Title: The Global Bond Market Is Starting To Break | Lyn Alden & Luke Gromen
Show: BTC Sessions (host Ben Perrin)
Guests: Luke Gromen, founder of Forest for the Trees (FFTT); Lyn Alden, Lyn Alden Investment Strategy
Date: 2026-09-07
URL: https://youtu.be/IHUbbHlY-8g
Length: 28:37 (1717s)
Note: Two-guest appearance — Gromen and Alden both speak at length; ">>" marks a speaker change in the source auto-transcript. Fillers (um/uh/you know), stutters and false starts removed; wording otherwise verbatim, every (mm:ss) cue kept in place. Auto-transcript garbles corrected: "Worsh"/"Walsh"/"wars"->Warsh; "Bessant"/"Besset"/"Percent"->Bessent; "Ducken Miller"/"Den Miller"/"Duck and Miller"/"Dr. Miller"->Druckenmiller; "Lynn"/"Lind"/"Len"->Lyn (Alden); "solveny"->solvency; "VHimar"->Weimar; "Black Rockck"->BlackRock; "Comx"->COMEX; "guilt crisis"->gilt crisis; "Vulker"->Volcker; "consigiary"->consigliere; "Chimath"->Chamath; "IPS, sneeze"->hips, knees; "deter nation"->debtor nation; "au yuan carry trade"->yuan carry trade; "ethnosentric"->ethnocentric; "fractions of banking"->fractional reserve banking; "realpolitic"->realpolitik; "oped"->op-ed. Three lines left as spoken and flagged UNVERIFIED: (12:56) "what did Bessent say to ... PY" (the name is unintelligible in the audio — not reconstructed); (18:07) "whether or not rate hikes are even a tool at this point" (spoken as "whether or not industries are even a tool" — read as rate hikes from context); (21:00) "once this Iran thing resolves" (spoken as "this rant thing"). At (22:31) the host addresses "Lucy" — the answer that follows is Gromen's, so it is rendered "Luke". The alternate title carried on the pasted copy was "Who Will Keep Buying U.S. Treasuries?". The host's sponsor-read blocks at (14:00)-(16:00) (Abundant Mines, Seedor, Chroma, Bitcoin Well) and (27:41)-end (BTC Sessions / Bitcoin Mentor) are advertising, not commentary — they are omitted here and deliberately excluded from the analysis page.
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(00:00) We've had what has so far been a pretty orderly degradation of the global bond market. We're sending out our money in trade deficits. Then the rest of the world is buying our assets with those trade deficits. So I do think that they're getting squeezed. >> The Japanese bond market is ultimately, like Lyn said, this plays into the US net international investment position, which is >> where are you viewing basically the relationship between the Fed and the Treasury right now and if he's actually going to bring up rates?
(00:24) >> I don't think he's going to raise rates >> really. Lyn, I want to get your thoughts on it. Just as a quick aside, I don't know why, but it kind of reminds me even of things that I've heard regarding the US housing market right now where people that bought and got a mortgage in like the 2021 era at these low interest rates don't want to sell their house because they don't want to get a new mortgage.
(00:44) They can't port it in the US. I didn't know that. I didn't realize it was just a Canadian thing and you have to then refinance at like 6.6 or wherever the 30-year is right now. So, Lyn, with regards to this idea of private credit kind of keeping them in a standoff, your thoughts? Yeah, I think there's a lot of merit to that.
(00:58) There's a challenge of course — there's liquidity and solvency which often get conflated in the media and you can have two problems at the same time in different magnitudes. One thing that there's no doubt about is that there has been liquidity challenges. You'll see a headline like X billions want to withdraw from private equity or private credit fund XYZ.
(01:18) And they have to say no to most redemptions. And of course that in sensationalized headlines will get conflated with solvency. But ironically the way that works is actually closer to full reserve banking, which is that when you lend to a bank with demand deposits you can supposedly pull your money out at any time even though they're using it for some percentage of liquid loans, longer duration loans.
(01:46) With private credit, your pensions, your insurance companies, your wealthy individuals, family offices — you're lending and you're signing up upfront saying that there's no guarantee of liquidity, that they'll try to do quarterly liquidity where they can, but they have to sell some of their assets if they want to exceed that.
(02:05) And it's not like a business's payroll. It's not a person's checking account. It's these entities' kind of savings. And so they run into liquidity challenges if they try to withdraw too much too quickly. And of course underneath that, especially on the margins, we do see solvency issues in some of these troubled areas.
