Einhorn’s warning hits home as global debt nears $400T and gold rises while trust in fiat fades.
David Einhorn said in an interview last year that:
“Debts don’t matter…until they do”.
It would appear that with global debt approaching $400T and US public debt alone at $37T, debt is beginning to matter.
The $ and UST sell off post Liberation day has been well documented as an ominous indication of the dangerous US fiscal position.
Trump caving on the tariffs had little to do with the 'art of the deal'. More, the bond mkt simply said ’no’.
6 weeks later and the Japanese bond mkt is now causing alarm as yields rise sharply.
As Bloomberg says…
“The Bank of Japan’s colossus of a balance sheet represents one of the biggest threats to financial stability in Japan and around the world. A rise in yields represents a far from trivial loss to the BOJ’s $4 trillion of JGBs, accounting for almost 80% of it’s b/s…….But the mkt is not stupid:that loss will eventually be pathed over with freshly prinyted, inflation stoking money leading to more JGB selling…….As domestic investors lose money and financial risks rise, the likelihood is that some of Japan’s huge net creditor position with the rest of the world is repatriated”….
And this is the issue, as repatriation increasingly takes effect, it’s not just Japan’s problem.
For those of us living in the UK, that 'Liz Truss moment' is still fresh in the memory.
Overnight, the UK pension fund industry here was insolvent and the Bank of England had to intervene to buy gilts.
As my colleague Matt Piepenburg says, out of control debt simply limits choices for politicians, markets and central bankers. Yields really do matter now.
The US is losing leverage and trust because it’s counterparties are finally less trusting of it’s IOUs.
Little wonder that the biggest whales in the market (Central Banks in the East and Global South) have been net selling treasuries and buying physical gold as the ultimate store of value before the next bazooka money printer gets turned on again to save the bond mkt at the expense of the currency.
VON GREYERZ has said for many years that gold won’t rise because it’s somehow magically strengthening. It’s rising, and will continue to do so because fiat money, and the US $ in particular, are caught in a debt trap. And have to be de-based.
Maybe it takes a 2nd Liz Truss moment for pension funds, institutions, Family Offices and US retail to follow what so many central banks have been doing for years and also start to allocate to gold; and preferably outside an increasingly fragile banking system. That moment feels like it’s getting closer.
A penny for David Einhorn’s thoughts now….
