Bond Market: The 10-year Treasury yield spiked sharply, with moves driven by growth and inflation expectations rather than debt/deficit fears.
US Treasuries: Detailed discussion of yields versus nominal GDP, the role of banks in buying Treasuries, and why extreme positive real yields would attract buyers.
Energy Prices: Oil rallied nearly 4% and gasoline is surging, eroding consumer discretionary income and echoing dynamics seen before the 2008 downturn.
Inflation Data: Hotter-than-expected CPI and PPI readings created a strong inflation bias in bonds, amplified by manufacturing and production data.
Financials/Banks: Banks can create credit and deploy into Treasuries, influencing yields independent of Fed balance sheet “money printing.”
Macro Cycle: Parallels to 2008 where inflation and rates rose before a downturn; energy shocks remain a key tipping risk.
Policy & Liquidity: Fed bank reserves are declining, challenging the narrative that current inflation is driven by ongoing Fed “money printing.”
Tickers: No specific public company tickers were pitched or recommended in this discussion.
Transcript
Hello, fellow Rebel Capitals. Hope you're well. So, we've got big news in the bond market. That's right. Is it the start of what everyone has been predicting for years that finally the Treasury market is blowing up. Finally all of the debt and the deficit chickens are coming home to roost. And the way the debt spiral works or so they say is the deficits get higher and higher, the debt gets higher and higher and pretty soon there's just no more buyers. There's no more balance sheet capacity. So then what you have to do is the interest rates go up of course and what that does is that leads to more government spending because the interest rate debt burden or the uh burden for the the the debt because the interest rates are going up becomes increasingly cumbersome. let's say. And so then what do they do? They have to quote unquote print more money. They got to print more bank reserves. And then they just end up having to do yield curve control because there's just so much debt and the deficits continue to go higher and higher and higher and higher which means there's more and more supply of treasuries and there's just a massive supply demand imbalance. And that's what they tell you. Uh, they've been talking about this for what, 45 years? Something like that. So, did we just enter it? That's the question. I mean, did you see what happened to interest rates today? I It's crazy. Let's go over and let me do a screen share. And we're going to Well, I guess I got to do the screen share first, don't I? Uh, let's do the screen share. There we go, George. Okay, now we should be good to go. All right, so let's go over to CNBC first and foremost. What are you talking about, George? Get fill me in. I've been busy at work or busy with the kids all day long, so I've been watching the bond market. So, if we go over to the 10-year Treasury yield, look at this. Up almost 13 basis points today. And look at the action just in the last couple days. Let's do a fiveday chart. Straight up. Straight up. I mean, it's to to the thumbnails said that they're skyrocketing, and that is not an exaggeration. I mean, you guys know from watching my videos, a 13 basis point move in the 10-year Treasury in one day is huge. That that is massive. So, again, if we go back to a year chart, you can see that this is just going parabolic. So, again, you have to ask the question, did the bond market just break? all the people, my good buddy Peter Schiff as an example, you know, he's been talking about this for decades. So, did it just happen? Did we cross that threshold where finally, finally there's just too much debt and there are no buyers and the bond vigilantes from the 1970s have come back have come back with vengeance. Right? So the first thing we have to do is look at two schools of thought. The first school of thought is interest rates are driven by debt and deficit expectations. So this would be the bond market blowing up theory. So what happens is the buyers of treasuries in the United States, outside the United States, they look at the fiscal situation and they say, "Okay, we're done. Doge didn't work. You know, we had a little bit of hope there with Trump, but now he just tried to pass what was it? A $1.5 trillion dollar war budget for next year, military budget. And so, we see the writing on the wall. We were going to give him the benefit of the doubt that they'd bring the debt and the deficits down. That didn't happen. And now we see that this, like my friend Lynn Alden says, nothing stops this train. And collectively, the bond market has just woken up a couple days ago and seen the writing on the wall. And therefore, they're not going to buy treasuries at any price because they know that the deficits are not only going to go on forever, but they're likely going to continue to increase. And remember, the deficits are a representation of the supply of treasuries. So, that's one theory. The other theory is that interest rates are more so controlled by growth and inflation expectations. So this there's an easy way to test which one is right and which one is wrong. All you have to do is look at the 10-year Treasury versus the nominal GDP in the United States. So let's check out that chart real quick. Then we'll come back here to the 10-year Treasury. So this is the chart I was just referring to. And the red line is the 10-year Treasury yield. And the let's see, the blue line, I guess they've smoothed out nominal GDP growth as far as a percentage, but that's the five-year average. And again, this is nominal nominal GDP. Again, we're looking at growth in inflation expectations. So you can see that the uh the GDP in this case is just kind of a smoothed out chart of the 10-year Treasury yield. I mean I I don't know what the correlation would be here, but it's incredibly incredibly high. I mean, you people who are smarter than I am would can probably peg that, but I'd say what the 80 85% correlation here. And the important thing to note is during this time when you see nominal GDP going down, you see interest rates going down, you also saw the debt and the deficits doing what? Going straight up. So during this period right here, there was actually an inverse correlation between debt and deficits, which makes absolutely no sense unless you understand the monetary system, right? uh it doesn't make sense unless you exclude the banks from your analysis would be another way of saying that. And then more recently you see this which a lot of the the debt and deficit people will say oh oh look at this but the debt and deficit started to explode during the surveys sickness and you got interest rates going up right but so did nominal GDP in other words so did growth in inflation expectations so is this increase right here and now then we're going to we're we're zooming out right now then we're going to zoom back in when you zoom out look at this is this increase that you're seeing since the surveys sickness is that due to debt and deficits or is that actually due to growth in inflation expectations increasing? In other words, nominal GDP. See, we have to make sure that we're not confusing correlation and causation. So, now let's go back to let's zoom in and go back to the 10-year Treasury yield. And we saw that where are we now? Oh, I guess I was at the CNBC chart. I'm sorry. So, we see this spike going up. But now let's go ahead and zoom out again because when you