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So, in the meantime, you know, get your finances in order. That's exactly what I do. My plan "B" starts with my investment portfolio. Before I physically leave the country, my investments are already leaving. And, you know, make sure you have gold and silver. Uh, and make sure you have your T-gold account.
Make sure that all your financial affairs are in order. Uh, so that when you start implementing Plan B, it is effective. And then prices will really skyrocket. But the reserve is actually intended for emergencies. For example, when we have no oil at all. And the only way to get it is from the Strategic Reserve.
It's not about the price. Biden abused reserves for political gain back in 2022, as we approached the midterm elections. And I was very critical of it, as were other Republicans. We were like, "Hey, this is, you know, Biden just trying to do this to get votes in the midterm elections." Well, Trump is doing the same thing.
But what we really need to do now Veteran economist Peter Schiff, chief economist at Euro Pacific Asset Management, warns that the financial system could face increasing stress due to this debt cycle. According to Schiff, the government will have to spend an increasing portion of its revenues just to pay interest on the national debt as long as interest rates remain high.
However, a prolonged deficit forces Washington to take on new debt, which fuels a vicious cycle: rising debt raises interest rates, which in turn encourages more borrowing. In addition, Schiff warns: as investors demand higher rewards for holding US government debt, rising Treasury yields could significantly weigh on stocks, bonds and the entire economy.
Huge deficits, rising borrowing rates and persistent inflation could eventually reveal more serious flaws in the banking system, Schiff believes. As these factors develop, he believes investors should closely monitor Treasury yields , the U.S. dollar, gold and rising government debt values. more information .
I spoke not only about the rise in rates, but also that this rise will continue. And today it continued. In fact, the worst part was the auction of 5-year US Treasury bonds. Which were placed at auction at 5.03%. So , over 5% is the highest yield on 5- year Treasury bonds in just over 20 years. In fact, if you look at the yield curve right now, all maturities have made new highs today.
30-year bonds rose to 5.41. This is a 22-year high for 30-year bonds. The 10-year old reached a new 19- year high at 5.12. You know, the interesting thing is that the yield curve has flattened between the 10- year and the 30-year. I think it will change to the opposite. Because a few months ago the spread was around 50 basis points.
Now it is just under 30 basis points. I think the spread should move in the other direction. I think the yield on 30-year bonds should be even higher. Because you are taking on 20 additional years of inflation risk. I wouldn't want to borrow money from the government for 30 years and only get 29 basis points more than I would in 10 years .
Because if rates rise sharply, the loss on 30- year Treasury bonds will be much greater than on 10-year ones. Because you will have to bear these losses for another 20 years. So the present value will reflect that. So, in my opinion, a good trade right now would be to go short the 30- year and buy the 10- year.
Because I think that this spread will widen to at least 50 basis points, if not 60 or 70. But anyway, the two-year Treasury is now a little bit above 4.9, I think 4.91. So, we're almost at 5% for two-year bonds. And the three-month and six-month ones are still lower. Three-month—4.12 , six-month—4.33, and one-year—4.43.
But I think if we are in for a few more rate hikes, and the markets are expecting that to be the case. So by next year, the entire yield curve from three months to 30 years could be at 5% or higher. In fact, when one-years hit 5%, 30-years will likely be well above 6%, maybe even 7%. By the way, about 7%: mortgage rates are already higher than 7% and continue to rise .
But think about 5%, because 5% is not that high a rate. But if the US government has to pay 5% on the national debt, on the entire national debt. Because as these bonds mature, they need to be refinanced. If the average rate on the $40 trillion national debt is 5%, that means $2 trillion in annual interest payments.
This is 35% of current tax revenues. Moreover, this is several hundred billion more than we spend on social security. So, if we had to pay 5% of the $40 trillion national debt. And , of course, by next year, if rates are 5%, the national debt will be 42 or 43 trillion. So the number will be even worse.
But if you look at 40 trillion at 5%, which gives 2 trillion, then this alone makes interest on the national debt the largest item of expenditure in the budget, more expensive than social security, and that's 35% of tax revenues. This is a disaster that is about to happen. And the worst news is that it won't stop there, because the national debt will continue to grow as we add over 3 trillion in debt every year.
But with rising interest rates, this will put severe pressure on the economy and undermine tax revenues. Tax revenues that would otherwise be needed not only to pay bills but also to pay interest on the national debt. I do n't know when the markets will finally realize reality. I think it's still a matter of disbelief .
I think investors in the stock market look at these returns and still assume that this must be a peak. He said, " We won't go any higher than this ." At some point, they will have to accept not only that rates will not go down, but that they will continue to rise. And I keep hearing the same arguments.
I mentioned this on the podcast: people dismiss rising bond yields, citing the fact that 19 years ago we had the same high rates and the stock market was going up. Well, you know, not exactly, because it collapsed in 2008 largely because yields were rising. So you can't say that everything was fine 19 years ago , because that was just before the 2008 financial crisis .
But they point out that the economy was able to withstand these rates, as was the stock market, so now we supposedly shouldn't have a problem with it . And I already discussed in a previous podcast how different circumstances are now, not only because we have much more debt than we did then, but also because of the trend itself.
We are no longer in a “bull” bond market where yields are falling. We are in a major bear market where yields are rising. It's one thing when you pay 5% during a downturn and get relief. And it's completely different when it's 5% during growth, and the situation will only get worse. The U.S. government bond market is under immense pressure as Treasury bond rates across all maturities have risen to levels not seen in decades.
The 5-year Treasury yield recently hit 5%, the highest level in more than two decades. Because stocks were able to perform in similar interest rate environments over twenty years ago, some on Wall Street argue that markets can absorb these higher returns . However, there is one significant difference.
