Government debt

This has a direct impact on your mortgage.

It has a direct impact on our national debt.

It has a direct impact on the stock market.

And it has a direct impact on your retirement.

That way it's cheaper to get a mortgage or a car.

But that's not all.

The other reason why President Trump really wants lower interest rates is because our national debt, we have over $40 trillion in national debt.

The United States government has to pay interest on that national debt.

And then we could also talk about some of the issues around private credit because there's been less so in the headlines.

The new headline is public sovereign debt, but we had a lot of headlines over private credit earlier this year.

Yeah, so one, I wouldn't be so categorical around public and private.

I think one of the stories and narratives that I strongly believe going forward is that those lines are going to be blurred.

And I think inadvertently they're saving their investors by investing in high-quality precious metals companies, irrespective of the silver moniker.

I want to talk about what many are saying is a burgeoning debt crisis, a sovereign debt crisis.

We're now seeing the 10-year treasury hit the highest yield since 2007 at over 5%, 20 and 30 year at what, 5.3, 5.6, something like that, perhaps headed towards 6% or higher.

Japan, of course, experiencing a relentless rise in rates across the board.

And we are seeing rates rise, generally speaking, when it comes to the sovereign debt markets.

Are people making too big of a deal of this or is this actually perhaps the beginnings of a sovereign debt meltdown?

I wouldn't describe it as a meltdown.

We survived the decade of the 70s, but it was challenging.

I know I was a little bit late getting started, so I'll go a little bit long with y'all this morning.

Question, will payment of interest on the national debt be an issue? No, it's not.

It's, you know, when you start looking at the the income that's generated again, interest rates right now primarily are mostly a function of the Fed.

So, you know, if the Fed hikes interest rates, then, you know, that's going to be, you know, another 50 billion in interest payments.

Europe is a diverse, culturally rich and fascinating continent, but increasingly looks an economic basket case facing economic and demographic decline.

It's suffering economic PTSD, that's post-traumatic stress disorder, after successive shocks from the banking crisis, the sovereign debt crisis and now an energy crisis.

Now it's being squeezed between an unreliable USA and China's proxy, Russia.

Maybe that's the challenge it needs.

Anyway, the key takeaways this morning are the geopolitical fragmentation of the Western Alliance raises serious challenges for Europe.

Europe should be economically more significant, but its history and political fragmentation has held it back.

It has been scarred by economic crisis, the 2008 global financial crisis, the sovereign debt crisis that soon followed, a new Ukraine oil shock, and now the post-NATO era challenge to defence.

And the key economic weakness is the lack of depth to its capital markets.

And you can see we're slowing dramatically.

Um, and there were one or two business cycles where we will not generate the GDP, uh, to pay for all this debt, and this is where we get into de-leveraging sovereign debt crisis and so forth.

Um, it, it, it's, it, it just makes sense because we've never paid...

Governments haven't paid down the debt, nor, uh, have individuals.

Okay.

[laughs]

Well, sovereign debt, you mentioned it earlier, didn't you? A lot of, a lot of what we talk about is private debt, but sovereign debt, that's becoming a bit of a sort of big story right now, isn't it? I mean, you look at, um, I don't know if you follow the UK at all, but it's so-

Sure.

The boat therefore sinks.

What is the boat in that analogy? Is it the government? Is, is there gonna be a sovereign debt crisis or, you know, how does it spill over and, and how does it affect credit ultimately?

The passengers are government bond investors, right, in, in governments that have little assets, that import commodities, that run very high deficits, that are losing their bargaining power to tax.

You know, one example is the United Kingdom.

The fund's official reasoning for the bond shake-up is framed more narrowly as a search for better returns and diversification away from government debt into higher-yielding corporate and mortgage-backed securities.

But the AI stress test finding has been widely reported as the backdrop driving the decision.

By the way, they're trying to reduce what they see as risk in their portfolio, including their holdings of government debt, US and otherwise, because of the risk they think an AI bubble bursting poses to sovereign debt more broadly.

The second point, which has also been reported but not quite as much, is that the Dutch central bank, the DNB, has moved gold out of vaults in New York and Ottawa, about 86 tonnes of it, relocating it to the Bank of England in London between March and August this year, citing, I quote, increasing geopolitical unrest and a need to strengthen, quote, crisis preparedness.

Gold held in London, DNB said, is more readily tradable in a crisis than gold sitting in New York or Ottawa.

At this point in time, we could see a final blow-up around the straightforward tension in the Iran war.

We could see the AI bubble bursting that so many people have warned of, We could see El Nino driving spiking food prices and a debt crisis.

And of course, we could see the combination of all three, since El Nino has in the past been a trigger for both AI-adjacent capital retrenchment and for sovereign debt stress.