Sovereign Debt Crisis - a Distinct Possibility as Fed Struggles to Control Treasury Market.

Añadido: 2026-05-06

[00:00:00]we going to see u small shift in the beginning right now we're seeing it the smart money is moving into hard assets gold silver but there will be a rush uh and uh I I I think it will be an amazing bull market at the expense of course of the 6040 portfolio and it will be in gold, silver and commodities.

[00:00:27]Wednesday, April 29th, 2026, Medco 64, home of alternative economics and contrarian views. While we're going to look at bonds today, uh, and not just US treasuries, but also the government bond market uh, in the UK, in the EU, in Germany in particular, uh, because I I think they're uh, showing ominous signs. I I think u central bankers are losing control of the bond market and that's very serious.

[00:01:06]I I've been warning of course for about six years that uh the bon market that we had from the early 80s until like 2020 2021 or thereabouts uh is over and uh it's a market of course that I worked in for like almost 25 years in the financial sector. Uh I started out uh at a small private bank in Geneva, Switzerland. My bosses uh they they were uh guys that were involved in in the bond market. Yes, we we did do other things other than bonds, but the core of the business there uh was bonds. And when I came to London as well, I worked as a futures and options brokers uh in the government bond market. And the government bond uh market and the bond market in general is the biggest market out there. It's not the stock market and it's a very important market because it's the source of uh credit for the whole economy for other asset classes and it's a market where you need to keep track of what's going on. fundamentally with the economy, with monetary policy.

[00:02:25]Yes, there's some geopolitics involved in there. Um, but uh the main thing you need to keep an eye on is uh the fiscal situation.

[00:02:37]Uh yeah, the uh monetary uh policy of central banks. That's what determines uh investors uh lack of confidence or confidence in the bond markets. And I I would venture to say that that confidence was there uh from the early8s up until 2020. So it was a long bull market and I was lucky to be involved uh in part of that market. But now things are turning a and we're going to look at uh some factors here. We're going to look at a warning from a a former US uh secretary of the Treasury uh Hank Pollson about the bond market.

[00:03:22]And uh yes, I spoke about this warning actually uh a couple of weeks ago just before I flew to Korea. My wife and I and Rudy were at the seaside uh in the UK near Rye. Really beautiful place. And I did a little clip from the beach. It's not um on YouTube anymore. I I I put it I took it private because I wanted to talk about it more uh like seriously uh in in more detail. But the uh story from uh or the article and warning from Hank Pollson uh that came out. Let's see here. I've got the article.

[00:04:08]Um, where is it?

[00:04:17]Yeah, it came out on Bloomberg on April 16th and I covered it on April uh 18th. So Hank Pollson, he he former US Treasury Secretary, he warned of a severe US Treasury market crisis.

[00:04:37]Uh and I said he should know, of course, as he was one of the architects of the massive bailouts of Wall Street in '08.

[00:04:46]And uh yeah, alongside with uh Ben Bernani, uh Hank Pollson got the ball rolling really for the trillions of dollars that have been uh created out of thin air and put in into the economy into the Fed's balance sheet. And we know that the Fed's balance sheet is starting to move higher again. And Hank Pollson says here in the article uh it says uh Hank Pollson suggests US make a break glass treasury plan. Well, what does that mean? Well, it will mean more money printing to to save uh the Treasury market. And it's interesting that we're talking about this today.

[00:05:29]today. Of course, uh the Fed is expected to to leave the short-term rate uh unchanged, the Fed funds rate, and we're going to look into that in a minute. But it says here, former Treasury Secretary Henry Pollson suggests suggested US authorities prepare a backup plan to avert a potential future collapse in demand for treasuries resulting from concerns over over the federal debt debt load. Yeah. Uh that's what it's all about. Uh the debt load which uh is getting worse and worse. the uh deficits that Uncle Sam is running every year, they're averaging around 6% right now and they could get worse if we see a slowdown in the economy. And I spoke about that yesterday, the higher the budget deficit every year the more debt you add on.