look at it from March, I mean it's just boom straight up. You get a little bit of a reprieve but then and more recently when we got this trigger. What was the trigger? It was the CPI. We're going to get into that in a minute. But I mean again it just goes parabolic. Just goes straight up. And that is very very concerning. Absolutely concerning. But it isn't necessarily concerning due to debt and deficits. Unfortunately, I wish the bond vigilantes were back. But where it is concerning is for the United States economy. And let me go ahead and write that down because I want to circle back to that. As you can tell, I do zero preparation for these videos. Whiteboards are different. Live streams. I just riff on it. All right, but let's zoom out here. Go to the alltime chart. So, this goes back to 82. And when you see the alltime chart and which includes, you know, going back to 2022 or so, you look at it, you're like, "Oh, it doesn't look so scary, does it?" H it doesn't look so scary. Now, the this skyrocketing move right here that looks terrifying. When you actually zoom out a bit, we'll do a five-year chart. It it looks more, let's say, benign. like, oh, uh, yeah, that's maybe kind of a nothing burger here. But what has happened more recently, because again, we're kind of going back and forth with this debate. I mean, you guys know where I stand. It's all it's all growth and inflation expectations, but there's so many people out there that are in the camp of, well, it's all about debt and deficits. And even though they acknowledge that in the past it's never been about debt and deficits, they still hold on to this belief that very soon in the very near future it will. You know, the bond market is just those idiots in the bond market just haven't seen what Peter Schiff can see in the last 45 years. But they're waking up to it. They're waking up to what Peter Schiff has been talking about. And I I don't you know, I'm buddies with Peter, so I don't want to uh you know, I I'm not making fun of him. I'm just saying, you know, Peter has had that view for quite some time and that's fine. That's his view. Um, but he I think he'd be the first person to admit that that view has been incorrect or at the very least it hasn't come to fruition yet. And the view I'm talking about is the bond market is going to blow up because of debt and deficit expectations. Sooner or later, it's going to happen. Well, it hasn't happened. And so, we have to ask the question, well, why hasn't it happened? Right? And so when we look at why it hasn't happened, you get into the mechanics of the monetary system and that's when you have to include the banks, right? Because let's think about this for a moment. Let's go back to this chart of nominal GDP. Let's assume for a moment we are um uh I mean this chart only goes to 2022, but it's all about the concept. It it's all about the concept. So right here our fiveyear average was h call it what five six% something like that just trying to eyeball it. So first of all where you would see a big problem and when you could say and when I would be the first person to admit that yes debt and deficits they do matter. Now all of a sudden what Peter's been predicting for 30 years, it's it's it's here. It's here. When George Gammon would would gladly admit that is when this red line would go way above way above the blue line, very similar to what we were seeing back here, right? So if you saw this red line and what does that mean? That means that interest rates are going way higher than nominal GDP. Now, the reason that's very unlikely to happen, not impossible. Again, we're not talking about certainties. They're only probabilities. Um, but why that's very unlikely to happen is because think about it in terms of you, the person watching this video. Let's take it to an extreme so we we can all get our head around it. Assume that the interest rates on the 10-year Treasury yield went up to I'll just take it to an extreme. They go up to 15%. So, they're way up here where my little pointer guy is. So, they're way up here at 15%. But growth in inflation, nominal GDP is still around, call it 5%. So, you you got 10% positive real rates, 10%. What would you do? Would you buy treasuries? 10% positive real rate in dollars, the same currency that your expenses, your mortgage, everything else is denominated in. Now, some people say, "Oh, absolutely not. I'm still going to buy gold." That's fine. But a lot of people, even the the diehard gold bugs, even my buddy Peter Schiff, uh if he is getting a 10% positive real yield on a 10-year Treasury, he'd dabble likely. I'm not going to speak for him, but he would likely dabble because that's a good deal. That's a great deal, right? Because again, the the argument there is like, "No, it's a terrible deal because inflation is going to skyrocket." But it it's not, right? Because remember, nominal GDP, which is a which a component of nominal GDP is inflation, is still down at 5%. Down at 5%. So that that's why there's such a huge delta. So the inflation would not be that much of a concern for the marketplace and for most retail investors. So what we're going to do, you're likely going to come in and buy 10-year treasuries. Again, that what's that going to do? That's going to bring the interest rate down. And that's just you taking a bet with your own money, with your own savings. Now, let's think about it through the lens of the banks. And this is why I harp on it so often. I beat the table on this. The banks aren't even using their own money. They're using OPM, other people's money. And in and very often, they're using money that they just create, that they just lend into existence. So, I'm a bank and I want to go out there and buy $10 billion worth of treasuries. I'm going to go ahead and borrow that money from another bank. Well, where is that bank going to get the money? They're going to lend it into existence. They're print it. whatever you want to say it, that's new money that didn't that uh didn't exist before. So that's $10 billion of new money that was just created by that loan from one bank to the other bank to go out there and buy the 10 billion worth of treasuries, 10 year, whatever it is. So the point there is you've got the banks that are not only just taking other people's money, not using their own money, but literally creating new money that didn't exist to go out there and take advantage of what is effectively an arbitrage opportunity. Right? If you had 10 year 10 uh percent positive real rates, that's that's an arbitrage. So you got the retail investor coming in and buying that. Maybe even Peter Schiff himself. And then you have the banks just piling in because they're not taking their own money. So they're just lending it into existence or taking other people's money. You know, the circulation of money and credit and they're buying those treasuries down down down to a point where they get, you know, like this where they're getting much much closer to nominal GDP. Now, you can have moments in time where it gets way out of whack like this where growth and inflation expectations are so high, right? But eventually, they come back down. They come back down. And keep in mind, the Euro dollar banking system, which creates the vast majority of dollars in today's world, was nowhere near, not even close to as developed uh in 1980 as it is today. So this is why you have this, right? So now let's go back to kind of what triggered this dramatic spike when you zoom in. We go to