I recently shot an informal video from Arlington National Cemetery touching upon the economic costs of the U.S. Warfare State. In that ad-hoc report, I promised to post a chart that put the entire U.S. debt discussion into simple perspective.

So, let’s keep that promise, roll up our sleeves and put this debt mystery to bed once and for all, shall we?

First, here’s the chart…

Initially, it may seem like a lot of confusing colors, bars and gyrating lines. But in fact, this single chart will help guide us through the fog of any and all future discussions and debates about fiscal politics, interest rates and debt in the U.S.

Furthermore, this chart, which we examine in more detail below, will clarify the inevitability (and crushing scope) of our next recession.

As I said in the Arlington video, the United States public debt, currently at $21-22 trillion and counting, is a staggering number.

More to the point, it’s a crushing number, and will, for the record, destroy the U.S. economy for many, many years to come as it takes away all (and much more) of the gains of the so-called “recovery” which Bernanke, Paulson, Geithner, et al., gave us in the rubble of the 2008 financial crisis.

How do I know this?

Simply, it comes down to two subjects that most of our bubble-head anchormen and financial pundits must have over-looked in their marketing and advertising classes, namely MATH and HISTORY.

History Shows Us We’re in The “Dumb, Drunk, and Dangerous” Phase of A Market Bubble

Let’s start with history. As I wrote in a four-part Market History series that I’ll release soon: A country in debt cannot solve a debt problem by taking on more debt.

Sounds like common sense, no?

But if insanity is defined as doing the same thing over and over yet expecting a different result, then the political and fiscal policies of the U.S. since the crash of 1929 in general, and the ’08-crisis in particular, has been a chilling case study in, well: insanity.

Without unpacking all of the empirical data set forth in my four-part Market History series, the underlying theme, however, is worth repeating.

That is, a country in a debt crisis cannot borrow its way out of debt, nor can it print its way out of debt.

It can only grow its way out of debt.

And guess what? Since 2008, we’ve printed and borrowed like drunken gangbusters, but we didn’t grow. In fact, our much-heralded GDP growth is a gyrating fish on a dock, not a phoenix rising…

In short, despite quintupling (yes, quintupling, the Fed’s balance sheet by 5 times since 2008) we have nothing but a flat-lined GDP to show for it.

In short, the “great QE experiment” of ’08 has been an unequivocal failure-it rescued Wall Street but did nothing to grow our productive economy.

In the happy fog of rising markets and increasingly dumb journalism, however, this slow lie has gone largely unnoticed.

That is, the U.S. has been borrowing ($21 trillion) and printing ($3.5 trillion) at levels never seen before. Unfortunately, and despite all the media and political spin to the contrary, we did not accomplish the one thing that could have saved us: steady economic growth.

Instead, we just saw the stock and debt markets inflate to levels beyond reason.

Most pundits, however, think the stock market is the measure of an economy; then again, most pundits know very little about markets or the economy.

Despite all the recent hoopla about low unemployment and back-to-back quarters of rising GDP, actual U.S. economic growth since the ’08-crisis has been flat, with annual GDP stagnating at average rate of less than 2% since 2008.

Of course, while U.S. GDP stagnated in the last decade, the NASDAQ rose by 200%. The S&P and DOW skyrocketed as well-and I mean to the moon. The market images below speak for themselves.

And if you still think the current market is not a bubble, it’s worth noting that today’s S&P is already 50% higher into bubble territory than the pre-’08 bubble, and even loftier than the dot.com bubble of 2001:


So, it’s clear to see that when the U.S. Federal Reserve and Treasury Department bailed out the very too-big-to-fail banks that once employed them, they achieved this “noble fraud” by printing money and borrowing trillions at Fed-manipulated low rates (i.e. “Quantitative Easing”).

The now obvious and undeniable result was not a “rescued economy” but a cancerous and historically unprecedented market bubble, which will soon pop (see below) in history-making fashion confirmed by the sobering yet predictable sting of honest math.