(02:24) It's still unclear how big some of those solvency areas could be. And that absolutely does limit some of these funds. And of course there's fractional reserve balance sheets like banks that have a lot of flexibility based on what regulations allow them to do. I mean if you want banks to buy more treasuries there are mechanisms that they can pull to make that happen.
(02:45) Same thing with the central bank obviously, whereas insurance and pensions are fairly kind of honest balance sheets in a way that basically if they want to buy something they have to sell something else. They can't just lever indefinitely. With insurance companies, for example, you have a float, you invest the float.
(03:02) If you're a pension you invest the money that comes in, you invest it. They have a certain amount of leverage that they can dabble in but they're more limited than banks there. When you don't have foreigners buying treasuries on net, I mean you'll see the nominal number inch up over time mostly from foreign non-government entities buying, but on a percentage of total treasuries kind of being issued foreigners just aren't buying nearly enough, which means more
(03:28) more of it has to be funded domestically. You have a central bank balance sheet hawk ostensibly in charge of the Fed who would prefer not to just blow out the Fed balance sheet and say no, I'm a dove now — so on paper he wants a smaller balance sheet. Foreigners are buying, insurance companies obviously have the whole private credit issue we just talked about, banks are buying but their balance sheets don't have endless capacity unless you
(03:56) do some degree of supplemental leverage ratio reductions further than they already have done, and things like that. And so I do think that they're getting squeezed. Now, I don't know how acute it is because again, there's no MOVE index issue. There's no major liquidity stress.
(04:14) We've had what has so far been a pretty orderly degradation of the global bond market. I mean, the change in yields over many months has been significant. But it's kind of inched along. And so it is interesting that they're kind of jumping in so quickly.
(04:35) And of course some countries have other levers they can pull. Like if you're in Japan and you're a really big creditor nation, they have these huge government pension funds that they used to invest more domestically and a little bit foreign, and now they have a huge swath of that as foreign assets, and one of their nuclear options is they can say, "Okay, we're pulling some of that capital back.
(04:59) " back — like if the yen gets disorderly, if the Japanese bond market gets disorderly, they can say, well, we're going to pull some of that foreign capital back. And we're talking very large amounts for them. And of course, the marginal dollar coming out doesn't affect market cap — it has a disproportionate effect on market capitalization.
(05:16) So they can pull money out, stick it into Japan. And that can be a really big factor. Whereas the US is a debtor nation. We are constantly relying on — we're sending out our money in trade deficits, then the rest of the world is buying our assets with those trade deficits. So we don't have this gigantic pot of money that we can just pull in.
(05:38) And so that is one of the challenges. And it gets really awkward when the end of the world is not that things break. It's just that the central bank has to come in and start buying bonds and has trouble explaining why. Like in 2019 that happened. Is really a fun time on social media watching people work through that.
(05:59) The Bank of England in 2022 had to literally — they did a speech on balance sheet reduction that they had to cancel due to the gilt crisis and then temporarily increase their balance sheet instead. Now to their credit they eventually were able to reduce it for a period of time. But the optics of having to do that were awful.
(06:19) And if you have a so-called balance sheet hawk in charge, that if the market does get illiquid — I mean they're not going to let it stay illiquid. So they would find themselves between a rock and a hard place, with the hard end of the spectrum being able to control, and kind of the middle of the spectrum would just be the balance sheet increasing despite inflation still above target and them saying it's only for technical reasons, or XYZ. And of
(06:45) course the softer one is what we have now, which is basically Treasury operation twist, which is that they're willing to buy back longer duration securities by issuing T-bills and/or drawing down the Treasury General Account to a certain extent, without really a particular crisis to point to, and just saying this is kind of what we're doing right now until the midterms.
(07:05) >> Luke, I want to get your response to all that, and there's a few things I want to add in there, but I do want to ask a bit of a weird question because it hit my mind and I'm sure there's a good reason why it doesn't necessarily exist. I was not following the Japanese bond market at all.
(07:16) So I wasn't aware how low those yields were. My immediate thought was maybe it's just because of capital controls or something, but is there a yuan carry trade? Because I was thinking if you have lower rates in China, would that actually pull demand away from the Japanese debt? >> No, the yuan has got strict capital controls on it. So, okay.
(07:37) The Japanese bond market is ultimately, like Lyn said, this plays into the US net international investment position, which is foreigners own $65 trillion gross, $22, $23 trillion net in dollar assets. And so ultimately if Japan has a problem and Bessent doesn't fix the problem, then Japan will start pulling their money out of the US dollar asset piggy bank, sell dollar assets, buy yen assets, or buy >> he even said that, to his credit.
