{"id":107,"date":"2026-05-26T06:40:36","date_gmt":"2026-05-26T06:40:36","guid":{"rendered":"https:\/\/interstatelogisticshubs.com\/?p=107"},"modified":"2026-05-26T06:40:36","modified_gmt":"2026-05-26T06:40:36","slug":"the-debt-party-nears-its-end","status":"publish","type":"post","link":"https:\/\/interstatelogisticshubs.com\/?p=107","title":{"rendered":"The Debt Party Nears its End"},"content":{"rendered":"
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In the wake of the closure of the Strait of Hormuz, interest rates on global bond markets are rising rapidly. Along with yields, fears of a debt crisis are reaching a fever pitch. However, the Iran crisis may soon fade and bring calm back to energy markets.<\/p>

Read more The New Barbary Pirates<\/a><\/p>\n

Are we already witnessing the early signs of the next debt hurricane? One thing can be said with certainty: the surge in oil and gas prices triggered by the blockade of the Strait of Hormuz has sent a massive shockwave through global bond markets, which otherwise tend to move rather sluggishly. This shock is still propagating along the yield curves.<\/p>\n

It almost appears as if creditworthiness concerns regarding high levels of sovereign debt are overlapping with newly rekindled inflation fears. In Germany, the benchmark yield on ten-year government bonds has risen from 2.64 percent at the start of the Iran conflict to around 3.2 percent at its peak (as of May 19). In the United States, the most\u00a0important capital market\u00a0in the global economy, ten-year Treasury yields have reached 4.63 percent. Should this mark a new plateau, debt servicing costs will increase.<\/p>\n

For Germany, the interest rate effect can be roughly calculated as follows: in the first year of a 1 percentage-point increase in interest rates, government interest expenses rise by around \u20ac2.5 billion. With approximately \u20ac250 billion in debt rolled over annually, total interest costs on the entire German debt stock would increase by roughly \u20ac25 to \u20ac30 billion after several years. An unpleasant situation for the federal government. Perhaps it is dawning on some in Berlin that the bond market may one day abruptly bring an end to Germany\u2019s debt binge.<\/p>\n

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\"\"<\/figure>\nA clear harbinger of a new regime in global bond markets is the years-long accumulation of gold at the level of central banks. Among central bankers, there is broad agreement: the world is caught in a debt spiral, and the final escape from this fiscal struggle will be the systematic debasement of currencies. It is cynical, but central banks will not be able to avoid devaluing their own product — fiat money — in order to escape the debt shock. Prepare, therefore, for outright propaganda contortions and monetary policy sleights of hand in the media. The narrative will be stretched to its limits in an attempt to prevent a loss of confidence in monetary stability. We know this playbook: if necessary, inflation statistics will be manipulated, or blunt instruments such as capital controls will be deployed.<\/p>\n

This policy is executed by central banks through massive bond purchases, expanding the money supply and attempting to relieve the largest debtor — the state — at the expense of its creditors, taxpayers, and those unable to hedge against such policies with real assets. The rise in yields at the long end —\u00a020 or 30-year maturities — represents the true tectonic shift in the system. The entire financial system — bank balance sheets, pension funds, and insurance portfolios — is anchored in this segment, long considered safe, offering both presumed absolute creditworthiness (always an illusion) and yield, but now entering a downward spiral.<\/p>\n

Regardless of how the Hormuz blockade ultimately resolves, much is already in motion: a large share of blocked energy capacity is being rerouted or replaced elsewhere — such as through a massive expansion of U.S. exports. Moreover, the immense pressure created by this bottleneck is driving further restructuring of global energy flows. Israel could emerge as a beneficiary if Saudi Arabia completes its pipeline projects and shifts parts of its distribution toward the Mediterranean.<\/p>

Read more Illegal Is Legal, Immoral Is Moral<\/a><\/p>\n

Once this issue fades from the agenda, previously dominant forces will again shape bond markets — such as the ongoing economic slowdown in the European Union, which continues to suppress both investment and consumer demand. This will ease inflationary pressure, possibly accompanied by an ECB rate hike, and temporarily stabilize bond markets.\u00a0It is not unlikely that relief may come even sooner. The increase in crude oil prices from around $60 to peaks near $110 per barrel WTI — occasionally reaching $115 — when adjusted for the annual global money supply growth of 7\u20138 percent, is far from comparable to the energy price shock triggered by Russia\u2019s invasion of Ukraine four years ago. Meanwhile, the\u00a0business cycle — particularly in the United States — is picking up again. Industrial production is growing, and the global money supply continues to expand.<\/p>\n

This is a crucial point: liquidity is the lubricant of markets and will ultimately help fiscal policy roll ever-growing debt further into the future — for now.<\/p>\n

This is critical, because the real danger lies within the machinery of the fiat credit system: deflation — a contraction of the money supply leading to falling price levels — is its true nemesis. A shrinking money supply would trigger a cascade of credit defaults, manageable only through massive central bank intervention, as seen a decade and a half ago. Such a crisis, potentially many times larger than the previous debt crisis, would be systemically relevant and could severely damage the euro system, while the U.S. dollar would once again serve as a safe haven for global capital.<\/p>\n

The question is no longer if, but when such a credit event will ignite a broader crisis. Looking at developments in the United Kingdom, where ten-year yields have risen above five percent, it seems plausible that the City of London could become the epicenter of a new European debt crisis.<\/p>\n

As we know, however, the list of potential crisis candidates is long: France, with public debt around 120 percent of GDP, is as vulnerable as Belgium, Spain, or Italy. The European debt construct ultimately stands and falls with Germany\u2019s creditworthiness. Friedrich Merz and his \u201cdisaster minister\u201d Lars Klingbeil appear to be working at full speed to set this last true firewall of the euro system ablaze in a veritable debt frenzy.<\/p>

Read more A Case against Bad News<\/a><\/p>\n

Image: Rawpixel.com<\/strong><\/em><\/span><\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"

In the wake of the closure of the Strait of Hormuz, interest rates on global bond markets are rising rapidly. Along with yields, fears of a debt crisis are reaching a fever pitch. However, the Iran crisis may soon fade and bring calm back to energy markets. 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