The global bond market represented an enormous chance for global prosperity. The $10 trillion bond market in 1990 exploded to $100 trillion in 2016. During this period, global GDP grew from $20 trillion to $74 trillion. In 1990, the bond market to GDP held a 50% ratio. This ratio in 2016 exploded to 135%, meaning that the world is now in the largest bond bubble in history. Essentially, every $1 increase in GDP added 2.7 times the debt. Currently, there are roughly $15 trillion in negative-yielding bonds from countries such as Finland, Germany, Netherlands, and Sweden. Global issuance of debt is a healthy function of an expanding global economy, but the mismanagement of that capital creates tremendous distortions and the inability for countries and local governments to service the interest on the debt.
Accumulation of debt has been caused by one fundamental reason: the repression of free markets. If, free markets were allowed to function as such, supply and demand would’ve forced interest rates to much higher levels. -Egon von Greyerz, of Gold Switzerland, describes this phenomenon in terms of the yield on the 10-year Treasury Bond.
“In July 2016, the 10 year US Treasury reached 1.33% which is the lowest ever recorded and below the 1945 low. The 35-year secular rise of US rates went from just under 2% in 1945 to 16% in 1981. In 1970, just before Nixon abandoned the gold standard, the rate was 6.5% and in the next eleven years, high inflation and a dollar that halved in value led to a collapse of US treasuries. During certain periods, rates moved up very quickly and between June 1980 and October 1981 for example the US 10-year went from 9.5% to 16%.”
Egon and many others believe that the cycle of interest rates will push the 10–year bond over 16%, which would lead to major disruptions in the bond market, as well as the currency markets. Collapses of these markets will put pressure on governments around the world to keep the banks afloat. Pressure on the petrodollar (devaluations) and the settlement of international trade in other currencies will lead to tremendous stress on the financial system as well.
Below is a great comparison of the devaluation of the dollar versus the franc since 1971. -Fiat money will fail — as it always does — and this is another reason to own precious metals.
These pressures will be forced on to the public through bank deposits turning into bank equity or mandatory investments into government bonds.