Is a Stock Market Crash Inevitable?

Is a stock market crash inevitable? Only a fool would say no.

And I don’t say this because I’m some big doom-and-gloomer. This is merely an observation of the truth. It’s just the organic nature of the markets. Some things instigate growth, some things instigate deterioration. And there’s a major cancer that’s spreading throughout the U.S. right now that could not only lead to a nasty stock market crash, but an overall economic meltdown that could take years to climb out of.

Is a Stock Market Crash Coming?

Without a doubt, the most important reason to be concerned is the national debt. 

The national debt now exceeds $35.2 trillion.  And we’re now paying more than $2 billion per day just on interest payments on the debt.

Our debt-to-GDP ratio is currently sitting at 123.8%. 

To clarify, a debt-to-GDP ratio tracks our public debt to our GDP.  It’s used as an indicator for our ability to pay back our debts by comparing what we owe with what we produce.  

A healthy debt-to-GDP ratio for a country the size of the United States should be no higher than 70%.

As a result of the deteriorating health of the U.S. economy, we’re now seeing U.S. Treasuries become “riskier” investments.  This is because the perception of U.S. government debt as the world’s premier safe-haven asset is changing. 

Last month, a group of economists presented a paper at the U.S. Federal Reserve’s annual conference in Jackson Hole, Wyoming.  Here’s a snippet of that paper…

Central banks and governments need to ensure that bond markets function smoothly. Before the arrival of COVID, the U.S. had not witnessed large responses to fiscal shocks in Treasury markets in the past decades. Based on extrapolation from recent U.S. experience, one might have expected Treasury yields to be insensitive to fiscal news when bond markets function well.

The U.S. Treasury market’s actual response to COVID was markedly different from its response during the GFC and more in line with the predictions of standard valuation models. Throughout COVID, U.S. Treasuries were marked down along with the sovereign bonds issued by the governments of other advanced economies. We provide direct high-frequency evidence that these U.S. Treasury yield increases were concentrated on days with significant fiscal news, the footprint of the risky debt regime. In a large class of standard asset pricing models, the valuation of the government’s IOUs is marked down when the economy is hit by unfunded spending increases.

In March of 2020, foreign investors did not flee to the safety of U.S. Treasuries. Instead, they sold long-dated U.S. Treasuries in a flight from maturity. The convenience yield on long-dated Treasuries declined throughout the COVID period. During COVID, U.S. Treasuries were not trading as the world’s safe asset of choice. Instead, Treasuries were trading like sovereign bonds issued by other mature economies. 

In response to COVID, U.S. Treasury investors seem to have shifted to the risky debt model when pricing Treasurys. Policymakers, including central banks, should internalize this shift when assessing whether bond markets are functioning properly. In the risky debt regime, valuations will respond to government spending shocks. This may involve large yield changes in bond markets. In this environment, large-scale asset purchases by central banks in response to a large government spending increase have undesirable public finance implications. These purchases, which provide temporary price support, destroy value for taxpayers but subsidize bondholders. These purchases may also distort the incentives of governments and impair the price discovery in government bond markets. It is not inconceivable that governments in some mature economies have overestimated their true fiscal capacity as a result of these large-scale asset purchases.

Now read this response from analyst Craig Eyermann…

Even though this debt-fueled spending response began as a national emergency under Trump, excessive spending continued under the Biden. It continued long after the emergency faded and continues today.

By continuing it, the Biden-Harris administration squandered the opportunity to refill the U.S. government’s credit reservoir to restore its risk-free status. They could have reduced spending to sustainable levels after the pandemic ended. Instead, they failed this basic test of fiscal responsibility.

The national debt in relation to the U.S. economy has now reached levels not seen since the end of World War 2. It may be helpful to consider how politicians of that time tackled this challenge. After the war, they adjusted their spending habits and stopped investing money in a war that had already ended. This decision ensured that the U.S. government’s credit reservoir would be replenished for future generations.

This does not bode well for the overall health of the U.S. economy.  And of course, makes us susceptible to a stock market crash.  Particularly when you consider the burdens of continued defense spending, which is now nearing $1 trillion (with no end in sight for spending in Ukraine and Israel).  Not to mention, excessive tariffs that are absolutely inflating prices for consumers. 

Tariffs imposed by both the Biden and Trump administrations will likely continue to make things more expensive for the average American consumer.  And if Harris wins the next election, I see no evidence to suggest that she will reverse any of these tariffs.

The Tax Foundation did an excellent job clarifying the economic damage that has been imposed by these tariffs.  Check it out…

• The Trump administration imposed nearly $80 billion worth of new taxes on Americans by levying tariffs on thousands of products valued at approximately $380 billion in 2018 and 2019. This amounted to one of the largest tax increases in decades.
• The Biden administration kept most of the Trump administration tariffs in place. And in May 2024, announced tariff hikes on an additional $18 billion of Chinese goods, including semiconductors and electric vehicles. That added an additional tax increase of $3.6 billion.
• It is estimated that the Trump-Biden tariffs will reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs.
• Altogether, the trade war policies currently in place add up to $79 billion in tariffs based on trade levels at the time of tariff implementation and excluding behavioral and dynamic effects.
• Before accounting for behavioral effects, the $79 billion in higher tariffs amount to an average annual tax increase on U.S. households of $625. Based on actual revenue collections data, trade war tariffs have directly increased tax collections by $200 to $300 annually per U.S. household, on average. Both estimates understate the cost to U.S. households because they do not factor in the lost output, lower incomes, and loss in consumer choice the tariffs have caused.
• Candidate Trump has proposed significant tariff hikes as part of his presidential campaign. If imposed, it is estimated that these tariff increases would hike taxes by another $524 billion annually and shrink GDP by at least 0.8 percent, the capital stock by 0.7 percent, and employment by 684,000 full-time equivalent jobs. These estimates do not capture the effects of retaliation.

While it’s easy to bury our heads in the sand and just hope for the best, this is not a smart option.  And by the way, this goes beyond just your wealth.  What’s happening to the U.S. economy is also directly affecting your most basic freedoms.  The ability to travel freely throughout the country.  The right to exercise your first and second amendment rights.  The capacity to save cash, store gold, and even conduct the most basic business transactions without constant monitoring.  Not just by the U.S. government, but by a global conglomerate led by the likes of Bill Gates, George Soros, and some of the biggest corporations in the world.  And if you don’t believe me, just look at the evidence for yourself.

Understand, I’m not trying to scare you or make you uncomfortable.  I’m merely trying to help protect your wealth.  Not to mention, your ability to live free in absence of government overreach and violence.  Which is why I implore you to read our latest investigative report which exposes this very real threat. 

To a new way of life and a new generation of wealth…

Jeff Siegel

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Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.

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