Stated otherwise (and confirmed by the smartest guys in the room, from Nassim Taleb to Papa Smurf) structural problems (i.e. debt) cannot be solved by more debt-i.e. monetary policy (aka 10+ years of central bank money printing and interest rate suppression).

In 2008, we had a private debt crisis (i.e. individual, “D-” sub-prime real estate debt), which banks then attempted to package as “A+” asset-backed securities and whose internal rot spread within, leading, ironically, to the destruction of the very (leveraged) banks (and markets) who syndicated them.

After 2008, rather than jail or fine the heads of those private and money-drunk banks, the U.S. saved their butts…

That is, we bailed out the very foxes who raided the U.S. economic hen house.

This historically shameful measure (nod to Paulson, Geithner, and Bernanke) was achieved via astronomical money printing at The Fed and astronomical borrowing at the U.S. Treasury Department.

In short, we “solved” the private debt crisis of ’08 by simply transferring the debt from the private sector to the U.S. Government (i.e. to you, the soon-to-be whip-sawed tax-payer).

This “solution” of solving a private debt crisis by creating a governmental debt crisis/bubble has never, not ever, not once, ever, ever, ever, and I mean not ever worked (!) in the entire history of markets, from John Law or 1791 France to 1917 Imperial Russia to 2019 Imperial America.

Period, full stop.

Of course, right now, as we bask in the dying glow of the current (yet unsustainable) debt bubble which bailed us out of the last one, the debt-driven market party rages and markets, addicted to low-rate debt, thrive as common sense and prudent risk management have left the building.

And that folks, is where we are now. In the “dumb, drunk and dangerous” phase of a market bubble. History confirms this-from the dot.com stupidity of 2001, the Nikkei bubble of 1989 or the sub-prime insanity of 2008.

Markets get drunk, high, and cocky just before they puke.

Only this time, it’s infinitely worse; our debt is too big, our central bank too stretched, our middle-class too sick and our politics too divided. When this current market euphoria begins its “hangover phase,” there won’t be any tools left in the Fed’s “print & borrow” toolbox to save the markets or your portfolio.

There will be no V-shaped recovery. Instead, your portfolio will get slammed and stay that way for years…

So that’s the history lesson.

But as the lessons of love, markets, or even philosophy confirm, what good does knowing do with no one to show it to?

That is, how can we use and share our knowledge and experience?

And how can we know when and how it all ends?

Well, to answer this, we have to shift from the lessons of history to the guidance of math, which means we’ll get a more in-depth look at that “Pain Line” chart shortly.

Math – And How We Temporarily Got Away with A Debt Orgy

Let’s keep this very simple: Low-rate debt gave us the post-’08 “everything bubble” (from the stock markets to Real Estate), and rising rates or a flattening to inverted yield curve are going to kill this bubble. Period.

Now, let’s combine history with basic math to show how horribly this is gonna play out in the next 2 years.

When the ex-bankers who became policy makers in the rubble of the ’08-disaster (aka the “Great Recession”) got together to “solve” the US sub-prime debt crisis, they did so by putting the U.S. on another debt-binge.


As one look at our national accounting confirms, the U.S. (i.e. D.C. in cahoots with Wall Street) went mad, taking on more debt in a decade than we had in the previous (cumulative and inflation-adjusted) 250+ years of our entire history.

Debt, in short, saved us.

Having gone from $900 billion of Federal debt in 1980 to $21 trillion and counting today, we borrowed our way to market glory and Main Street lethargy.

But guess what? It worked.


Yep. The post-’08 debt orgy actually worked! We took our public, private and corporate debt levels ($72 trillion and counting) to the moon and beyond, and it hasn’t hurt us one bit at the national pain level.

So far, we got away with it: debt without tears! And the sky-rocketing markets (and CEO salaries backed by earnings, clever accounting and shipping labor and manufacturing to the third world) made America great, and the top 1-10% of our wealthiest citizens even richer.

Success! Joy! The best of times!

