By Doug Casey
May 9, 2025
International Man: In your view, what role does the Treasury market play in global finance, and how significant is it to the current financial system?
Doug Casey: It's only important because it exists-but it shouldn't exist. People think that the Treasury market is part of the cosmic firmament, but there once was a time when the US government had little or no debt outstanding, and the world got by fine without it.
It's not a question of how significant it is so much as when the time bomb that it represents will go off. That's because it's not supported by any underlying assets. Nor is the dollar that it's denominated in.
Let me use a simple analogy. It's much as if a king is taxing a farmer. But one year, the king is in a war and needs extra taxes. So he tells the farmer, "Look, I need your seed corn this year to fight the war, but I'll give you a bond which guarantees that you'll get it back next year, when you need it. Plus interest."
The patriotic farmer says, "Okay." The farmer gets the bond, and the king gets the seed corn. Both are happy until the next year, when the farmer wants to cash in the bond to retrieve his seed corn. Where did it go? It's been consumed. Now there's no seed corn, there's no harvest, and they both starve to death.
That's the eventual fate of the US debt market.
The financial markets would be much more stable without the government bond market. Government debt doesn't finance new production, it finances consumption. Either by consuming past production, or mortgaging future production. We'd be much more prosperous, and safer, if it didn't exist.
Around $2.7 trillion of US debt is held by Social Security. At some point, the people hoping to collect Social Security will come to recognize that it's not a piggy bank or lockbox, as they used to say. The asset they're counting on for retirement is the debt of a bankrupt Ponzi scheme. Very much like the bond guaranteeing the farmer's seed corn.
International Man: In your opinion, what does the 10-year US Treasury yield tell us, and why is it considered one of the most important financial indicators?
Doug Casey: Perhaps it's because around 20% to 25% of the Treasury market is denominated in 10-year notes. Or perhaps it's because most mortgages are paid off in 10 years, not 30 years, as people trade houses. If the US chose to it could probably sell a 100-year bond. But it won't, because that would be an extremely volatile piece of paper, which could shake the public's faith in the system.
Don't forget that it was only a few years ago that the Austrian government poked the markets in the eye with around 8 billion euros of 100-year bonds bearing coupons of 2.1% and 0.85%.
I thought it was laughable, and only an idiot would've bought those. Even though that was when euro interest rates were actually negative. Since then, their market values have fallen to around 44 and 34 euros per 100 euro face value, respectively. Some institutions are sitting on giant losses.
Even more laughable was in 2017, when the Argentine government somehow peddled $2.75 billion worth of 7.125% 100-year bonds which, of course, they defaulted on. Although they were later redeemed with short-term bonds to kick the can further down the road. Those will probably also be defaulted on. Or should be. Any fund manager buying the debt of a South American government should be punished with a jail term, not just losses in the market.
That said, with multi-trillion dollar deficits running far into the future, US government debt is no longer a AAA risk.
International Man: Where do you see Treasury yields headed?
Doug Casey: I wouldn't own any bonds at this stage in the market-except as a short-term speculation on the direction of interest rates. But even that's a bad idea. Let me refer you to my favorite financial joke to illustrate why.
Einstein dies and goes to heaven.
St. Peter welcomes him and says, "Unfortunately, we have a temporary housing shortage here in heaven because, for obvious reasons, we're a centrally planned economy."
But Einstein is fine with that, and they take him to his room, where he meets his three roommates.
The first guy says: "Mr. Einstein, I have an IQ of 130, and I want to get to know you." Einstein says, "Great. After lunch, let's bounce around some concepts of astrophysics that have been on my mind."
The second guy comes up and says, "I'm not as smart as that first guy. I only have an IQ of 100." So Einstein says, "Great. Let me put away my grip, and we'll play a game of chess."
The third guy comes up and says, "Mr. Einstein, I'm not as smart as those other two guys. I've only got an IQ of 70, but I still want to get to know you." Einstein says, "So where do you think interest rates are going?"
That said, I wouldn't own bonds at this point. They're at least a triple threat to your money.
The first risk is interest rates. I think, for a number of reasons, interest rates are headed back up to the levels of the early 1980s, when the US government was paying almost 20% for its money. They trended down to near zero over 40 years, and the long-term trend has reversed.
Second is the rate of inflation. The government will continue running giant deficits, regardless of DOGE's best efforts. Those deficits will necessarily be monetized. Monetary inflation is headed up, and the dollar is headed down.
Third is the default risk. There's no guarantee that all that debt out there, even from the US government, will be paid off. In fact, I'm confident it won't be. It can't be, unless the dollar is destroyed-which is the worst alternative.
I wouldn't touch long-term bonds with a barge pole. They're toxic.
International Man: The Trump administration has explicitly expressed a desire to keep the 10-year Treasury yield under control, and some speculate that policy shifts-such as a reversal on tariffs-were responses to yield spikes.
Why is the 10-year yield such a pressure point for the US government, and to what extent can a president actually influence it?
Doug Casey: The bond market is mainly based on confidence, and confidence can blow away like a pile of feathers in a hurricane.
You shouldn't have confidence in the US government or its debt at this point, notwithstanding the best efforts of DOGE-which are wonderful, but I believe will fail catastrophically.
Can a president influence interest rates? Not really. If Trump wants lower rates, the US government has to radically cut its spending, its size, its currency debasement, and its taxes. None of that is going to happen, however, so there's no reason to have confidence in the dollar.
And frankly, nobody should believe anything that Trump says. I'm not kidding. Trump says things that are patently false and unbelievable. Get a load of his recent Tweet about the 80th anniversary of World War II's end:
"Many of our allies and friends are celebrating May 8th as Victory Day, but we did more than any other country, by far, in producing a victorious result in World War II and November 11 as Victory Day in World War I. We won both wars, nobody was close to us in terms of strength, bravery, or military brilliance..."
He's probably unaware that although the US suffered about 180,000 combat deaths against the Germans, the Soviets lost about 10 million-plus about 17 million civilians. The Western allies inflicted about 250,000 KIA on the Wehrmacht, but the Soviets inflicted about 20 times as many. WW2 was really a battle to the death of the Germans against the Soviets. Trump's comment was stupidly ignorant and insulting. But he does that kind of thing constantly.
So, any thoughtful person should have zero confidence in what the president says about interest rates-or anything else. That's a pity, but it's true.
International Man: If US Treasuries were to lose their role as the foundation of the international monetary system, could gold or Bitcoin take their place?
What would the investment implications be if such a shift were to occur?
Doug Casey: Treasuries are already losing their foundational role in the international monetary system. Why? Because dollars, not Boeings or soybeans, have been the major US export for the last 40 years.
There's a huge overhang of many trillions in the hands of foreigners who, unlike US citizens, don't have to hold US dollars or US bonds. And at some point-when confidence collapses, and there are lots of reasons it will-they'll start unloading those Treasuries. Those dollars will come home to roost, taking prices to unbelievable levels and transferring physical assets in the US into the hands of foreigners and out of the hands of Americans.
What would the investment implications be of such a shift?
Well, it's regrettable, but almost inevitable that it will happen. The investment implications are catastrophic for Americans and anybody who owns US dollars or US debt.
I therefore continue to own gold and Bitcoin. As far as other investments are concerned, almost everything today is a speculation. You can forget about the word "investment."
Reprinted with permission from International Man.