reagan-like revival, or will missteps lead to a crisis? “We’ve got a front-row seat in the theater,” Karahalios says, urging vigilance.

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