We just read that the federal government is running its largest deficit as a percentage of GDP outside of WWII period. Another great achievement!

And next year we are likely to see the greatest money creation out of thin air in the entire history of the US. The Fed has to create ways to finance the record deficits by the creation of new money.

That of course has inflationary implications. And that will plunge the bond market again, making the bond disaster even worse. Remember, last time we wrote the global bond market is $128 TRILLION. That is 128 million times a million dollars.

We conservatively estimate that they have unrealized paper losses of at least 60%. Therefore, the loss on the global bond market would be a staggering $77 TRILLION!!!

How will that be handled? The only way is to pretend that the losses don’t exist and make sure that accounting rules don’t force the losses to be “realized,” by marking to market.

Below is the long-term quarterly chart of the ETF for long term US T-bonds, TLT. It has broken well through the March 2020 crash low, as well as through the late 2022 low. It is now approaching the low of this decade in 2002.

So far, the TLT has suffered a 53% decline during its 3.5-year bear market.

After its recent rebound, the shorter-term daily chart of TLT below shows that the latest rally was most probably a bear market bounce that is likely to expire soon.

It is amazing that most professional analysts appearing in the media have been advising the purchase of bonds all the way down.

We now hear from many guests on Financial TV how attractive long-term bonds are because of the higher yields of 5%. This is dangerous advice. Yes, T-bond yields are now around 4.5%. But in 1980 they were over 15%.

If yields get back to those highs, long term T-bond prices could plunge another 30% to 50%. The analysts don’t mention that! The risk vs reward on these bonds is terrible right now.

Last month saw the biggest money inflows into long-term bond funds on record ($5.6 billion), according to Michael Hartnett of BofA Merrill Lynch. See the chart below (light blue line = long-term treasury fund flows). However, that $5.6 billion is miniscule considering that the Fed has bought $4.7 TRILLION since early 2020.

Our work says that the 40-year bull market in bonds that started in the year 1982 and ended in 2020 will be followed by a long-term bond bear market of perhaps 20 years or more.

So far, the bond market decline of the past three-plus years has been the worst since 1780, according to Barron’s Roundtable. That was a long time ago.

Of course, there will be intermittent cyclical rallies during the secular bear market. But we are talking about the major trend.

U.S. Debt is now accelerating upward with no end in sight. The faster it rises, the harder it is to slow it without causing a horrible crash. It is the power of compounding.

Total US Debt is now $33.649 trillion. In an article, Zerohedge points out it is up $604 billion in one month… up $20 billion every day, up $833 million every hour.

At this rate US debt will total $41 trillion by late 2024. China, which was the second biggest buyer of US Treasuries, has been the biggest seller of US Treasuries this year. Not only does the Fed have to create the money to soak up the market surplus because of selling by foreign central banks, it also has to finance the record debt and deficits.

That is why bonds are “guaranteed certificates of confiscation.” The buyers will have their wealth confiscated.

The US added $1 trillion in debt in the last three (3) months. But no one in Washington cares. The president just promised another $106 billion to Israel and Ukraine. Where will that come from?

CONCLUSION: any intelligent person can see that this cannot end without a crisis. Be prepared. Money in the bank is not a solution. Congress passed a law after the last crisis that depositors’ money (over $250,000) can be used to “bail in” the bank. In other words, your money becomes the bank’s money.

Find out what our research reveals about the best way to safeguard your wealth now in our latest award-winning Wellington Letter.

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Bert Dohmen
Founder, Dohmen Capital Research