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At the same time, the entire economy collapses because it is built on a foundation of debt that cannot be serviced. I think gold will have better and more stable growth . So that's what I would buy, you know, with my own money if I were getting out of tech stocks . It seems that gold is a much safer haven.
Look what happened to the price of gold. It didn't jump from 2,000 to over 5,000 per ounce in a year for no reason. And it was n't American speculators or investors who bought it. These were foreign central banks. Why do they do this? They refused the dollar. They are already doing it. Look at what is happening with the Bank of Japan now.
But China has already done this. Russia started doing this after the sanctions, but you know, countries are abandoning the US dollar, despite the fact that they could be getting 5% returns on Treasury bonds. They would rather own gold and not receive income than Treasury bonds with 5%. This says a lot about how concerned they are now about the US debt situation.
So for me, this is the most logical explanation. It's just long overdue. This should have happened a long time ago . The lenders should have put these facts together years ago, but they didn't . But now, finally, they are concerned about it. But I think we'll get it. I think gold will have better and more stable growth.
So that's what I would buy, you know, with my own money if I were getting out of tech stocks . It seems that gold is a much safer haven. Because gold is truly a safe haven from Treasury bonds. If Treasury bonds collapse , where will you go? You know, gold is the last safe haven left in such conditions.
Debt problems have finally caught up with us. We know it was inevitable. In fact, the Federal Reserve, whenever the chairman of the Fed was asked about our debt, he would say, "Well, the debt itself is not unsustainable, but the path we're on is ." And our leaders said the same thing : we can handle it now, but if we continue in this direction, we won't be able to.
I've always argued: if you admit that we're on an unsustainable path, how do you know when we're reaching the unsustainable limit? Because I think we're already there, and the markets are finally starting to understand it. So lenders will demand significantly higher interest rates to lend money to the US government or any US dollar borrower because of what Donald Trump just said the other day.
It seems like just last Friday Trump said that one of the benefits of inflation is that it reduces our debt very quickly. The real bad news is not where the rates are now, but where they are headed. Because they will be much higher. We already have the highest rates since 2002 as we speak. Five-year Treasury bonds are at 5.09 %, ten-year bonds are at 5.33%, and thirty-year bonds are at 5.69%.
These are the highest profitability indicators so far , but they will cease to be so tomorrow, and perhaps later today. But we will move on . People forget that we had a "bull " bond market, which meant falling yields for 40 years. The yield on 10-year Treasury bonds fell from 16% in 1981 to less than 1% in 2021.
You know, over the same period, a 30- year fixed-rate mortgage fell from 18% to 2 and 5/8%. Now this process has reversed. Mortgage rates are now above 7 and 1/2% and Treasury bonds are at 5.33%, but we are returning to those levels, perhaps even higher. But somewhere between now and that point, we're going to face complete economic collapse because we have too much debt to afford to pay that kind of interest.
I talked about this on my podcast, that we are in the fourth phase of our debt. The first was a period when we had low debt and low interest rates. And it was wonderful. We didn't borrow a lot of money, the government didn't run a deficit, people saved a lot , so we had low rates and not much debt. Then the debt began to grow rapidly in the 1970s and 1980s.
As a result, debt was still low in absolute terms, just not as low as before. But the bond market was worried about the accumulation of debt, so interest rates rose significantly, and we ended up with low debt and high interest rates. The high interest rates were acceptable because we didn't have such large debts that these rates were charged.
The next stage actually began with the 2008 financial crisis . The debt grew even more, but then interest rates collapsed. So, we had very large debts, but very low interest rates. And it was this combination that made the enormous debt seem manageable and acceptable. And that's what gave rise to all the arrogance of the last few decades about accumulating debt, because everyone said, "Well, we can afford it." This is not such a big problem.
Look, look how low the interest rates are. Well , now we are entering the fourth phase, which is characterized by high debt and high interest rates. Of course, we will have the highest debt levels in history, and perhaps even the highest interest rates at the same time. And that's why this whole economy is about to implode, because it's built on a foundation of debt that can't be serviced.
I just talked about this on my last podcast, but people underestimate how important housing was to the entire consumer economy. Because what provided consumers with significant purchasing power was not only the capital in growing real estate, but also the regular cash-out refinancing that Americans did for 40 years, when every few years you could refinance your mortgage, get cash for expenses, and at the same time reduce your monthly payment.
It was like a gift that never ended. This was a lifeline for the consumer, which has now been cut because refinancing is no longer available. Mortgage rates will only get higher and higher. And the only thing that can change is the price of housing, because what made expensive houses affordable was cheap mortgages.
This is just madness. The average is—I calculated the numbers myself last week. When the S&P was within 1% of its record high , about 430 stocks fell an average of 21.5% from their peaks. These 430 are about 86% of all shares. But at the same time, a full 60% of these companies fell by more than 20% on their own.
So, 60% of the S&P index is in an official " bear" market. Yes. So that's not even our entire US stock market . It's just our mega-tech stocks, whether it's Nvidia, you know, or Meta, or Alphabet, or Microsoft, or these multi-trillion dollar companies that are merging, and at this rate, things are going to get even more distorted.
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