#415 Dr. Mark Thornton: The Bond Market Is Flashing a Warning Nobody in Washington Wants to Fix

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Julia La Roche (0:57)

Hey, everyone. Welcome back to another episode of The Julia La Roche Show, where we have a returning guest. Joining us today is Dr. Marc Thornton, Senior Fellow at the Mises Institute, where we get his latest on where we are in the markets and the economy, and where he sees things headed. He thinks we are headed toward that on-ramp to hyperinflation, with the national debt above 40 trillion, deficit spinning above 2 trillion, interest rate payments above a trillion, and he thinks eventually we'll get back to where the Fed has to print again. We also get his take on what's happening in the bond market with the long bond yields hitting their highest levels in 24 years, and he explains why we should expect a higher rate era going forward, not just a blip here. And when it comes to investors protecting themselves, he makes the case for hard assets, gold, commodities, energy, and why they should beat the stock market over the next decade. I really enjoyed having Dr. Thornton back on. It's always nice to get a different perspective, and he comes from that Austrian School of Economics. So I hope you all enjoyed this one as much as I did.

Dr. Mark Thornton, senior fellow at the Mises Institute, friend of the show. It is so great to welcome you back. Thanks for taking the time to join me today, Dr. Thornton.

Mark Thornton (2:20)

Oh, Julie, it's my pleasure to be back.

Julia La Roche (2:22)

Well, our audience loves hearing from you. It's been a while. So we have to start. Let's just set the stage here, set the table, the big picture macro view for you today. What's been on your radar of late? What's been getting your attention?

Where do you see things as they stand right now, and where do you see things headed?

Mark Thornton (2:45)

Well, I certainly think that the bond market right now is pivotal.

You know, the interest rate on US government bonds has been rising. It's on the 10-year US government bond, and the 30-year US government bond. They've broken out to high levels that we haven't seen in a quarter of a century. So, the bottoming of interest rates on bonds that occurred around COVID and slightly thereafter, we've pivoted away from that long-run trend that existed downward going back to 1980, bottoming during COVID and all the inflation that was unleashed. And now we're on this upward trajectory. And a good deal of that upward trajectory is the fact that the government is running $2 trillion of deficit spending, 6% of GDP, you know, in the red ink. And this, of course, is putting upward pressure on all kinds of interest rates, credit cards and mortgages, as well as US government securities. And corporate bonds and everything else.

And then, of course, underlying that is the upward trend in inflation. It hasn't been a straight line up. But certainly, you know, we bottomed prior to COVID. Inflation was very low initially during COVID. And it's been an upward march. And the higher inflation rates go, you know, that's the price of everything from, you know, the cup of coffee you pick up on the way to work to your insurance premiums on your house and your car. Those things are more expensive to fix, more expensive to replace your home insurance, the food prices and of course gasoline prices with diesel fuel reaching an all-time high. And that eventually gets feeds back into, you know, so many things. So I'm worried about bonds and interest rate. That's a pivotal interest, you know, price in the economy that affects a lot of our decisions.

And so that's really my big concern. I'm sure it's the big concern of the government itself, Secretary Bessent and Chairman of the Fed Warsh. I mean, they're sweating bullets right now and they're playing all sorts of games about, you know, trying to hide the problem and try to move money around, to try to hide that problem and look as if they're doing something, including the recent increase in the federal funds rate by the Federal Open Market Committee of the Federal Reserve.