I mean CPI I'm sure you guys heard 3.8%. Now it was slightly above expectations and to be clear core was only 04. I say only that's still really high but the point4 I mean it's not that dramatic. And what are they stripping out here? volatile food and energy, but mo mostly energy. I mean, this gas prices right here, right? And that's a huge problem. Not necessarily for interest rates, but more so due to the economy because wages ain't going up this fast. Wages are stagnant. I would argue the labor market is deteriorating. So, you have a a labor market that's deteriorating. In other words, aggregate demand is already going down in of itself. And then you throw on, you know, fuel to the fire, no pun intended, gas prices that are skyrocketing, that are going straight up. That's taking away from discretionary income. That's taking away from aggregate demand. And that's usually in these type of cycles is what kind of is the tipping point. That's the straw that breaks the camel's back is it's often high energy prices as we saw in 2008. Perfect perfect example. But then the double whammy here is you get core PPI at 6. That's a big number when your expectation was for.3. That's core PPI. And the headline number was 1.4 when the expectation was for a 0.5. And then today we fast forward and we get an expectation for Empire State Manufacturing at a seven. We get a 19.6 industrial production point 2, we get a 7. So you see what's happening here in the world of growth and inflation expectations is you get this right hook from Tyson with the CPI. Uh where is it? Right here. And then the next day you get that uppercut from Tyson with the PPI. Now you have a huge inflation bias in the bond market. You have a massive inflation bias. So any little number that comes out is going to be exacerbated on the upside as far as yields. And then you combine that with the price of oil going up substantially today. So let's go over to oil. and it's up almost 4%. So big move, big move in oil. So you have oil, you have the CPI, you have the PPI, you have the manufacturing data, you have all these things that kind of create this perfect storm on a Friday where you're just seeing the 10-year Treasury absolutely skyrocket. But to be clear, to be clear, it isn't because of debt and deficits. It's because of growth and inflation expectations. Now, I know a lot of people right about now will say to themselves, "Okay, George, well, fine. You know, this is all about growth and inflation expectations. I I'll give you that." But because of the debt and deficits and because of all the Fed's money printing, we are having inflation. And so regardless of whe the interest rates are going up due to whatever reason you want to concoct or whatever reason you want to believe based on your model, the bottom line is we're still getting more and more and more inflation. And therefore, we're likely to have interest rates continue to go higher and higher and higher. And again, the reason for that inflation is all of this money printing, money printing, money printing, because they just have to print money, the Federal Reserve, in order to offset the massive deluge of the supply of treasuries hitting the market because the deficits are so high, right? So, let's just put that one to the test here because what we can do is we can look at this chart, very easy chart. You can pull it up yourself. Just a Fred chart. And these are the amount of bank reserves on the Fed's balance sheet. In other words, money printing. Right now, there, let me be clear, there is a way for this to increase without the Fed actually doing quantitative easing, such as the money being spent out of the TGA. So, you have to remember, and I know I haven't done a whiteboard video for quite some time, but those of you who have watched a lot of my whiteboard videos, you know the Fed's balance sheet is pretty much compartmentalized into three different categories. So, number one, you have bank reserves right here. Number two, you have the TGA. And then number three, you have reverse repo. So, that's where the bank reserves can go. All the bank reserves in totality in the system. But if the bank reserves go from this account down to the TGA, they're no more they're no longer in this account or same thing as reverse repo. But then once that money is spent out of the TGA, then this all as being equal, this number of bank reserves and on the bank's balance sheet would actually increase because you see this only reflects the bank reserves that are on the bank's balance sheets. Okay, now that we understand that, and this if you're really the the money printing type of guy or gal, this is what you should really be focused on because the whole idea behind money printing is that the Fed increases the amount of bank reserves available to the banks. Very key, available to the banks, not you know, the Fed could create bank reserves all day long if they just get stuck in the TGA. That's just like taking a trillion dollars and stuffing it under your bed. It's not going to circulate. Therefore, it's not going to create consumer price inflation. But their argument is that they give all of this additional base money to the banks and then the banks go ahead and have that money multiplier, which in of itself is nonsense, but we'll save that for a separate video. So, they have that money multiplier. So, the more the Fed increases base money, then eventually the more that's going to lead to an increase in broad money. In other words, the amount of currency units chasing goods and services, right? So even if you're in that money printing Fed camp, you have to f hyperfocus on this number. This is really the only number that that matters, right? So what have we seen here? We well we've seen this number actually go down since 2021 and more recently it's gone down quite substantially. If you look at from August 2025, I mean we're at call it 3.28 and now we're basically flat. So you're down 20, let's call it 275 billion in bank reserves. So the Fed is not money printing right now. If anything, they're they're money destroying. Now, they could be I don't know if they're doing QE or not. I haven't followed it lately, but that that those bank reserves could be going into the TGA. They could be going into reverse repo. I doubt it. Um, but even if they are, it doesn't matter because it's not getting into the banking system. And therefore, you can't argue that you're having an increased money multiplier effect that would actually impact or lead to a sustained increase or acceleration in consumer prices. And that's if this did lead if this meaning base money actually did lead to an increase in broad money which it doesn't which it doesn't and you can see that by just looking at this chart. So we know that M2 money supply as an example from 1980 went from 1.5 trillion to in 2007 7.5 trillion. We know broad money did that and that's just the M2 in the United States. We're not talking about the broad money, including the the dollars denominated broad money outside of the United States, but just M2 in the United States went from 1.5 trillion to 7.5 trillion. And what did reserves do? You can see nothing. Nothing. Absolutely nothing. So there's no way that you can argue that there's a a direct correlation from, you know, to bankers. In fact, go back, look at this. Go back to 1960. Go back to 1959 and you had basically 20 billion in bank reserves in 1959. And then you fast forward to 2007. So you've got what? 47 years later. 