(08:08) >> Yeah. >> And that's exactly right. >> So, Luke, continue with that, too. I'm curious then what you think Warsh is going to do coming up here, because last time I looked at CME futures, looks like we're getting a rate hike in about two weeks time here. Do you think he's going to do it? Where are you viewing basically the relationship between the Fed and the Treasury right now and if he's actually going to bring up rates? >> I don't think he's going to raise rates.
(08:33) >> Really? >> No. Kevin Warsh is not a hawk. Kevin Warsh — go back to his December 2018 op-ed that he wrote with Stan Druckenmiller, "The Fed Tightening? Not Now." That's the name of it. And in it, they were begging, begging in all caps, begging for the Fed not to hike rates anymore because bank stocks were 15% off the highs.
(08:59) And even though employment hadn't fallen, which is a lagging indicator as they acknowledge in it, but you were starting to see some slowdown in the economy — what do I think might have been happening? What I think was happening with that op-ed was Druckenmiller was offsides and Warsh was, I believe at the time, close with Druckenmiller if not working with him — I don't know his career path intimately — but offsides, and I think they were trying to get Stan back onsides. And so that's really interesting to me
(09:32) this week: what did Bessent say about Druckenmiller >> in his op-ed last week? Two — yesterday he came out, Druckenmiller's offsides. And yeah, that's why he wrote that. This would be the — I pretty good account that Druckenmiller was offsides in the fourth quarter '18 and that led to the op-ed and that influenced Fed policy and away we go. And now here we have a second instance of it according to Bessent. We'll see. Warsh isn't going to hike rates. He's not. He can't. And the reason I say that is
(10:04) US true interest expense — which is gross interest plus entitlements plus veterans affairs — are 105% of US receipts through fiscal third quarter of 2026, and they are growing 7, 12% while receipts are growing 4%. He hikes rates, true interest expense is going to be 107% of receipts growing 8 to 9 while receipts grow three.
(10:36) He hikes again, they're going to be 110% of receipts growing 10 while receipts are growing two. And by the way, everyone on Wall Street says we don't have a debt problem because we owe our debt in our own currency, but we don't. We have entitlements — hundred trillion dollars plus in entitlements, that is three plus trillion dollars a year.
(11:02) When you look at Social Security, Medicare, Medicaid, and Veterans Affairs, those are in a hard currency. So we're spending nearly 60% of receipts on Medicare, Medicaid, Social Security, and Veterans Affairs, which are all inflation adjusting. We don't owe my parents — we didn't owe my dad a payment for Medicare. We owed him a knee.
(11:30) We owed him diabetic medicine — all of that stuff is a hard currency. Hips, knees, doctor's time, it's all a hard currency. The more we print, the more the price of those things go up as we're all seeing. And so to me, this is the elephant in the room that no one wants to talk about in this whole "is he going to hike, is he not going to hike?" Bessent has a debt problem today.
(11:56) Acutely. Number one, his interest and interest-like obligations are 105% of his receipts and they're growing 2x his receipts today. And if Warsh hikes, they're going to run faster and his receipts are going to fall. That's going to blow out. That in turn is going to reverberate into dollar up, long-term rates up, which is then going to reverberate back into his interest-like obligations rising even faster than his receipts.
(12:21) Now in a context of 120% debt to GDP, in a context where his long-end domestic — foreign buyers aren't buying enough, the foreign buyers that are there are hedge funds and they will only buy as long as volatility is low, and the foreign central banks who are very patient haven't bought a treasury at the long end from him, haven't bought a treasury net at any duration but certainly not at the long end in 12 years going on 13 years. And so his sort of last remaining patient buyers, the domestic industry for life insurance and pensions, they're
(12:56) jammed up in private credit because the Fed hiked rates. There's no price of long-term treasuries where they can take the mark of selling down private credit. And so he's got a nonlinearity facing him at the long end. And so when I see the picture of Warsh and Bessent getting on the plane to go to Asheville together, they weren't talking about the freaking Yankees, >> right? We have it on record, right? What did Bessent say to PY? "I will punch you in your effing face. You want to step outside,
(13:26) I'll punch you in your face." I hear credible rumblings that Bessent took a swing at Elon Musk under DOGE. I think it — hey, this is what we used to call on the sales desk a "hey motherfucker" conversation. "Hey, you aren't gonna raise rates in September. You aren't gonna raise rates ever." That's what I think was said on that plane together.
(13:54) And then they got off and they fixed their hair and they look pretty away. >> Everyone look good. >> [SPONSOR READS — Abundant Mines, Seedor, Chroma, Bitcoin Well — (14:00) to (16:00), omitted]
(16:19) I just think he's a wonderful character in this weird drama that we're all going through. So Lyn, your thoughts, please. >> Yeah, I agree with that one. So in general, my kind of view in research has been my base case is for zero to one hikes. Basically that if we get the one, it'd be kind of symbolic to say he did it.
