I’ve got that sinking feeling from 2008 all over again. The financial markets are showing signs of distress, much like they did back then. The core issue, as it was in 2008, is a breakdown in trust. Trust is the bedrock of our financial system, and when it erodes, the system can freeze up, leading to catastrophic outcomes.
The signs are unmistakable. The Bank of Japan’s recent struggles with controlling the yield on Japanese government bonds signal a massive loss of faith in their financial management.
This isn’t just a local issue; it’s a global one because our financial systems are interconnected like never before. There are no firewalls or bulkheads to contain the damage if one part fails. It’s all one gigantic blob now, and failure in one area means emergency capital controls will be necessary to contain the damage.
The U.S. dollar is weakening significantly, which could spell trouble if it drops below key support levels.
Amidst this, we’re seeing global economic tensions with Trump’s administration trying to renegotiate tariffs and economic policies, which adds another layer of complexity and potential instability.
The derivatives market, which Warren Buffett once called financial weapons of mass destruction, is at the heart of this. Derivatives are essentially insurance contracts, but if everyone tries to cash in at once, the system can’t handle it. This market is massive, with trillions of dollars changing hands daily, and if trust breaks down here, the whole financial plumbing could seize up.
Gold, often seen as a safe haven, is up significantly this year, signaling that smart money is moving into assets that can weather a financial storm.
This is a clear indicator that something powerful is brewing deep in the bowels of the monetary system.
Disturbingly, the Trump administration has just pivoted back to out-of-control deficit spending, with the Big Beautiful Bill promising to tack on another ~$25 trillion over the next ten years, bringing the total pile to ~$60 trillion by 2035….that’s if something doesn’t break before then.
We’re at a crossroads with our economic policy. We could choose austerity, living within our means, or continue down the path of increasing debt, which seems to be the direction we’re heading with recent budget decisions. This path promises a financial accident, potentially adding trillions more in debt over the next decade.
In summary, the creaking and popping sounds we’re hearing from the bond markets and the global financial system are warning signs. We might be in the final stages of this financial saga. I’m urging everyone to prepare for what might come. This isn’t just about watching numbers on a screen; it’s about understanding the underlying health of our global financial system, which right now, looks pretty sick. Stay tuned, stay informed, and let’s navigate these turbulent times together.
by rector