47 years later and bank reserves are at 42. Think about what global dollar denominated M2 did from 1959 to 2007. I mean quite literally it probably went from I'm I'm just guessing here in 1960 global dollar M2 was probably 500 billion maybe. I mean that was a huge number. That was an astronomical number back then. So you go from 500 billion to 7.5 trillion and bank reserves go from basically 20 trillion or excuse me 20 billion to 40. And you're telling me that that that's the money multiplier? Come on. Come on. Bottom line is banks are creating all this money without needing bank reserves. Now they can use them for sure and they do use them but they don't need them. And that's the key. So, the main takeaway here is this is definitely something to pay attention to. I I don't want to dismiss this because anytime you have a 13 basis point move in the 10-year Treasury, that that's shocking. That is absolutely shocking. Uh that's not unprecedented, but it's very rare you see that. So, you got to pay attention. But then you ask why? Why? And the reason it's doing this is because of growth and inflation expectations that they're increasing. It has absolutely nothing nothing to do with debt and deficits. And I wish that wasn't true. I actually wish it was the opposite. I wish it was due to debt and deficits because that would be the only thing that would constrain the government spending that at the end of the day is the true true true problem with our economy because of all the economic distortions that it creates. It lowers the standard of living for everyone, especially the poor and middle class. So the problem isn't necessarily the debt and deficits like I always say. The problem is the actual government spending itself because those that or that government spending is what creates all of the economic distortions that lead to so many of these problems that we have in society today. So, one more thing I want to do quick here is I want to look at 2008. I think it's very very important we do that because so many people just remember the end of the movie. They remember what happened. We had a deflationary bust uh mostly in asset prices, but they don't remember what happened at the beginning of the movie. And my point here is what happened at the beginning of the movie is inflation went way up, way up and so did interest rates. So I think I discussed this uh on the last video that I did, but it's important to to go over this because people just remember what happened last, but it's especially in this circumstance, it's very important to remember what happened throughout the entire cycle. So, let's go over to uh in fact I got it pulled up right here in long-term trends. So, we can see that going into the GFC inflation below target 1.97 is CPI. But then by the time you get to the middle of the GFC when the stuff is really hitting the fan, it goes from 2% up to 5.6. Huge move. 360 basis points and I know for a fact that especially between April May of 2008 2008 when everything is crumbling during that time the 2-year Treasury and the 10-year Treasury went up by almost 100 basis points 100 basis points. And to be clear, this recent move uh that we've seen, if we just zoom out here to the last uh let's do the last year. In the last year, the 10-year Treasury is up 11 basis points, but more recent, let's just go from this low point right here, so call it 4%. So, it's up 59 basis points. But back in 2008, during a very short time frame of just a couple months, it was up a hundred basis points during what turned out to be one of the biggest deflationary busts in terms of asset prices that we've seen since the Great Depression. And at the in terms of consumer prices, it was disinflationary. Then once we got to 2009 for a quarter, it was actually deflationary. So the point here is don't be fooled by even the interest rates or even the growth in inflation expectations. Remember the cycles. Remember the cycles and remember why those interest rates went up in 2008 was the price of oil. So the price of oil and like always it was because back then everyone was worried about inflation getting out of hand to the point where remember in July I thought I was back on the other chart. In July of 2008, this is the chart I was talking about. Um, right here, the ECB was hiking rates. And what's the talk now with all, oh, you know, we're not talking about a rate hike or rate cut. No way. Now they're actually talking about rate hikes. And it's the it's it's almost eerily similar to what we saw in 2008. Does it play out the same way? I don't know. I don't know. But you have to look at how the cycles have played out before to try to determine the probabilities of it playing out in a similar way. That's the bottom line. All right, guys. I want to remind everyone this I mean we got a couple weeks here. Josh, if that Oh, Josh took off. He's MIA. Couple weeks here. We got Rebel Capitals Live. I'm super excited about it. Uh we just uh booked Jeff D from the Misesus Institute and he's going to come and speak. It's always great to have a a a libertarian there uh to talk about freedom and liberty because at the end of the day, I mean, that's really what it's all about. Why are we even trying to make money if not to increase our personal freedom and the freedom for our family? So, you can check it out. It's uh what is RCL? Let me just do this since Josh is on a holiday. Let me just go ahead and put this in the chat myself. You see what I have to do? I have to be the on air talent and I've got to produce the show while I'm talking about interest rates and all these complex topics. Got to do everything myself here. All right, then. Let's go ahead and paste the link in there. There you go, guys. So, I put it in the chat and then we'll put it in the description of the video. But, uh, you got great speakers as always. I mean, this guy here in the upper left. That guy's a legend in and of himself. You got Kiasaki, you got, uh, Darius Dale is going to be the first time there. So, that's really exciting. You got Hartman, Brent Johnson, Kenny, Mike Green, Jeff Snder, Rick Rule, Robert Barnes, and I was talking about Jeff Dice, and oh, by the way, Mike Maloney, everyone's favorite guy, is going to be there as well. So, this is a lineup you really can't beat. And what's amazing about Rebel Capitalist Live is it's not just the speakers, but it's about how you can interact with them. Because most of these conferences, if you've ever been to one, it's kind of the speakers are are behind the curtain. They're in the green room. They don't really interact with the crowd unless they're doing the presentation. Here, it's way different. Way different. Uh, you know, we have cocktail parties every night. The speakers are out there having a beer and just um, you know, shooting the stuff about macroeconomics. You go up there, ask him a question, get your photo taken. It's really uh a casual type of event in a very, very good way. And the greatest thing about it, of course, is you get to interact with your fellow rebel capitalists. And these are friendships. You we have people that go to these things every year. They've been doing so for the last four years now uh since I started doing them during the surveys. And they just go every single year. Get long lasting friendships. It's fantastic to get around people that have a similar worldview. So check it out. Get your tickets ASAP and I will look forward to seeing each and every one of you in Orlando at Rebel Capitals Live in just a couple weeks.