(16:40) And so I kind of don't really take a stand on what's going to happen 25 basis points. But in general, the issue is that when you get this far in fiscal dominance, rate hikes don't solve the problem. Everybody has their mental model of the 70s when we had lending driven inflation. So it was fractional reserve banking primarily responsible for the money supply growth.
(17:01) You had baby boomers entering the home buying years having their peak credit formation. You had pretty low public debt to GDP. So if you raise interest rates like Volcker did really high, you do a couple things. One is you bankrupt like Latin America. So you reduce their oil consumption at least, more for the US.
(17:18) It's kind of the brutal realpolitik of it. But then domestically you do slow down lending at a much bigger rate than you blow out the fiscal deficit, when you have debt to GDP that low and you have lending that high. So you're actually tackling the core issues. In the modern times it's not that bank lending is super high. It's pretty benign.
(17:37) Instead it's that fiscal driven inflation, and raising interest rates when you have all this inflexible spending — you don't change, like Congress doesn't make decisions because interest rates are 5% instead of 4%. And then in addition, when you have over 100% of debt to GDP and you raise interest rates you blow out interest expense, which ironically for some entities is spendable money that you're actually stimulating some entities. So on the receiving side of that, it's baby boomers that have money market
(18:07) accounts, for example — they get a raise if you raise interest rates. So I think they're aware of that. So basically the broader question is whether or not rate hikes are even a tool at this point. I think that's the uncomfortable question for Wall Street and for the government as a whole.
(18:23) So what's that line, like "below my line"? Was that the Chamath line? So I basically >> yeah, when we talk about 25 or 50 basis points it's like — we're not in monetary dominance, we're in fiscal dominance. I think a much bigger question is what do crack spreads look like three months from now or six months from now.
(18:43) I briefly mentioned oil in the beginning. Oil never went up to $150 or $200 a barrel like people feared. But we do have record high crack spreads because the >> bottleneck. 185. >> Exactly. So basically we have — the bottleneck ended up being in refineries at the moment. And so gasoline and especially diesel are priced as though oil itself is over 100, just because the gap between what oil costs and what the actual refined product costs is higher than average. It'd be even worse
(19:16) of course if oil itself then blew out. But putting that aside for a second, what is on the top of my mind some months from now is: okay, what's happening with the fiscal deficit — that's still going to be big. It's always going to be big. Nothing stops that train. What happens with Iran? What happens with oil? What happens with refined products? What do those spreads look like? What's going on there? That's a bigger question to me than 25 or 50 basis points from the Fed. And so I
(19:43) it's kind of like, in engineering terms, you'll put a barrier around it and say here's a tolerance that we don't really have to devote too much attention to. And for me, 25 basis point questions — it's taking up so much air time and it almost doesn't matter because the numbers are outside of that band.
(20:01) 7% of GDP deficits is a much bigger topic than if he's going to toggle interest rates, because we're just so far down the line of fiscal dominance that it almost doesn't matter. And the broader question though — and this is perhaps why Bessent is acting so early here before any signs of trouble — is that there is this kind of dawning realization in Wall Street about fiscal dominance.
(20:30) Back — I mean Luke and I were talking about this for many years. It used to be fringe. And over time my contacts on Wall Street are kind of increasingly saying, I mean, this is understood, and you'll have big research firms, big pension funds, big investment banks putting out reports about this. And so things that were kind of on the periphery become more acknowledged, and part of what holds this together is perception and sentiment.
(21:00) The idea that okay, we have a problem right now but it's temporary. It's like, okay, once this Iran thing resolves, once the Fed regains credibility, then long end yields will go down. There's this kind of credibility loop that people — it's like cope. It's like, as long as we figure out the temporary things, we can get things back on track.
(21:22) And there's a pretty loose perception that if you get past a certain critical point — if you've got people that manage a trillion dollars that suddenly see things like I do, in terms of if they suddenly wake up and agree with me one day, whether I'm right or wrong, if they just agree that the way I'm doing it, that nothing stops this deficit, and they're in charge of a trillion dollar balance sheet — I mean, then you got a problem, right? And so they don't really want that cascade to
(21:51) happen. They want to keep the idea that there's always some kind of plausible reason why we can get this back under control. That AI is going to be so productive that we're going to have a big deflationary sink and absorb all this, or stablecoins are going to miraculously come in and save the day, for example.
