Robbing Peter to pay Paul

In recent weeks, we’ve seen Scott Bessent try to create a fantasy narrative of US benevolence in an intervention to prop up the Japanese yen. Laughably, he presented it as the US helping a buddy out. The official line was that Washington acted to curb regional financial instability in Asia, protect U.S. export competitiveness, prevent Japan from selling massive amounts of U.S. Treasury bonds, and support a key geopolitical ally. This was the first coordinated action to support the yen in over a decade.

What he failed to mention is that if Japan were forced to liquidate a large volume of US Treasury bonds, the sky would fall in on the US economy, as it would raise the interest the U.S. Treasury pays on its debt. The ‘Japanese carry trade’ has, for decades, allowed investors in US stocks to take advantage of Japan’s ultra-low interest-rate policy. This has enabled them to borrow Japanese yen at minimal cost and then invest in higher-yielding U.S. equities, corporate bonds, and other assets.

While Japanese interest rates remain low, all is rosy in the garden, but if the Bank of Japan starts to raise interest rates to protect the yen, then, depending on how high they go, it will force the sale of assets, which could cause serious problems if the assets bought with cheap Japanese yen are U.S. Treasuries. It would have the same impact as if Japan or any other large foreign holder of US debt sold US bonds. Add to that, Japan is the largest holder of US debt. The US intervention had nothing to do with helping Japan, and everything to do with avoiding a huge spike in bond yields, which are already precariously high. It gives you insight into the tightrope the US is walking. A situation made all the more perilous by the now-$40 trillion national debt.

This brings us nicely to Scott Bessent’s announcement that the US is now doubling the ceiling on its liquidity-support buyback operations for longer-dated debt. The US is now issuing short-term debt to buy back longer-term debt. It’s important to note that this move does not alter overall net debt issuance; it just adjusts the deckchairs on the Titanic to shift the refinancing cycles closer together. Bessent can put lipstick on the pig all day long; at some point, the deck of cards will collapse. The only question now is not if, but when, and who is holding the baby when it happens. History tells us that this is a common play by Republicans. Create carnage and leave the Democrats to clean up the ensuing shit storm.

The danger, though, with the next storm, is it will be bigger than anything that has gone before, because the US is not only navigating $40 trillion in debt, it’s now accompanied by an AI bubble that, if it bursts, will, if history is our guide, result in the largest market correction in history. A correction that will make both the Great Depression and the 2007/2008 housing crash look like a walk in the park. The level of fiscal recklessness at the moment is off the charts. I’m writing about this because you deserve to know that no election result in November can save the US economy, or the global economy for that matter, if the AI bubble bursts.

The reason we have no idea if or when this might happen is that the truth is being hidden; there is a mountain of off-book debt, and the Fed have now decided that forward guidance is for pussies. They believe the markets can take care of themselves. Yeah- sure. If you think that the big tech companies are just sitting back and crossing their fingers while the storm clouds gather, you need to seek medical help. They are already making plans to shift the liability from them to YOUR pension funds and annuities. Do you know how it feels to sit here writing this, feeling you are in a literary ‘locked in’ moment, where you are screaming, and the words are going nowhere?

If you think there’s an affordability crisis now, you ain’t seen nothing yet. All the catastrophic pieces of the puzzle are slowly coming together to create the perfect storm, and the War in Iran may well prove to be the straw that broke the camel’s back. This is like having an out-of-body experience of a slow-motion car crash with few survivors. To be clear, I absolutely do not want to be the messenger delivering the bad news to the victim’s family, but unless I am missing a vital part of this situation, the US economy is a dead man walking; it’s just not prepared to admit it yet.

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I want you to take the time, if you can, to watch the piece below from Andrei Jikh in the hope it will provide you with a better understanding of what’s going on in the dark. If you want to read the research which broadly reflects my thinking, the assessment on which this video is based, you can read it here

The key here is that YOU will be on the hook via your pension pot or your annuity. If the whole thing goes tits up, whoever is in government has a choice: face the wrath of angry 401(k) holders who are about to lose their pension savings, or provide a taxpayer bailout, which in effect is still your money because it would be funded by taxpayers as opposed to 401(k) pots. You see how this works; the one common denominator in all of it is that the tech companies might feel a little pain, but they have no responsibility for the debt, because that’s on YOU.

