By Graham Summers, MBA | Chief Market Strategist
As we keep warning… a debt crisis is coming.
The first round appears to be striking Japan, which is the grandfather of monetary insanity. Japan first introduced Zero Interest Rate Policy (ZIRP) and large-scale Quantitative Easing (QE) programs nearly a decade before the Fed or other major central banks introduced similar policies. As a result of its near-nonstop interventions running for 25+ years, Japan’s Debt to GDP is over 200% and its central bank’s balance sheet is equal to 90% of the country’s GDP.
As I noted yesterday, Japan finally appears to be losing control of its debt markets. Yields on the all-important 10-year Japanese Government Bonds are exploding higher, at a time when the country needs to service a truly gargantuan amount of debt. Simultaneously, investors are beginning to shun the long end of Japan’s bond market with the country just experiencing its worst bond auction since 1987!
Japan is not the only country that will soon find itself facing a debt crisis. The U.S. is well on its way as well.
For all its talk of cutting spending and balancing the budget, the Trump administration is running the same playbook the Biden administration used from 2021-2024: spend, spend, spend!
The “Big Beautiful Bill” that the Trump administration is championing will increase the U.S.’s fiscal deficit by nearly $4 trillion over the next 10 years. There is little to any actual cuts in spending, and all told the bill is expected to add at least $3 trillion to the debt (which is already at $36 trillion with the U.S. running a Debt to GDP ratio of over 120%).
How will this play out?
A debt crisis will hit when the bond market finally revolts against the U.S.’s spending, just as it is doing with Japan today. At that point, the Fed will have to choose.
- Defend the bond market.
- Defend the U.S. dollar.
Choosing #1 means the system remains intact and functions, albeit with higher inflation. Choose #2 means that bonds collapse and the financial system experiences a debt crisis that would make 2008 look like a joke.
Which one do you think the Fed will pick?
This is why gold and other inflation hedges are exploding higher: these assets have figured out that there is NO WAY out of the current situation that doesn’t involve a mind-blowing amount of money printing. Heck, the U.S. dollar has already lost over a third of its purchasing power since 2008… and the debt crisis hasn’t even hit yet!
There is a limited amount of time to prepare for this. And smart investors are already taking steps to make sure they’re ready for when it hits. One such strategy is to use quantitative tools that have accurately predicted crashes in the past.
We’re developed precisely such a tool: a highly accurate “crash trigger” that went off before the 1987 Crash, the Tech Crash, and the 2008 Great Financial Crisis.
We detail this trigger, how it works, and what it’s saying about the market today in a Special Investment Report titled How to Predict a Crash.
Normally this report is only available to our paying clients, but in light of what’s happening in the economy today, we are making just 99 copies available to the broader public.
To pick up one of the remaining copies…
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