The 2008 financial crisis marked the end of that era. The US now has much more debt, making managing rising interest rates much more expensive. Government interest payments can rise rapidly when a country has to refinance large amounts of debt at a time when borrowing costs are rising. At the same time, the difference between the yields on 10-year and 30-year Treasury bonds has narrowed to less than 30 basis points, demonstrating how closely long-term borrowing costs are moving.
Now let 's go back and listen to his further words. One of the things that Warsh keeps repeating is that inflation expectations remain firmly anchored at 2%. Well, at McDonald's they're definitely not fixed at 2% . The people who run McDonald's don't think inflation will return to 2%. They agree that it will be much higher than this figure for many, many years.
Not just a year or two, but many more years. I have no idea how many he means , but it's probably a lot more than two or three, because he could have said "a few years," right? "A couple" would mean two. " A few" would mean three. When he says " many years," he means much more than three. Well, according to Warsh, inflation will return to 2% in a couple of years, maybe 2 years, which is what the Fed always says.
This is always their 2-year forecast. We will have inflation at 2%. Remember, someone asked him why, and they said, “Well, because our mandate is 2%, and we assume we will reach our mandate, so we always forecast what our mandate is. So it's just wishful thinking. " But Warsh is essentially saying, “Don’t doubt our resolve.
We will do it, no matter what it costs." We will reduce inflation to 2% in a few years. Well, McDonald's doesn't buy what Warsh sells. They know they will be dealing with high inflation for a long time to come, and the bond market knows it too. That's why profitability is increasing. Also, don't believe all the propaganda you hear about this booming economy.
We have such a great economy. I mean, a lot of Trump supporters say the reason the Fed is raising rates is because the economy is booming under Trump. We have such a great economy that the Fed is worried that all this economic growth will cause inflation. No, that's not true. Actually, this is one of those things that Kevin Warsh gets right.
He has publicly stated that he does not believe that economic growth causes inflation, and I agree with him. He is right. The reason bond yields are rising is not because the Fed thinks economic growth will create inflation, but because the Fed thinks inflation is already here, right? Regardless of economic growth.
In fact, for that matter, economic growth would offset the impact of inflation because a growing economy, a truly growing economy, puts downward pressure on prices to offset the upward pressure that the government and the Fed create through inflation. No, what's really happening is that prices are rising because of the Federal Reserve's too-loose monetary policy .
In fact, look what happened again today. Diesel fuel prices have again reached an all-time high. They are now over six and a half dollars per gallon of diesel. And in fact, in some parts of the country, like California, I think they're as high as $10. It's crazy how high they are there . But Donald Trump has been thinking about it.
I don't know if common sense prevailed, but there was talk that we were going to ban the export of diesel. Because, you know, we need our diesel here, so we have to ban exports. But every time the government does this, it usually backfires. I would guess that if they banned diesel exports, diesel production would actually decrease.
Because you can't export it, and you're going to...they're going to produce less. This could actually lead to even higher domestic prices due to reduced supply. And of course, you know, if we don't export diesel, our trade deficit will grow. The government intervenes. In fact, all that oil they released from the Strategic Petroleum Reserve was also a mistake.
And by the way, they will end soon. I mean, the reserves will not be empty, because they cannot be spent to zero. You cannot empty these tanks. So, you have to leave a certain amount of oil there to ensure further operation. So we must be approaching the point where we can no longer use the strategic oil reserve.
And then prices will really skyrocket. But the reserve is intended specifically for emergencies. For example, when we don't have oil, and the only way to get it is through a strategic reserve. It's not about the price . Biden abused reserves for political purposes back in 2022, as we approached the midterm elections.
And I was very critical of it, as were other Republicans. We said, "Hey, listen, Biden is just trying to do this to get votes in the election." Well, Trump is doing the same thing. But what we really need to do now, since there is oil, but there is just less of it, is to let the price go up. Because if the market raises prices enough, people will cut back on consumption , demand will decrease, the price will increase, and companies or those who really need this fuel will pay a higher price because they have a stronger economic need.
And people who don't necessarily need that much energy will find ways to get by with less because of the price. Isn't that right? So the market will allocate energy for its most efficient use and force those who don't really need it to reduce consumption so that those who really need it can buy it. But with artificial price restraint, demand does not adjust properly.
And then, when we eventually run out of oil from the strategic reserve, we will get a huge increase in oil prices. And, of course, what if a real emergency happens , the type of situation for which these reserves were created—well, we won't have them, right ? We have used up all our reserve for a non-critical situation, and when we actually face an emergency, we will have nothing left.
According to Peter Schiff, inflation could be much higher and last longer than the Federal Reserve expects. He questions the idea that inflation will simply return to the Fed's 2% target in a few years, citing the bond market and companies like McDonald's as evidence that price increases could be more prolonged.
In his opinion, rising Treasury yields do not always indicate a thriving economy. Rather, it is a reflection of growing concerns about the consequences of loose monetary policy and inflation. Schiff also focuses on the cost of energy, particularly oil and fuel. He argues that by limiting the ability of firms and consumers to adjust their demand, government efforts to regulate or reduce energy prices can have unintended consequences.
In addition, he warns against the continued use of the Strategic Petroleum Reserve. According to Schiff, these reserves were created primarily for real crises, not simply to reduce costs when energy becomes expensive. They may prove less available when a significant supply crisis actually occurs if an excessive portion of the reserve is used under normal market conditions.
Overall, Schiff believes that instead of addressing fundamental problems, continued inflation, rising energy costs, government intervention, and weak monetary policy could lead to more serious economic problems in the future. about new videos. We really appreciate your support.
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