Well, yes…at least in the short term, and least for everyone but those on Main Street…

But here’s the unspoken, dirty little secret…here’s the hidden and lethal cancer lurking beneath our “recovery” and mathematically certain to kill the U.S. economy:

Debt works when the cost of borrowing (i.e. interest rates) is 0-2%, BUT debt destroys when the cost of borrowing spikes.

And folks, the cost of borrowing was about to spike, as we saw in 2018, as the yield on the 10 Year U.S. Treasury began its steady, lethal climb into Q4..

So, we return, again, to the chart that explains everything:

Here’s What The “Pain Line” On This Chart Means for You….

As you can see from the rising columns of red bars, U.S. public debt has gone off the charts of normal and deep into full-on crazy-land.

So why didn’t this debt kill us?

Simple: look at that cute little blue line.

That blue line represents the interest rate set by our genius bankers at the Federal Reserve on Constitutional Ave – a central private bank, by the way, that is neither Federal nor Constitutional.

The ironies do abound…

As you can see in this chart, when the central bank artificially crams interest rates (the “blue-line” cost of borrowing) to near zero for years, the actual interest expense pain (i.e. the “black-line” amount America has to pay to service that debt) is almost painless.

Which brings us to the sneaky little black line on this extraordinary chart. You see, the black line represents the actual “interest expense on debt” that America has to pay back.

In simplest terms, this little black line essentially boils down to our “Pain Line.”

That is, the lower that black line, the lower the “pain,” or cost, of paying for our debt. Obviously, this “Pain Line” goes up and down as the blue line (i.e. the Fed-Funds interest rate) goes up and down.

What’s fascinating (and abundantly clear) in this chart, is that a country can actually have massive debt levels (as represented by the red bars) yet very little interest expense “pain” (as represented by the sloping black line) so long as interest rates (the blue line) are low.

In fact, if you look at this infamous chart, you can see that America is suffering less interest expense “pain” at $21 trillion in debt then we suffered back in the ’70s and ’80s when our national debt was well below $1 trillion.

Why? Because in the ’70s and ’80s interest rates were between 9% and 18%. Ouch. Lots of pain then.

As this chart makes so incredibly clear (and simple): the key to national pain (i.e. interest payments as a percentage of federal debt) hinges directly on the interest rate of our debt.

What is equally clear is that when interest rates are artificially crammed to the floor (think post-08), a country’s debt level can reach absurd levels (20 times where they were in the 80’s) with no (in fact, even less) immediate (i.e. painful) interest-expense consequence.

And so, you might be tempted to say, wow, that’s great. As long as the Fed keeps rates (the “blue-line’) low, we can basically borrow into infinity and beyond without having to suffer any interest-expense (i.e. “black-line’) pain.

In short, some of you might believe the Fed can save us.

The Fed is all-powerful and wise. The Fed knows what it’s doing and has our back. Low rates are all it takes, and the Fed can dial them down like a thermostat that controls economic weather as effectively as the temperature gauge in one’s home.

Unfortunately, most of us recognize that despite their hubris and arrogance, in the long term, the Fed cannot control interest rates any more than a seasoned sailor or surfer can control the ocean.


Because, and as discussed countless times, it is the bond market, and not the Fed, which ultimately decides interest rates.

This harsh fact is something the bubble heads in the media, the financial sell-side, and the talking-head morons (red and blue) in D.C. aren’t telling you.

Most sailors and surfers, for example, have a humble and healthy respect for the power of the ocean and the forces of nature.

D.C., Wall Street, media spinners, and the Fed, however, have lost such respect for the power of the markets and the forces of supply and demand.

As result, a totally unsuspecting America is about to drown in quietly rising rates or a flattening yield curve and thus a tanking market and economy.

It’s shameful. But more to the point, it portends disaster. And this disaster is as easy to see (for those who know bond markets) as a storm cloud approaching the coast.

And returning to the one market chart that explains everything, imagine the absolute carnage and pain (a rising black-line) that will come to the U.S. economy, the U.S. markets and the average retirement or 401K account when those rising red bars ($21 trillion of debt) collide with rising rates?

