One of the questions I ask myself from time to time is how would I know if my perception of the financial problems headed our way is accurate, or if it’s just my imagination. What are some of the signs one would expect to see on the road to a collapse of the empire? Because, as with any other theory, if it has no predictive value, is it even a worthwhile theory?

For a number of years I’ve believed that, at some point, the US would face a situation where the amount of bonds being issued would outstrip demand, and this would force interest rates higher. Higher interest rates would expand the budget deficit, leading to more money printing, leading to higher interest rates, bigger deficits, and so on until the system implodes in a self-reinforcing debt spiral. This would bring to fruition that long awaited prediction by Ludwig Von Mises:

If the market rate of interest is reduced by credit expansion, many
projects which were previously deemed unprofitable get the appearance
of profitability [because of the reduced cost of capital. The entrepreneur
who embarks upon their execution must, however, very soon discover that
his calculation was based on erroneous assumptions. He has reckoned
with those prices of the factors of production which corresponded to
market conditions as they were on the eve of the credit expansion. But
now, as a result of credit expansion, these prices have risen. The project no
longer appears so promising as before. The businessman’s funds are not
sufficient for the purchase of the required factors of production. He would
be forced to discontinue the pursuit of his plans if the credit expansion
were not to continue. However, as the banks do not stop expanding credit
and providing business with “easy money,” the entrepreneurs see no
cause to worry. They borrow more and more. Prices and wage rates boom.
Everybody feels happy and is convinced that now finally mankind has
overcome forever the gloomy state of scarcity and reached everlasting
prosperity. …

There are only two alternatives.

One, the expanding banks may stubbornly cling to their expansionist
policies and never stop providing the money business needs in order to
go on in spite of the inflationary rise in production costs. They are intent
upon satisfying the ever increasing demand for credit. The more credit
business demands, the more it gets. Prices and wage rates sky-rocket.
The quantity of banknotes and deposits increases beyond all measure. …
The whole currency system breaks down. Its unit’s purchasing power
dwindles to zero. People resort to barter or to the use of another type of
foreign or domestic money. The crisis emerges.
The other alternative is that the banks or the monetary authorities become
aware of the dangers involved in endless credit expansion before the
common man does. They stop, of their own accord, any further addition
to the quantity of banknotes and deposits. They no longer satisfy the
business applications for additional credits. Then the panic breaks out.
Interest rates jump to an excessive level, because many firms badly need
money in order to avoid bankruptcy. Prices drop suddenly, as distressed
firms try to obtain cash by throwing inventories on the market dirt cheap.
Production activities shrink, workers are discharged.
Thus, credit expansion unavoidably results in the economic crisis. In
either of the two alternatives, the artificial boom is doomed. In the long
run, it must collapse. … The artificial prosperity cannot last because
the lowering of the rate of interest, purely technical as it was and not
corresponding to the real state of the market data [for real savings],
has misled entrepreneurial calculations. It has created the illusion
that certain projects offer the chances of profitability when, in fact, the
available supply of factors of production was not sufficient for their
execution.

If my theory is correct, that the US empire is built on top of a massive financial bubble, whose implosion will remove the US from being the unipolar global power, then it should be fairly simple to predict some of the things that will happen leading up to the end of this bubble. One question I think about is who will end up being the bag holder of all the US treasury bonds that will need to be held as the debt spiral accelerates.

So, what are one of the signs I would expect to see between now and then? I would expect the government to force people to hold government bonds against their will. If they can’t keep increasing the money supply because of it causing too much inflation, but, for political reasons, they also can’t cut government spending, and budget deficits; what is the other alternative? It seems obvious to me: force someone to buy the government bonds that are rapidly depreciating. How would they do that, and what would that look like. It seems to me that one obvious choice would be to force people holding tax deferred retirement accounts to buy up these government bonds. Holders of IRA’s, 401-k’s, government pensions, etc., would be forced to allocate a certain percentage of their assets into rapidly depreciating US bonds.

According to the Congressional Research Service, there were total assets of $37.8 trillion held in U.S. retirement plans and accounts at the end of 2022. That is a LOT of capital that is just sitting there with a big old bullseye on it, waiting to be used to kick the can down the road on governmental financial problems.

That’s all a rather long winded way of bringing me to this interview that I saw with Jeff Snider and Michael Green. In it, they mention that IBM is now funding their employee pension plan with IBM bonds. Hmmm…that seems really interesting, and could be one step down the road towards what, to me at least, could be a flashing warning sign that the debt spiral is accelerating. Make of it what you will. Maybe it’s nothing. But I suspect that this could be emulated by other companies, and ultimately by the U.S. government. If that happens, it might be a really good idea to liquidate retirement accounts and find a better place for your capital.

They begin their discussion on this topic at 4:07 of the video…