Your Debt is about to Get A lot More Expensive

Your debt is about to get a lot more expensive. This is a chart of the yield on the 10-year US government treasury bond. And this is considered one of the benchmarks for most interest rates across the globe. The reason for this is because if I borrow money, then there's a chance I might default. I don't have the ability to go put somebody in jail if they don't pay me. So there's a chance you might not get your money back from me. But with the US government, unless they just choose to default, they can always pay back their debt, which means it is considered the risk-free rate interest rates on other forms of debt. We'll look at the 10-year yield. They'll start there and add on a premium for the amount of risk that is being taken on. Now, you might look at something like the 30-year US treasury and wonder why that is not a more accurate depiction of something like a mortgage, which is also a 30-year loan. And the reason is because actually most mortgages don't last 30 years because people move and they refinance. Those loans tend to get paid off much closer to 10 years after the loan is made rather than 30 years. But the 10-year is still just a benchmark, not an exact science, just a starting point. But as you can see from this chart, it looks like it is headed higher. In fact, ever since 2020, the interest rates on US government borrowing have been getting more and more expensive. Now, you'll notice these lines that I have here. I've got a trend line on the bottom, which is a rising trend line. I've also got a falling trend line shown on top. You can see for the past couple of years, volatility in interest rates has been decreasing. Or in other words, we've seen price consolidation and the energy has been squeezed, which usually means a breakout is around the corner. You see, all patterns on charts happen as a result of mass behavior, a group of people, all potential investors, and actual investors buying and selling and coming up with a price. And that mass psychology forms patterns because human nature doesn't change. This rising trend line at the bottom represents sellers of US treasuries who are winning. And this falling trend line at the top represents buyers of treasuries who are winning. And just in case you think I made a mistake there, we are talking about yields here. Bond prices and bond yields are inversely correlated. So if you buy up a bunch of bonds and you drive the price of the buttons up, that means the interest rates fall. The opposite is true as well. If everybody sells a bunch of bonds and the price of those bonds collapses, the yields on those bonds shoots through the roof. So as the lower trend line of interest rates go up, that means bond sellers are winning. And if we zoom in even closer, we see price action that is even more indicative of a breakout to the upside. In other words, lenders to the US government are demanding a higher and higher interest rate on that debt, which means lenders to people like you and me will demand an even higher interest rate than that. Now, the reason for this is very simple. Now, if you're wondering what kind of industries and investments I'm looking out for in 2025 and sign up for my free newsletter, it's called letters from a heretic in it. I cover things like the five biggest threats to your portfolio in 2025. My strategy for managing the risk and the chaos while still exposing yourself to the upside and the four hyper growth industries. I'm looking at right now. So if you want to know exactly what I think could tank the market over the next 12 months and the types of opportunities that I think could absolutely thrive and sign up for my free newsletter with the link in the description below. I'll show you everything. I know the national debt stands at 36 trillion dollars so far this year. They have added over a trillion dollars to that pile, which is 23% more than they had added to the debt pile the prior year. As a result of this, just the interest on the national debt alone is now the second largest line item on the budget representing 14% of all spending at on top of that. The fact that the US government is right now planning massive tax cuts without any spending cuts, which means they're just planning on borrowing even more. Now, let me ask you a question. If you were going to lend money to somebody who had no savings, no assets, let's say they make a hundred grand a year and they have two million dollars of debt and they decided that not only were they going to cut their income in half, but they were going to increase their spending. Would you want to lend this person more money? Probably not unless you were getting a very attractive interest rate, which is why lenders to the US government are demanding higher and higher interest rates on their debt over time. Now zooming out very far. We can see what this trend actually looks like in context from 1940 through 1980. Interest rates rose the same way that they are going to start doing. Now, this is in stark contrast to the last phase of the long-term debt cycle where interest rates were falling for 40 years. We left that behind when interest rates hit zero and the Fed printed three trillion dollars causing inflation to break out again for the first time in decades. We have entered a new phase of the long-term debt cycle yet again that will look very similar to 1940 through 1980 again. The pendulum basically finished swinging one way and now it's swinging back the other way like it has before. If we zoom in on the 40 years from about 1940 through 1980, we can see that there were periods of time where interest rates fell. In fact, this happened quite a bit, especially when we look at the 70s. This happened every time the Fed thought that they had be inflation. They'd lower interest rates. It would throw fuel on that fire yet again, and then they'd have to ratchet interest rates up higher again after that. The next couple of years to couple of decades will look very similar to this in my opinion. Now, the federal government is hoping and planning that we can grow our way out of this. It seems to be that the idea is if we can cut taxes enough, it doesn't matter what we do with spending. There will be an increase in the money supply. People will have more money available to them that they can spend and that spending will go to economic activity. It will go to research. It will go to jobs and the economy will flourish enough so that that debt load for the US government doesn't matter as much. The economy will be so big that they can easily tax their way out of it afterwards. There are two major flaws with this plan. Number one, every dollar the US government spends is still purchasing power. It is taking away from the private economy. If they spend that money by taking it through taxes, they're just taking that as a direct one-to-one transfer. But if they spend that money as a result of printing it into existence, they're still taking that purchasing power away from everybody, but it's done through pushing prices up. And so you're not actually freeing up capital and freeing up purchasing power to be used by the productive economy. You're still transferring it away. The second major flaw with this is that one of the biggest reasons why we are constrained in terms of growth is because of over-regulation. We have a massive government. We have thousands and thousands of pages in the Federal Register of laws and regulations that make it difficult to impossible for businesses to just grow, for people to freely exchange with each other, for competition to thrive, causing innovation and lower prices. In other words, more for less. If you actually want to grow your way out of a debt problem, yes, you need to reduce taxes, but you also need to destroy spending and you need to obliterate regulation. The size of government is not determined solely by the tax law. We must also shrink spending and regulation. And that does not seem to be in the works right now, at least yet. There was a brief period of time after the election and before the inauguration that I, and many others were actually hopeful that a new administration could come in, learn what they did wrong the first time and make changes that would turn this ship around, really shrink the government both in taxes and in spending and also shrink regulations. So the past couple of months have shown us anything. It is that we are going to get something very similar to his first term, which is lower taxes, but it's also more borrowing and spending and it's very little deregulation. Now the upside to that is that if you know what's coming, you can prepare and the main way you do that is by buying assets because this is going to be an environment is going to be very, very beneficial for asset prices. And if you'd like my help applying ideas like this to your own investing so that you can grow your portfolio and also have it protected during market crashes, like we just saw go ahead and click on the link in the description below. As always, thank you so much for watching. Have a great day.