The whole problem with the 2008 crash was that, in many cases, nobody understood the financial instruments that created the crisis; extraordinary wealth was extracted through fees and commissions, and the banks largely walked away from any responsibility, living to fight another day. Hardly anyone went to jail; they just set out to create their next ‘too big to fail’ project, and here we are. WE HAVE LEARNED NOTHING. The really scary part about it, though, is the fact that they walked away from it in 2008 proved to them that they could gamble to their heart’s content with your money, provided they did it at such a scale that the only way out is a taxpayer bailout.

It makes me feel physically sick to think of the level of premeditated exploitation of the system that has now become the norm. Now those at the top of the food chain have unlocked the door to your pensions and annuities; you are providing the free chips to fuel their fiscal casino gambling addiction. You have become their guarantor, and they didn’t require your permission for it. What’s even worse, is they have stolen so much of the workers' share of the wealth over the past half century that they have insulated themselves against the incoming storm at YOUR expense. They have simply created new vehicles to steal your future, leaving you to hold the shit stick.

It’s difficult to overestimate the level of systemic abuse of your tax dollars when it comes to the complicity of governments from both Parties. However, the prize goes to this particular regime, which has taken it to the next level as they enable the rich to horde as much money as they can before the shit hits the fan.

I have to be honest and say I have no idea when this correction will take place because there is so much deception, misinformation, and misdirection at the very top of government; it’s difficult to get a read on how close the storm is. What is undeniable is that America is drowning in debt, and it continues to grow. It’s growing at a rate in excess of $2 trillion each year, with no plan to address it other than to cut more and more services and plunder Medicaid and Social Security. At some point, there will be nothing left, so can we please stop pretending that it will all work itself out?

Trump has bet the entire house on winning an AI war that the US, in my view, has already lost. How do I know? Because he thinks the answer is to attempt to ban Chinese technology and ban allies that no longer trust the US from adopting it. How did that go with EV’s? You can only postpone the inevitable for so long, and if you strip AI and associated infrastructure projects out of the US economy, there is no growth, and without growth, the debt just gets bigger until we hit default territory, and I suspect this is far closer than the government would have you believe.

I am increasingly of the opinion that Republicans are totally unconcerned that they might lose the General Election in 2028; in fact, I think they will happily leave the carnage they have created for Democrats to clean up. That said, I’m sorry to say there will be nothing left to clean up because unless I’m missing something, the life support machine will already have been switched off.

So for those in my comments who have been saying the Midterm elections will not change anything, I would say this. The only hope for America in the next 80 days is that voters take a deep breath, splash some ice-cold water on their face and wake the fuck up. Democrats are the only game in town. Do I like it? Absolutely not, because I think they have become part of the problem, but they are, without question, the lesser of two evils in this moment of peril. A vote for Democrats, even if you have to hold your nose to do it, is the ONLY WAY to have any hope of putting the brakes on this madness.

If Democrats win big in November, there remains hope, not just to declare Trump a lame duck and begin the process of accountability, but to provide the opportunity for a revolution within the Democratic Party to reshape the narrative for 2028 because, on the current economic trend line, more of the same old same old just won’t cut it.

I am truly sorry to end the week on such a pessimistic note. Please don’t think I take any pleasure from delivering this type of assessment. I’ve talked in the past about solutions and my fears that nobody is listening, and now we are tragically reaching the moment of truth, and I’m terrified, not just for the US, but for the world. I desperately want to be wrong, but every piece of extensive research I do leads back to the same point. Nobody wants to be wrong more than me, and there is still, of course, a chance I’m missing something. I’m very open to someone pointing out what it is, and I’ll gladly buy you a drink and share it with the world.

I’ll be back on Monday with a new multipart series on developments in the Middle East. I like to take time every six months or so to revisit the Israel/Gaza conflict and do a deep dive into the situation, and I think it’s long overdue for me to provide an updated assessment.

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