Debt crises begin, as you might expect, in the bond market.
This one began in Japan.
Back in May 2025, we began urging Grey Swan readers to watch the Japanese bond market; as with Japan’s demographic cliff, its debt situation serves as a canary in the coal mine for the U.S. economy and its rising debt load.
By July 2026, a series of severe external energy shocks, massive domestic spending plans, and a historic unwind of the yen carry trade caused the Japanese Yen to hit a 40-year low.
On July 31, U.S. Treasury Secretary Scott Bessent stepped in with “yentervention” — a U.S. effort to support the yen and keep Japan from dumping Treasurys into the open market.
If Japan were forced to sell U.S. Treasurys to defend its currency, American yields would rise, mortgage rates would rise and Washington’s $40 trillion debt and rising interest bill would get worse.
Thus, the contagion pressure moved home.
By August 18, the 30-year Treasury yield had pushed toward 5.34%, its highest level in 19 years.
On August 19, Treasury answered by doubling long-end bond buybacks from $2 billion to at least $4 billion per operation. That is the “Treasury Twist”: buy back longer bonds, lean more heavily on shorter bills and try to hold down long-term yields without calling it quantitative easing (QE).
Gold and silver gained $1.3 trillion in market cap within hours of the news breaking:
Gold and silver added $1.3 trillion in the span of a few hours after the U.S. Treasury announced the doubling of its fund to buy back Treasury bonds. (Source: Barchart)
For its part, bitcoin has gained steadily since August 19, from $63,000 to over $79,000 today.
But that’s only where the story begins.
Bessent is also actively calling on the Fed to cut short-term rates by 50 basis points. And promising economic “epic fury” against Iran — one of the largest financial warfare operations ever conducted, designed to isolate Tehran, choke off its funding and collapse its war-making capacity.
Bessent’s “to do” list: Support the yen. Twist the Treasury market. Hammer Iran through the dollar system. Pressure the Fed to cut rates. Keep the bond market calm. Convince investors that the $40 trillion debt pile is still manageable.
Contortion efforts worthy of Houdini at his best.
In his book, How Countries Go Broke, Bridgewater founder Ray Dalio describes a long debt cycle. Governments borrow until the interest burden becomes too large. Then debt-service costs collide with aggressive policy and insufficient investor demand.
At this point, Bessent faces two bad choices: accept higher interest rates, or print money — directly or indirectly — to buy the debt.
As Dalio put it, rising debt-service costs eventually force governments to accept higher rates or have central banks print money to buy debt, weakening currencies and fueling inflation along the way.
The U.S. government is running its third-highest deficit ever, roughly a $2 trillion shortfall, with interest costs at $1 trillion and about $10 trillion of debt that needs to be refinanced.
If investors demand higher yields to absorb that debt, the interest bill rises again. The deficit grows. The Treasury has to issue more debt. The market demands still higher yields.
That is the spiral Dalio calls the late stage of the long debt cycle.
The bond market matters regardless of what’s happening in the stock market.
And it’s why traders are reaching for non-government money.
Since adding $1.3 trillion in market value overnight, gold and silver have continued to rally. Bitcoin’s rallying, too. It’s the market’s way of saying this is no longer just about commodities, crypto or inflation hedges. It is about trust in government paper.
When governments try to manage a debt problem by suppressing yields, the pressure shifts elsewhere. Right now, it’s gold, silver or bitcoin.
For Grey Swan Pro members, the signal remains simple: watch the bond market. If long yields continue to rise despite Treasury intervention, the crisis is not contained. It is spreading. And buy gold.
In the meantime, Today’s Grey Swan Pro recommendation is a fund heavy in resource stocks that also uses options trades to help smooth out some of the volatility in the space, with monthly income.
~ Addison
P.S. Thursday on Grey Swan Live!, Jennifer Stevens of International Living walked us through specific questions about how investors who’ve got a little extra to spend can “upgrade their next decade” by spending it overseas.
We asked and answered an extensive set of questions to help you design a life you might only have dreamed of before. Including a lightning round of frequently asked questions and a review of the Top 10 International Destinations for Americans who want to expatriate… for a lifestyle upgrade… even if it’s only three months out of the year.
In addition to the lifestyle benefits, Jennifer shared ideas for strategically incorporating your own international living excursion into your investment plan.
Grey Swan members came prepared with a list of their own great questions for “upgrading” their own next decades. The replay for our presentation with Jennifer Stevens is posted in the video archives of the Grey Swan members’ website.
We also posted a replay of Nick Bunelos’ run-through of our Friday Prime tax webinar. While the U.S. government is doing a jig trying to finance iots $40 trillion debt pile, make sure your retirement funds are not on the target list for raising revenue!
Tax Strategy Webinar replay here:
Stay tuned for details on this week’s Live!