Holy Sh*t…Did The Bond Market Just Break!?
Summary
Transcript
Hello, fellow Rebel Capitals. Hope you're well. So, we've got big news in the bond market. That's right. Is it the start of what everyone has been predicting for years that finally the Treasury market is blowing up. Finally all of the debt and the deficit chickens are coming home to roost. And the way the debt spiral works or so they say is the deficits get higher and higher, the debt gets higher and higher and pretty soon there's just no more buyers. There's no more balance sheet capacity. So then what you have to do is the interest rates go up of course and what that does is that leads to more government spending because the interest rate debt burden or the uh burden for the the the debt because the interest rates are going up becomes increasingly cumbersome. let's say. And so then what do they do? They have to quote unquote print more money. They got to print more bank reserves. And then they just end up having to do yield curve control because there's just so much debt and the deficits continue to go higher and higher and higher and higher which means there's more and more supply of treasuries and there's just a massive supply demand imbalance. And that's what they tell you. Uh, they've been talking about this for what, 45 years? Something like that. So, did we just enter it? That's the question. I mean, did you see what happened to interest rates today? I It's crazy. Let's go over and let me do a screen share. And we're going to Well, I guess I got to do the screen share first, don't I? Uh, let's do the screen share. There we go, George. Okay, now we should be good to go. All right, so let's go over to CNBC first and foremost. What are you talking about, George? Get fill me in. I've been busy at work or busy with the kids all day long, so I've been watching the bond market. So, if we go over to the 10-year Treasury yield, look at this. Up almost 13 basis points today. And look at the action just in the last couple days. Let's do a fiveday chart. Straight up. Straight up. I mean, it's to to the thumbnails said that they're skyrocketing, and that is not an exaggeration. I mean, you guys know from watching my videos, a 13 basis point move in the 10-year Treasury in one day is huge. That that is massive. So, again, if we go back to a year chart, you can see that this is just going parabolic. So, again, you have to ask the question, did the bond market just break? all the people, my good buddy Peter Schiff as an example, you know, he's been talking about this for decades. So, did it just happen? Did we cross that threshold where finally, finally there's just too much debt and there are no buyers and the bond vigilantes from the 1970s have come back have come back with vengeance. Right? So the first thing we have to do is look at two schools of thought. The first school of thought is interest rates are driven by debt and deficit expectations. So this would be the bond market blowing up theory. So what happens is the buyers of treasuries in the United States, outside the United States, they look at the fiscal situation and they say, "Okay, we're done. Doge didn't work. You know, we had a little bit of hope there with Trump, but now he just tried to pass what was it? A $1.5 trillion dollar war budget for next year, military budget. And so, we see the writing on the wall. We were going to give him the benefit of the doubt that they'd bring the debt and the deficits down. That didn't happen. And now we see that this, like my friend Lynn Alden says, nothing stops this train. And collectively, the bond market has just woken up a couple days ago and seen the writing on the wall. And therefore, they're not going to buy treasuries at any price because they know that the deficits are not only going to go on forever, but they're likely going to continue to increase. And remember, the deficits are a representation of the supply of treasuries. So, that's one theory. The other theory is that interest rates are more so controlled by growth and inflation expectations. So this there's an easy way to test which one is right and which one is wrong. All you have to do is look at the 10-year Treasury versus the nominal GDP in the United States. So let's check out that chart real quick. Then we'll come back here to the 10-year Treasury. So this is the chart I was just referring to. And the red line is the 10-year Treasury yield. And the let's see, the blue line, I guess they've smoothed out nominal GDP growth as far as a percentage, but that's the five-year average. And again, this is nominal nominal GDP. Again, we're looking at growth in inflation expectations. So you can see that the uh the GDP in this case is just kind of a smoothed out chart of the 10-year Treasury yield. I mean I I don't know what the correlation would be here, but it's incredibly incredibly high. I mean, you people who are smarter than I am would can probably peg that, but I'd say what the 80 85% correlation here. And the important thing to note is during this time when you see nominal GDP going down, you see interest rates going down, you also saw the debt and the deficits doing what? Going straight up. So during this period right here, there was actually an inverse correlation between debt and deficits, which makes absolutely no sense unless you understand the monetary system, right? uh it doesn't make sense unless you exclude the banks from your analysis would be another way of saying that. And then more recently you see this which a lot of the the debt and deficit people will say oh oh look at this but the debt and deficit started to explode during the surveys sickness and you got interest rates going up right but so did nominal GDP in other words so did growth in inflation expectations so is this increase right here and now then we're going to we're we're zooming out right now then we're going to zoom back in when you zoom out look at this is this increase that you're seeing since the surveys sickness is that due to debt and deficits or is that actually due to growth in inflation expectations increasing? In other words, nominal GDP. See, we have to make sure that we're not confusing correlation and causation. So, now let's go back to let's zoom in and go back to the 10-year Treasury yield. And we saw that where are we now? Oh, I guess I was at the CNBC chart. I'm sorry. So, we see this spike going up. But now let's go ahead and zoom out again because when you look at it from March, I mean it's just boom straight up. You get a little bit of a reprieve but then and more recently when we got this trigger. What was the trigger? It was the CPI. We're going to get into that in a minute. But I mean again it just goes parabolic. Just goes straight up. And that is very very concerning. Absolutely concerning. But it isn't necessarily concerning due to debt and deficits. Unfortunately, I wish the bond vigilantes were back. But where it is concerning is for the United States economy. And let me go ahead and write that down because I want to circle back to that. As you can tell, I do zero preparation for these videos. Whiteboards are different. Live streams. I just riff on it. All right, but let's zoom out here. Go to the alltime chart. So, this