Bond Market Blues

I. The Starting Point: Cracks in the Old System

We’re already here. • Sovereign debt is unpayable: U.S., Japan, EU, China—all buried in debt with no path to repayment. • Central banks are trapped: Raise rates? Trigger defaults. Cut rates? Fuel inflation. • Trust is eroding: Bond yields rise, currencies wobble, and capital starts fleeing “safe” assets.

Key stress point: The bond market begins to smell smoke. Foreign buyers (like China or Japan) stop buying Treasuries. The Fed quietly becomes the buyer of last resort again.

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II. The Liquidity Trap Meets Fiscal Dominance • Rates rise, and the cost of debt explodes. U.S. interest payments hit $1.5 trillion/year. • Treasury auctions begin to fail. Investors demand higher yields to roll debt. • The Fed is forced into stealth yield curve control—buying longer-term debt to suppress rates.

This is the moment the mask slips. Markets realize: the Fed is no longer targeting inflation. It’s targeting solvency.

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III. Inflation Reignites, Faith Breaks • Suppressed yields and unchecked spending light a second wave of inflation. • Savers are slaughtered by negative real rates. • Financial repression begins: capital controls, mandatory bond purchases, limits on cash or crypto use.

But capital is fluid, and trust is faster than law. Money leaks out—into gold, hard assets, offshore accounts—and increasingly, Bitcoin.

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IV. The Flippening (of Trust)

This is not a technological shift. It’s a trust migration. • Nation-states lose the narrative. “Risk-free” becomes a joke. • Bitcoin is no longer seen as speculative—it’s seen as a hedge against sovereign failure. • Nations with weak currencies begin to adopt Bitcoin openly (already happening with El Salvador). • Corporates start holding it on balance sheets—not to get rich, but to survive devaluation.

Some early governments fight it—banning self-custody, labeling it dangerous, taxing it to death. Others embrace it—gaining early access to the next financial layer.

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V. The New Market Infrastructure Emerges

As trust deepens: • Bitcoin lending markets mature: Lenders issue loans backed by overcollateralized BTC. • Bitcoin-denominated bonds are issued—either directly (El Salvador-style), or via DeFi protocols. • Sovereigns who can’t borrow in fiat anymore start to float Bitcoin-backed debt—just to get access to real capital. • Layer 2 systems (Lightning, Fedimint, Ark, etc.) enable payment rails and banking functions.

A new monetary ecosystem grows—parallel to the old one—but faster, smaller, and harder.

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VI. The Collapse Phase of the Old Guard

Eventually, the debt burden breaks the fiat system: • Central banks lose control of inflation and can no longer contain bond yields. • A default or restructuring hits a major economy (Japan? Italy? U.S.?) • The dollar survives—but not as king. A multi-polar system forms: USD, CNY, and BTC.

In this world: • Bitcoin is the reserve of last resort. • Fiat is still used, but it’s anchored, not absolute. • Credit exists, but it’s hard-won, expensive, and honest.

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VII. Life After the Transition: Scarcity Reinstated • Governments shrink. They can no longer print to fund endless wars, bloated bureaucracies, or financial bailouts. • Savings are meaningful. Time preference drops. Capital investment improves. • Credit is available, but collateralized and market-priced. • The financial system becomes more stable, but less forgiving.

And Bitcoin? It isn’t a replacement for government. It’s a neutral monetary foundation—like gravity. Everyone must build on top of it honestly, or fail.

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Final Image:

Picture a future where: • Treasury bonds are relics. • Bitcoin yields set the global floor for risk-free return. • Countries are rated by how credibly they can borrow real money. • And the market, not the central bank, holds the true power.