[00:06:28]Uh it says here Paulson warned that a breakdown in the US government debt market would pose different uh case from the financial crisis he dealt with is going to be would be a lot worse cuz who would bail out the Treasury? Well, because uh in '08 Wall Street was bailed out by the Treasury, right?

[00:06:52]And the Fed. Uh he says it would be a dangerous thing with vicious yes vicious effects. Uh and he said that uh addressing the fiscal deficit would require increased revenues, taxes and dealing with expenses including overhauling social security and health care programs but noted that marshalling uh lawmakers behind such an effort would be a challenge. Yeah.

[00:07:19]uh Congress and not just the current president admin administration but all other ones they they they just like kick the ball uh the can excuse me down the road. Um they're into the Dick Cheney school of uh fiscal fiscal rectitude which is deficits and debt. The debt doesn't matter, right? But I'm afraid things are getting a lot worse. And I think the central bankers are losing control of it. And why? Well, because they've even though uh rates have been raised uh like from around zero a few years ago to as high as over 5%.

[00:08:07]Uh uh monetary policy is still very accommodative. And why do I say that?

[00:08:14]Well, because if you look at uh when the the Fed started cutting rates uh back uh in September uh of 2024, the Fed funds rate was at 5.5%. They cut it to to five. It it was a surprise. 50 basis points cut and they've been cutting ever since. And right now it stands at 375.

[00:08:39]But uh the reason I'm saying investors are losing faith and confidence in in the Treasury in in Congress in central banks is that despite the cut in short-term rates, the uh 10-year yield, for example, on the 10-year US Treasury has gone from 3.6.

[00:09:05]And right now as I uh speak to you here at 8:15 a.m. London time, the 10ear yield is at 4:35.

[00:09:16]Yes, 4:35. So that means the curve has steepened. That means investors are not confident about the future. U yeah that the see more inflation coming. So, we hear a lot about rate cuts because even though the rate cuts have been postponed this year because of the war in the Middle East and the the rise in uh energy prices, I I think uh if if and this is a big if, of course, if things are resolved in the Middle East and the waring uh factions come to an agreement Uh yeah, the central banks are going to start cutting again and I'm telling you uh you're going to see the longer end of the curve continue to rise and that's a bad thing. That means bond prices are going down. The other thing uh you probably heard recently is that there's 10 trillion of old debt that that's coming due that the the US needs to roll over the US Treasury uh in 2026 and and that is huge of course I mean uh you you go back 15 20 years there was only like 8 or 10 trillion in that and now we're approaching 40 trillion and it's just a mathematical uh way of looking at things and looking at the the charts as well, not just of the yields, but also for example the chart of the U and I got a good chart here of the T-bone future is the long bond future. Uh it looks very bearish to me. Uh that's one thing that I focused on when I worked in the financial markets and I advised like institutional investors. Uh and what does that mean? Well, I I didn't deal with retail. So you you're getting my analysis here that I used to give to people at banks uh fund managers treasuries and uh I know it sounds a bit uh dry and complicated but it isn't really uh but one thing that I wanted I always focused on because colleagues and other people said oh he only looks at technical analysis he only looks at the fundamentals and I thought thought to myself, why not look at everything? Uh, so yeah, I I've told you about the fundamentals, right? The debt is in insurmountable.

[00:12:01]Uncle Sam is spending like a drunken sailor. Uh 6% uh deficit to GDP. Uh that's the kind of uh spending you do in a recession when you need to bring things back to life so to speak, not when you're supposedly uh in an economy that's normal. Uh and that and the other thing as well all the unfunded liabilities, right? How how difficult is it? It's going to be really difficult to reform that to uh rein in uh the spending. We've got defense now as well.

[00:12:42]We know that the current administration wants to increase it. So, it's all a mess. But the technical picture here, and you don't have to be uh into technical analysis to realize that this chart has broken down, and yes, in the last two and a half to three years, it's kind of consolidated. That's a consolidation pattern. uh and it's consolidated into like a like a little triangle, so to speak. It's not a flag, but it's a triangle.

