In today’s episode of Finance U, Paul and I discuss what feels like another 2008 moment, focusing on the current bond crisis across the Western world. We’re seeing signs of distress in bond markets, particularly with long bonds, which are crucial for understanding the health of our financial system.
The Japanese government bond (JGB) market recently experienced what could be described as a failure, with a significant tail in their bond auctions, indicating weak interest at current yield levels. This has led to a sharp increase in yields, suggesting that borrowing costs are rising dramatically. This isn’t just a Japanese issue; similar trends are emerging globally, including in the U.S., where recent bond auctions have also shown signs of stress.
This situation is reminiscent of the lead-up to the 2008 financial crisis, where systemic issues in credit markets began to surface. The implications are profound because our money system, which relies heavily on debt, is showing signs of strain. Higher yields mean higher borrowing costs, which could slow down money creation and economic activity.
Moreover, the U.S. government’s recent fiscal policies, encapsulated in what’s been called the “big, beautiful bill,” are set to increase the deficit significantly over the next decade. This approach of growing the GDP to outpace debt growth, rather than constraining spending, feels reckless to me. It’s a strategy that could lead to inflation, especially when coupled with the potential for AI to suppress wage growth, creating a toxic mix for the economy.
The bond vigilantes, as Paul Kiker mentioned, seem to have reawakened, signaling that investors are no longer willing to fund these fiscal deficits at current rates. This shift could lead to a broader financial crisis if not addressed.
In response to these developments, I’m seeing movements in markets like Bitcoin and gold, which might be signaling a shift away from “systemically exposed” financial instruments. For investors, this environment requires a strategy that can adapt to potential economic downturns or inflation spikes. It’s crucial to understand the strengths and weaknesses of your investment approach, especially in times like these when the ground beneath us feels like it’s shifting.
So, what’s my advice? Lean into understanding and preparing for these changes. Whether it’s through diversifying into assets that could hedge against inflation or understanding the implications of AI on your job or investments, now is the time to be proactive. Remember, financial freedom is the foundation of a happy life, and having a plan that you can stick with, even in turbulent times, is essential.
If you’re looking for guidance on navigating these financial waters, feel free to reach out to Paul or his team at peakfinancialinvesting.com.
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by thc0655