That is: imagine what happens when the black “pain line” of interest expense inevitably rises (along with interest rates) to levels we saw back in the ’80s or ’90s – you know, that era before Greenspan sold the Federal Reserve’s soul to Wall Street.

Well, I’ll tell you what happens: the US will suffer the greatest economic collapse and recession in its history.

We’re Staring Down the Barrel of A Financial Collapse – And I’ve Got The Math to Prove It

Does that sound too “gloom and doom”? Is that just me “selling fear” and spreading crazy to make an exaggerated point?


That’s me telling you what most of us hedge fund veterans and bond traders already know (and quietly discuss) amongst ourselves.

But now, I’m telling YOU.


Because it’s the right thing to do after watching Wall Street crush Main Street for over a decade.

If one sees smoke in a crowded theater, it’s natural to shout “fire!” To do otherwise is an insult to one’s conscience, and my conscience, as well as conviction as to the coming fire in our economy and markets, is 100%.

The inevitability and certainty of either rising rates or a flattening yield curve and thus an historical market crash is no longer a prediction or hypothetical debate. It’s the unspoken secret on Wall Street’s elite credit desks.

The objective truth of this coming yield-spike (interest rate cancer) or inverting yield curve is proven not by “gloom and doom” grandstanding or financial-blog fear-mongering.


The certainty of the coming financial collapse is proven by MATH.

Let me explain. Interest rates go up when bond prices go down.

Furthermore, the market forces of supply and demand in the bond market, and not egos at The Federal Reserve, ultimately determine interest rates.

That is, when more and more bonds enter the credit markets, the price of those bonds goes down, and thus the yield (and interest rates) for those bonds goes up.

Read that last line again.

Starting in October, the Fed began selling $600 billion of bonds into the market. This is what the fancy lads call “Quantitative Tightening.”

Far more dangerous, however, is the fact that the US government is about dump at least $1 trillion of additional U.S. bonds into the supply pool.


Because with its flat-lining GDP, the U.S. has no choice in 2019 but to borrow more money to pay for our tax cuts, our endless war on terror, our trade war, our D.C. bureaucracy, our rising state and Federal expenses, our infrastructure requirements, our immigration wall, our massive and bloated, post-9-11 intel complex etc.

This means we have to issue lots and lots of new bonds (i.e.10-year Treasuries) into the open market to cover our borrowing needs. (At 2% average GDP growth since 08, the U.S. no longer produces enough income as a country to pay our bills, so now we just keep borrowing…)

The amount of bonds the U.S. Government will be dumping into the credit markets in 2019 will be at least $1.2 trillion.

Add to that number the $600 billion which the Federal Reserve began dumping in October of 2018 (remember what that did to the markets?), and we get the mathematical reality of higher bond supply, which means lower bond prices, which means higher bond yields, which means higher interest rates.

Which means markets tanking as they did from October through December of 2018.

And as the chart above makes clear, higher interest rates means higher interest expense pain (the “blackline”)-and higher interest rate pain means the end of the bubble party in D.C. and Wall Street.

Again, remember Q4 of 2018?

Think about it: At roughly $380 billion per year (!) just to pay interest on our national debt at 2% rates, imagine what that national interest payment/pain becomes when rates go to 4%? To 6%?

And it began to happen in late 2018.

Nothing and no one can stop the inevitable power of market forces and basic supply and demand. No one can stop the flow of bonds coming into the open market from a country that has no choice but to borrow, which means no one can stop interest rates from rising and the US economy and stock markets from tanking.

No one and nothing, that is, but Gerome Powell and the Fed-at least for a brief, desperate moment.

You see Powell had been trying for 2 years to calmly raise rates and engage in Quantitative Tightening-i.e. bond dumping. Why?

Because even that Wall Street servant knew that for the Fed to be effective at all in the next and inevitable economic crisis, he needs to be able to lower rates by at least 5% to have any real impact.