(22:09) And the best ones of course always have a grain of truth to them, right? That you don't point to what aliens are going to do. You point to something that actually intelligent people can say, okay, we have a list of things here that if they go right enough, then things are fine and we can get yields down and none of this has to slowly spiral out of control.
(22:31) " And I think that's what Bessent's trying to manage right now. >> Interesting. Luke, I want to get your take on the idea of — because I'm thinking about, if everybody agreed with you two, I'm pretty sure wouldn't that mean they're just going into hard assets and getting out of any debt right away? >> Well, it raises an interesting question and I think it's something that people think they have more time than they do on this.
(22:54) And I'm not saying it's next week or two years. I mean, it could be. I don't know. It could be 5 years, 10 years. But Jim Rickards wrote — I can't remember which of his books it was, but he opened it up with a scene of a meeting that he sat in, and I believe it was during the great financial crisis or maybe shortly thereafter.
(23:13) But the point of it was this. Treasury's got a direct line into BlackRock, per the consigliere of one of the top execs at BlackRock, according to Jim Rickards. And Rickards goes on to say that in a crisis, Treasury can pick up the phone, make one call and lock down 5 trillion of capital now, which is BlackRock. That's it. No sales.
(23:38) And the rest of the market would follow. And so to me, there's this view of like, well, I don't have to worry about it yet. I'll worry about it when I worry about it. And when I look at it and go lay out everything we've laid out, I lay out we're already beyond — we're past the point of no return.
(23:57) They have a Weimar gold reparations problem. I'm not saying we're going to go Weimar. I'm not saying we're going to hyperinflate, but I am saying the United States has a Weimar gold reparations. They owe more money than they are taking in receipts, in a hard currency that inflation adjusts, today. It's only a matter of time, to Lyn's point, until people running trillion dollar balance sheets get that.
(24:20) And when they do, they're going to go to hit the sell button and it's not going to work. Like it didn't work — like the buy button stopped working at COMEX at silver in 1980 with the Hunt brothers. And then whatever your allocation is to everything — bonds, stocks, gold, Bitcoin — that's going to be your allocation. You're not going to be able to move.
(24:46) And then they're going to close things down for two weeks, 3 weeks. And when they reopen, you will own what you own at the new allocation. And I have two dear friends that immigrated here from Ukraine. American citizens now. They've told me how this goes, which is: we remember 19 — I believe it was 1998 — we had enough money in the bank to buy five cars.
(25:08) We were wealthy. My dad was a doctor. They closed the bank on a Friday. They reopened it two weeks later. And the money we had in the bank — we got it all back and it bought us a month's worth of groceries. When people that are running trillion dollar balance sheets internalize enough that they realize that there's no stopping this train and that we're already past the point of no return barring a productivity miracle.
(25:32) And so that might be your trigger of like, oh, if AI starts to break, then the whole thing might — that could get really fast, and you go, there isn't going to be a shift, an orderly shift or even a one month shift of trillion dollar balance sheets into gold and Bitcoin. They'll shut the markets and then they'll reopen them two weeks later and Bitcoin will be where it is.
(25:56) Gold will be where it is. Stocks will probably reopen, gap higher. Treasuries will have lost immense amounts of value relative to those assets, and life will go on. This has happened over and over and over and over and over everywhere in the world basically except America. And so Americans who are — listen, I'm an American. I love America.
(26:20) We're the most ethnocentric, hubristic people in the world because it's never happened to us. We're sure it won't happen. And yet, look, I don't know when it's going to happen, but the math is telling you it's going to happen. Could it be next week? Sure. Could it be 10 years? Sure. Could it be 20 years? Sure. But that's how it's going to go.
(26:41) They will just lock it down. And it was when I read that book again — I think it was in '08 or '09, maybe it was '11, Rickards' book — he flat out says a BlackRock exec, one of the top execs, was told by Treasury they had the program in place 20 years ago nearly: if we need to, we can pick up the phone and we can stop you from selling everything.
(27:05) We can stop — they will just run. Think about what Lyn said before about private credit. "We want three billion." "You can't have it." Yeah, >> they'll do it to everything, and they can't do it to everything forever, but they'll do it to everything for two weeks and then we'll get out the other side of it and debt to GDP will be 20%.
(27:24) Down from 120%. It'll be — and the money that used to buy five cars will buy a month of groceries. Have a good day. And when I asked my Ukrainian friends, how did people that own gold and silver do? Obviously, this is pre-Bitcoin. How'd they do? He said, "Oh, they were fine. Nothing changed for them.
(27:41) That's how it's going to go. Unfortunately, we're past the point of no return." >> [SPONSOR READ — BTC Sessions / Bitcoin Mentor — (27:41) to end, omitted]