The Cadence of Death Itself

Yesterday’s major development was the rapid surge in interest rates. Asia Times reports:

Japan flashed the first warning, with 10-year yields hitting a 30-year high near 3%. [Last] week, US Treasuries followed, with yields reaching levels unseen since 2007 — traders called it “Black Wednesday.” Thirty-year yields sit at 22-year highs; 10-year yields are at two-decade highs.

Those who’ve endured Bonner Private Research for a long time (you have our sympathy) may recall 2020, when the four-decade interest rate cycle finally hit its lowest point. With the US 10-year note slipping under 1%, risk overtook reward, setting the stage for a major loss.

We anticipated that the primary credit cycle trend would move toward more expensive credit. Now, six years onward, the 10-year yield exceeds 5%, and investors in bonds are demanding higher returns to offset inflation.

Here lies the crux: there is roughly $365 trillion in global debt. The difference of 400+ basis points between September 2020 and September 2026 equates to about $14 trillion more annually. That’s the added cost of servicing interest on all debt today compared to six years ago.

This raises another often overlooked issue. Pulled from the water and flailing on deck is our subject of the day—the modern warfare/welfare state. Fed on taxpayers, this government has been with us throughout our lives. We’ll dissect it to uncover its core and explain the significance of rising interest rates.

Governments arrive and persist. Amid the tapping of heels in our capital, echoes linger of Greek democracies, the Roman Republic, and imperium. Socialism, Authoritarianism, Oligarchy, Kleptocracy—these have all been whispered within marble halls. Though the welfare state is a novel invention, the warfare state dates back to the bow and arrow. Donald Trump’s attempt to erect a grand arch is another tribute to it.

Following the Peace of Westphalia, nation-states rose—one people, one territory, ruled by one monarch, united by common language, faith, law, and the willingness of youth to die for them.

America was never truly a nation-state, despite the aspirations and pretense of many politicians. Its population was diverse, governed by neither tyrant nor king, and free to speak any language they wished.

The US was designed for a modest, inexpensive government…leaving people free to build whatever lives they could. Good, bad…rich, poor – it was none of the feds’ business.

Yet, in the post-WWII era, this entity evolved from a benign freshwater fish into a dominant ocean predator—a Big Government. The public feels in charge. Voters believe Washington ‘works for us.’ As Hillary Clinton famously stated, with a straight face, ‘government is all of us.’

The ideology rationalized the expenditure. Why hesitate to spend when it’s purportedly for collective benefit? Why fret over debt when it’s “owed to ourselves?” These voters mistakenly think they control the system.

However, butter still requires money. And to reveal no secrets, the government is broke—flat out of funds.

Counterfeit money kept the spending afloat. From 1980 to 2020, declining interest rates reduced carrying costs yearly. The more the government spent, the more citizens demanded, punishing any politician who resisted. Everyone sees these pension and healthcare programs pushing the nation toward fiscal disaster. Still, even ‘conservative’ Republicans, if any remain in ‘public service,’ fear proposing cuts.

So what happens when politicians and central banks fail to curb these social commitments? They scale back their promises internally. Politicians keep paying, but their money’s value diminishes along with benefits.

Each 1% rise in interest rates drains $3.65 trillion annually from the global economy to cover past obligations. In the past six months alone, the 10-year note’s yield—the financial system’s diesel—climbed roughly 100 basis points (1%). William Pesek adds (in the Asia Times):

Things are likely even worse than the data show. IIF economist Emre Tiftik notes… “as benchmark rates rise, interest expense is set to surge, while structural pressures from healthcare and public pension spending remain largely unaddressed.” At the same time, mature-market governments now spend more on interest expense than the world invests in either artificial intelligence, defense or clean energy.

This is the relentless arithmetic of a Ponzi scheme.

Fewer young people contribute to the system, while many eligible for payments exploit overly generous programs.

Meanwhile, soaring interest rates march to the relentless cadence of death itself, dooming the entire scheme. The government can continue “printing” money, but the bond market—once burned, now wary—demands payment each time.