goes back to 82. And when you see the alltime chart and which includes, you know, going back to 2022 or so, you look at it, you're like, "Oh, it doesn't look so scary, does it?" H it doesn't look so scary. Now, the this skyrocketing move right here that looks terrifying. When you actually zoom out a bit, we'll do a five-year chart. It it looks more, let's say, benign. like, oh, uh, yeah, that's maybe kind of a nothing burger here. But what has happened more recently, because again, we're kind of going back and forth with this debate. I mean, you guys know where I stand. It's all it's all growth and inflation expectations, but there's so many people out there that are in the camp of, well, it's all about debt and deficits. And even though they acknowledge that in the past it's never been about debt and deficits, they still hold on to this belief that very soon in the very near future it will. You know, the bond market is just those idiots in the bond market just haven't seen what Peter Schiff can see in the last 45 years. But they're waking up to it. They're waking up to what Peter Schiff has been talking about. And I I don't you know, I'm buddies with Peter, so I don't want to uh you know, I I'm not making fun of him. I'm just saying, you know, Peter has had that view for quite some time and that's fine. That's his view. Um, but he I think he'd be the first person to admit that that view has been incorrect or at the very least it hasn't come to fruition yet. And the view I'm talking about is the bond market is going to blow up because of debt and deficit expectations. Sooner or later, it's going to happen. Well, it hasn't happened. And so, we have to ask the question, well, why hasn't it happened? Right? And so when we look at why it hasn't happened, you get into the mechanics of the monetary system and that's when you have to include the banks, right? Because let's think about this for a moment. Let's go back to this chart of nominal GDP. Let's assume for a moment we are um uh I mean this chart only goes to 2022, but it's all about the concept. It it's all about the concept. So right here our fiveyear average was h call it what five six% something like that just trying to eyeball it. So first of all where you would see a big problem and when you could say and when I would be the first person to admit that yes debt and deficits they do matter. Now all of a sudden what Peter's been predicting for 30 years, it's it's it's here. It's here. When George Gammon would would gladly admit that is when this red line would go way above way above the blue line, very similar to what we were seeing back here, right? So if you saw this red line and what does that mean? That means that interest rates are going way higher than nominal GDP. Now, the reason that's very unlikely to happen, not impossible. Again, we're not talking about certainties. They're only probabilities. Um, but why that's very unlikely to happen is because think about it in terms of you, the person watching this video. Let's take it to an extreme so we we can all get our head around it. Assume that the interest rates on the 10-year Treasury yield went up to I'll just take it to an extreme. They go up to 15%. So, they're way up here where my little pointer guy is. So, they're way up here at 15%. But growth in inflation, nominal GDP is still around, call it 5%. So, you you got 10% positive real rates, 10%. What would you do? Would you buy treasuries? 10% positive real rate in dollars, the same currency that your expenses, your mortgage, everything else is denominated in. Now, some people say, "Oh, absolutely not. I'm still going to buy gold." That's fine. But a lot of people, even the the diehard gold bugs, even my buddy Peter Schiff, uh if he is getting a 10% positive real yield on a 10-year Treasury, he'd dabble likely. I'm not going to speak for him, but he would likely dabble because that's a good deal. That's a great deal, right? Because again, the the argument there is like, "No, it's a terrible deal because inflation is going to skyrocket." But it it's not, right? Because remember, nominal GDP, which is a which a component of nominal GDP is inflation, is still down at 5%. Down at 5%. So that that's why there's such a huge delta. So the inflation would not be that much of a concern for the marketplace and for most retail investors. So what we're going to do, you're likely going to come in and buy 10-year treasuries. Again, that what's that going to do? That's going to bring the interest rate down. And that's just you taking a bet with your own money, with your own savings. Now, let's think about it through the lens of the banks. And this is why I harp on it so often. I beat the table on this. The banks aren't even using their own money. They're using OPM, other people's money. And in and very often, they're using money that they just create, that they just lend into existence. So, I'm a bank and I want to go out there and buy $10 billion worth of treasuries. I'm going to go ahead and borrow that money from another bank. Well, where is that bank going to get the money? They're going to lend it into existence. They're print it. whatever you want to say it, that's new money that didn't that uh didn't exist before. So that's $10 billion of new money that was just created by that loan from one bank to the other bank to go out there and buy the 10 billion worth of treasuries, 10 year, whatever it is. So the point there is you've got the banks that are not only just taking other people's money, not using their own money, but literally creating new money that didn't exist to go out there and take advantage of what is effectively an arbitrage opportunity. Right? If you had 10 year 10 uh percent positive real rates, that's that's an arbitrage. So you got the retail investor coming in and buying that. Maybe even Peter Schiff himself. And then you have the banks just piling in because they're not taking their own money. So they're just lending it into existence or taking other people's money. You know, the circulation of money and credit and they're buying those treasuries down down down to a point where they get, you know, like this where they're getting much much closer to nominal GDP. Now, you can have moments in time where it gets way out of whack like this where growth and inflation expectations are so high, right? But eventually, they come back down. They come back down. And keep in mind, the Euro dollar banking system, which creates the vast majority of dollars in today's world, was nowhere near, not even close to as developed uh in 1980 as it is today. So this is why you have this, right? So now let's go back to kind of what triggered this dramatic spike when you zoom in. We go to I mean CPI I'm sure you guys heard 3.8%. Now it was slightly above expectations and to be clear core was only 04. I say only that's still really high but the point4 I mean it's not that dramatic. And what are they stripping out here? volatile food and energy, but mo mostly energy. I mean, this gas prices right here, right? And that's a huge problem. Not necessarily for interest rates, but more so due to the economy because wages ain't going up this fast. Wages are stagnant. I would argue the labor market is deteriorating. So, you