But this put him in a pickle made by his predecessors. That is, if he tried to raise rates by even a quarter of 1%, the market (and hence D.C. and Wall Street) went into a spiraling hissy fit, as we saw in October when this “tightening” policy began.

Thus, by March of 2019, Powell folded like a chair and ended further tightening and rate hikes for now, which the politicos and Wall Street foxes loved.

But here’s the sad rub: Powell has effectively made the Fed impotent. With rates stuck at 2.5%, he has no tool in his tool box left when the next recession hits. He’s made his office largely obsolete.

So, instead of allowing a much needed rate hike and market pain, Powell bought more time and thus extended our low rate credit bubble-and the pain to come, yet simultaneously emptied all the bullets from his Fed “gun.”

The markets, in short, knew that the US economy, despite all the sell-side propaganda, was too week for rising rates. The reality of slow economic growth can no longer be glossed over, and hence our yield curve is reflecting this fact by flattening, and slowly inverting, which is neon flashing precursor to a recession ahead.

But this Band-Aid fix and temporary calm cannot last forever.

If the central bank tries to keep bond yields/interest rates down by printing trillions more dollars in the future (i.e. more desperate QE), they can perhaps buy a bit more time, but that’s it. Furthermore, printing more money just means further currency destruction.

Thus, either 1) the central bank artificially prints more money (and trust me, they will if markets tank by 20% or more) and pushes us toward an inflationary death trap, or 2) the bond market naturally sends rates up and the economy into the basement.

We are now between an inflationary and yield curve “rock” and interest-rate “hard place.”

Inflation and Recession, or worse yet, inflation and a recession (stagflation). Today, those are the only choices facing the U.S.

And we got here because rather than take our lumps in ’08 and suffer the consequences of our banking and mortgage debt sins then, our central bank (Wall Street’s mistress) merely postponed the pain-and by doing so only made the cost of our redemption infinitely worse for tomorrow.

The Bigger the Debt, the Bigger the Crash – And The Bigger Our Mission

The bigger the debt party (from corporate stock buy-backs and cheap mortgages to national deficits), the bigger the recession that follows.

The public debt levels shown in the chart above defy all historical precedent, which means the recession to follow will be equally unprecedented.

Again, this is just history and math folks, not “gloom and doom” market timing or blog bravado.

We at Critical Signals Report loved, served and defended our country. But at debt levels such as these (and policies such as those handed to us from bankers like Paulson or egos like Bernanke), we don’t entirely feel our country is serving us.

Wall Street, of course, was the true beneficiary of the 2008 debt can-kick. But when rising rates or flattening yield curves sneak up against our debt bubble, nothing about the U.S. markets, economy or society will be the same.

We created Critical Signals Report so that more and more of you will have the information, tools and plans in place to prepare for (rather than desperately react to) the dangers ahead.

We intend to protect as many investors and hard-working Americans (of all income and investment levels) from the approaching dorsal fins with a bang-stick-that is, a plan to ward off the approaching shark.

Until then, and as always, be careful out there. Those interest rate and yield curve fins are in full sight and already beginning to circle unprepared investors.

Be smart, be patient and be careful.

Matt Piepenburg


2 responses to “The One “Pain Line” Chart That Explains Our Debt Crisis”

  1. 2 #s: 1907 & 1929. The elite rowed the economies for their own agendas & their not telling in advance when they’re doing it next time.
    Debt is supposed to be used to work out of the debt & prosper thereafter. The elite did prosper, but everyone else was left treading water.
    During WW2 the US was too far away to be of any real danger from it’s enemies, while the rest of the world destroyed itself; so the debt ended up being a profitable investment. Things have changed.

  2. A large percentage of of the things you point out is astonishingly precise and that makes me ponder why I had not looked at this with this light before. Your piece really did switch the light on for me personally as far as this subject goes. Nevertheless there is actually one issue I am not too comfy with so whilst I make an effort to reconcile that with the main theme of the point, allow me observe what the rest of the subscribers have to say.Well done.

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