[00:13:15]And uh usually uh these consolidation patterns not just on the downside but on the upside they resolve themselves in um resuming uh the previous trend uh about three out of four times or or about 75%. So there's a very good chance that we could see the price of the TBON future uh drop. Yeah.

[00:13:44]And I know it's been consolidating up and down for a few years here, but it's pretty much near the bottom of that flag. And and once we go below, let's say 110, and right now we're around 113, uh, look out. And of course, it's not going to happen in a matter of weeks. Uh but we could see a major crisis where these bonds drop sharply and and that corresponds with what Mr. Pollson uh is warning about and then they could step in and stabilize things. But I think going forward in the next few years this stabilization or break glass break the glass that they're going to do uh it's going to not work long term because the only way uh yeah there there is no way to to stop this bare market just like uh there is no way to stop the bull market from the early 80s until the early 2020s, Right. Um, and I'm afraid uh that means uh a bad that's a bad sign for the economy. That means uh everyone uh not just Uncle Sam, but you uh in the US, here in the UK as well, the bond market here is just as bad. the guilts. Everyone's going to have to tighten their belts. And the other thing investors that have a lot of bonds and the regulators encourage of course pension funds and other uh institutions to hold a lot of government bonds, uh they're going to lose out because the price of these bonds are going to go down. Uh and uh yes uh the uh the banks I would say on Wall Street could be in trouble as well.

[00:15:53]And why is that? Well, because there was a story yesterday in the FT wasn't warning, but it was saying Wall Street banks boost Treasury holdings to highest levels since ' 07. So it says Trump administration's uh push to cut regulations prompts primary dealers to facilitate more trading in government debt. So that that's another uh red flag in my opinion that the banks are getting more involved and I think uh yes they're going to be market making which is different than investing but uh I would be cautious. So that's why I continue to believe that u the story in the next few years maybe even next decade is people diversifying away from stocks from government bonds corporate bonds because it's going to affect everything.

[00:16:53]uh higher yields in treasuries is going to make mortgage rates higher, corporate bonds uh yields higher. The cost of finance is going to hurt everyone. And uh I mean it makes sense because we've had it we had it too good from 1980 to 2020. So we we have to pay it back.

[00:17:15]There's no such thing as a free lunch and there are cycles.

[00:17:19]So I think unfortunately a lot of people professionals and investors and u advisors still believe that bonds are a good place to be because they think um the governments are not never going to let these bonds fail and there is some truth to that they can always print it and pay it of course it will be become worthless and that's why as I said we're going to see small shift in the beginning. Right now we're seeing it. The smart money is moving into hard assets, gold, silver, but there will be a rush. Uh and uh I I I think it will be an amazing bull market at the expense of course of the 6040 portfolio and it will be in gold, silver and commodities.

[00:18:14]Even if you get like 5 10% of of all the uh capital that's parked in in these bonds and uh stocks into hard asset uh it's going to be uh truly epic I think and that's why I'm holding on. And the other thing I would say with with the banks I would be careful with the banks. I know there are insurance policies like uh FDIC FCSC here in the UK that ensure deposits but uh uh yeah I would be cautious of holding too much balances with the banks. Uh we could see bailins um not bailouts.

[00:19:00]Bailins basically mean they take your deposits and then they give you shares, right? Which could be worth very little just like they did in Cyprus. So that's what I'm seeing. Um and the the thing is even uh a lot of people believe that if the Fed cut rates aggressively that all the cost of financing would go down. But I I can tell you that if the cut if the Fed starts cutting rates aggressively, we could see it backfire. And that's why I think they're losing control of things.

[00:19:38]And it's not surprising because the Fed is being and other central banks, of course, they've been managing the biggest Ponzi scheme in the history of in the in recorded history, right?

[00:19:51]They've created a massive debt bubble.

[00:19:55]uh and uh they're stuck.

[00:19:59]And with that, I'm going to wish uh all of you a very good day. Take care. Bye.