have a a labor market that's deteriorating. In other words, aggregate demand is already going down in of itself. And then you throw on, you know, fuel to the fire, no pun intended, gas prices that are skyrocketing, that are going straight up. That's taking away from discretionary income. That's taking away from aggregate demand. And that's usually in these type of cycles is what kind of is the tipping point. That's the straw that breaks the camel's back is it's often high energy prices as we saw in 2008. Perfect perfect example. But then the double whammy here is you get core PPI at 6. That's a big number when your expectation was for.3. That's core PPI. And the headline number was 1.4 when the expectation was for a 0.5. And then today we fast forward and we get an expectation for Empire State Manufacturing at a seven. We get a 19.6 industrial production point 2, we get a 7. So you see what's happening here in the world of growth and inflation expectations is you get this right hook from Tyson with the CPI. Uh where is it? Right here. And then the next day you get that uppercut from Tyson with the PPI. Now you have a huge inflation bias in the bond market. You have a massive inflation bias. So any little number that comes out is going to be exacerbated on the upside as far as yields. And then you combine that with the price of oil going up substantially today. So let's go over to oil. and it's up almost 4%. So big move, big move in oil. So you have oil, you have the CPI, you have the PPI, you have the manufacturing data, you have all these things that kind of create this perfect storm on a Friday where you're just seeing the 10-year Treasury absolutely skyrocket. But to be clear, to be clear, it isn't because of debt and deficits. It's because of growth and inflation expectations. Now, I know a lot of people right about now will say to themselves, "Okay, George, well, fine. You know, this is all about growth and inflation expectations. I I'll give you that." But because of the debt and deficits and because of all the Fed's money printing, we are having inflation. And so regardless of whe the interest rates are going up due to whatever reason you want to concoct or whatever reason you want to believe based on your model, the bottom line is we're still getting more and more and more inflation. And therefore, we're likely to have interest rates continue to go higher and higher and higher. And again, the reason for that inflation is all of this money printing, money printing, money printing, because they just have to print money, the Federal Reserve, in order to offset the massive deluge of the supply of treasuries hitting the market because the deficits are so high, right? So, let's just put that one to the test here because what we can do is we can look at this chart, very easy chart. You can pull it up yourself. Just a Fred chart. And these are the amount of bank reserves on the Fed's balance sheet. In other words, money printing. Right now, there, let me be clear, there is a way for this to increase without the Fed actually doing quantitative easing, such as the money being spent out of the TGA. So, you have to remember, and I know I haven't done a whiteboard video for quite some time, but those of you who have watched a lot of my whiteboard videos, you know the Fed's balance sheet is pretty much compartmentalized into three different categories. So, number one, you have bank reserves right here. Number two, you have the TGA. And then number three, you have reverse repo. So, that's where the bank reserves can go. All the bank reserves in totality in the system. But if the bank reserves go from this account down to the TGA, they're no more they're no longer in this account or same thing as reverse repo. But then once that money is spent out of the TGA, then this all as being equal, this number of bank reserves and on the bank's balance sheet would actually increase because you see this only reflects the bank reserves that are on the bank's balance sheets. Okay, now that we understand that, and this if you're really the the money printing type of guy or gal, this is what you should really be focused on because the whole idea behind money printing is that the Fed increases the amount of bank reserves available to the banks. Very key, available to the banks, not you know, the Fed could create bank reserves all day long if they just get stuck in the TGA. That's just like taking a trillion dollars and stuffing it under your bed. It's not going to circulate. Therefore, it's not going to create consumer price inflation. But their argument is that they give all of this additional base money to the banks and then the banks go ahead and have that money multiplier, which in of itself is nonsense, but we'll save that for a separate video. So, they have that money multiplier. So, the more the Fed increases base money, then eventually the more that's going to lead to an increase in broad money. In other words, the amount of currency units chasing goods and services, right? So even if you're in that money printing Fed camp, you have to f hyperfocus on this number. This is really the only number that that matters, right? So what have we seen here? We well we've seen this number actually go down since 2021 and more recently it's gone down quite substantially. If you look at from August 2025, I mean we're at call it 3.28 and now we're basically flat. So you're down 20, let's call it 275 billion in bank reserves. So the Fed is not money printing right now. If anything, they're they're money destroying. Now, they could be I don't know if they're doing QE or not. I haven't followed it lately, but that that those bank reserves could be going into the TGA. They could be going into reverse repo. I doubt it. Um, but even if they are, it doesn't matter because it's not getting into the banking system. And therefore, you can't argue that you're having an increased money multiplier effect that would actually impact or lead to a sustained increase or acceleration in consumer prices. And that's if this did lead if this meaning base money actually did lead to an increase in broad money which it doesn't which it doesn't and you can see that by just looking at this chart. So we know that M2 money supply as an example from 1980 went from 1.5 trillion to in 2007 7.5 trillion. We know broad money did that and that's just the M2 in the United States. We're not talking about the broad money, including the the dollars denominated broad money outside of the United States, but just M2 in the United States went from 1.5 trillion to 7.5 trillion. And what did reserves do? You can see nothing. Nothing. Absolutely nothing. So there's no way that you can argue that there's a a direct correlation from, you know, to bankers. In fact, go back, look at this. Go back to 1960. Go back to 1959 and you had basically 20 billion in bank reserves in 1959. And then you fast forward to 2007. So you've got what? 47 years later. 47 years later and bank reserves are at 42. Think about what global dollar denominated M2 did from 1959 to 2007. I mean quite literally it probably went from I'm I'm just guessing here in 1960 global dollar M2 was probably 500 billion maybe. I mean that was a huge number. That was an astronomical number back then. So you go from 500 billion to 7.5 trillion and bank reserves go from basically 20 trillion or excuse me 20 billion to 40. And you're telling me that that that's the money multiplier? Come on. Come on. Bottom line is banks are creating all this money without needing bank reserves. Now they can use them for sure and they do use them but they don't need them. And that's the key. So, the main takeaway here is this is definitely something to pay attention to. I I don't want to dismiss this because anytime you have a 13 basis point move in the 10-year Treasury, that that's shocking. That is absolutely shocking. Uh that's not unprecedented, but it's very rare you see that. So, you got to pay attention. But then you ask why? Why? And the reason it's doing this is because of growth and inflation expectations that they're increasing. It has absolutely nothing nothing to do with debt and deficits. And I wish that wasn't true. I actually wish it was the opposite. I wish it was due to debt and deficits because that would be the only thing that would constrain the government spending that at the end of the day is the true true true problem with our economy because of all the economic distortions that it creates. It lowers the standard of living for everyone, especially the poor and middle class. So the problem isn't necessarily the debt and deficits like I always say. The problem is the actual government spending itself because those that or that government spending is what creates all of the economic distortions that lead to so many of these problems that we have in society today. So, one more thing I want to do quick here is I want to look at 2008. I think it's very very important we do that because so many people just remember the end of the movie. They remember what happened. We had a deflationary bust uh mostly in asset prices, but they don't remember what happened at the beginning of the movie. And my point here is what happened at the beginning of the movie is inflation went way up, way up and so did interest rates. So I think I discussed this uh on the last video that I did, but it's important to to go over this because people just remember what happened last, but it's especially in this circumstance, it's very important to remember what happened throughout the entire cycle. So, let's go over to uh in fact I got it pulled up right here in long-term trends. So, we can see that going into the GFC inflation below target 1.97 is CPI. But then by the time you get to the middle of the GFC when the stuff is really hitting the fan, it goes from 2% up to 5.6. Huge move. 360 basis points and I know for a fact that especially between April May of 2008 2008 when everything is crumbling during that time the 2-year Treasury and the 10-year Treasury went up by almost 100 basis points 100 basis points. And to be clear, this recent move uh that we've seen, if we just zoom out here to the last uh let's do the last year. In the last year, the 10-year Treasury is up 11 basis points, but more recent, let's just go from this low point right here, so call it 4%. So, it's up 59 basis points. But back in 2008, during a very short time frame of just a couple months, it was up a hundred basis points during what turned out to be one of the biggest deflationary busts in terms of asset prices that we've seen since the Great Depression. And at the in terms of consumer prices, it was disinflationary. Then once we got to 2009 for a quarter, it was actually deflationary. So the point here is don't be fooled by even the interest rates or even the growth in inflation expectations. Remember the cycles. Remember the cycles and remember why those interest rates went up in 2008 was the price of oil. So the price of oil and like always it was because back then everyone was worried about inflation getting out of hand to the point where remember in July I thought I was back on the other chart. In July of 2008, this is the chart I was talking about. Um, right here, the ECB was hiking rates. And what's the talk now with all, oh, you know, we're not talking about a rate hike or rate cut. No way. Now they're actually talking about rate hikes. And it's the it's it's almost eerily similar to what we saw in 2008. Does it play out the same way? I don't know. I don't know. But you have to look at how the cycles have played out before to try to determine the probabilities of it playing out in a similar way. That's the bottom line. All right, guys. I want to remind everyone this I mean we got a couple weeks here. Josh, if that Oh, Josh took off. He's MIA. Couple weeks here. We got Rebel Capitals Live. I'm super excited about it. Uh we just uh booked Jeff D from the Misesus Institute and he's going to come and speak. It's always great to have a a a libertarian there uh to talk about freedom and liberty because at the end of the day, I mean, that's really what it's all about. Why are we even trying to make money if not to increase our personal freedom and the freedom for our family? So, you can check it out. It's uh what is RCL? Let me just do this since Josh is on a holiday. Let me just go ahead and put this in the chat myself. You see what I have to do? I have to be the on air talent and I've got to produce the show while I'm talking about interest rates and all these complex topics. Got to do everything myself here. All right, then. Let's go ahead and paste the link in there. There you go, guys. So, I put it in the chat and then we'll put it in the description of the video. But, uh, you got great speakers as always. I mean, this guy here in the upper left. That guy's a legend in and of himself. You got Kiasaki, you got, uh, Darius Dale is going to be the first time there. So, that's really exciting. You got Hartman, Brent Johnson, Kenny, Mike Green, Jeff Snder, Rick Rule, Robert Barnes, and I was talking about Jeff Dice, and oh, by the way, Mike Maloney, everyone's favorite guy, is going to be there as well. So, this is a lineup you really can't beat. And what's amazing about Rebel Capitalist Live is it's not just the speakers, but it's about how you can interact with them. Because most of these conferences, if you've ever been to one, it's kind of the speakers are are behind the curtain. They're in the green room. They don't really interact with the crowd unless they're doing the presentation. Here, it's way different. Way different. Uh, you know, we have cocktail parties every night. The speakers are out there having a beer and just um, you know, shooting the stuff about macroeconomics. You go up there, ask him a question, get your photo taken. It's really uh a casual type of event in a very, very good way. And the greatest thing about it, of course, is you get to interact with your fellow rebel capitalists. And these are friendships. You we have people that go to these things every year. They've been doing so for the last four years now uh since I started doing them during the surveys. And they just go every single year. Get long lasting friendships. It's fantastic to get around people that have a similar worldview. So check it out. Get your tickets ASAP and I will look forward to seeing each and every one of you in Orlando at Rebel Capitals Live in just a couple weeks.