What If A Coming Recession & Bear Market Are The LEAST Of Our Worries? | John Rubino
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History is full of examples where nations resorted to taking on ever-increasing amounts of debt to maintain a positive economic growth rate.
But it never works out well for those who do. Most often, they end up sacrificing the purchasing power of their currencies in the process.
Many analysts are now raising such concerns about the fast growing national, corporate and consumer debt pile in the US and other G7 nations.
Are we repeating the mistakes of history? Or is it truly different this time?
To discuss, we're fortunate to welcome monetary and macro analyst John Rubino, author and co-author of numerous books including The Money Bubble with James Turk.
John sees concerns of a near-term recession and bear market as valid, but fairly pedestrian. He’s much more worried about the next 1-2 decades, over which he predicts widespread hardship as the world’s fiat currencies get inflated away.
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The global fiat currency and fractional reserve banking system that began in the 1970s is approaching systemic failure within the coming decade due to parabolic debt and interest cost growth that creates an inescapable debt spiral, making a currency reset inevitable despite near-term opportunities for those positioned defensively in commodities and selective short positions.
- Government and consumer debt levels have gone parabolic while interest costs on that debt are simultaneously soaring, creating a self-reinforcing cycle where rising debts require higher borrowing costs which further increase total debt
- The playbook of central bank intervention (rate cuts, QE, bailouts) that has worked for decades is approaching its limits as debt levels become too large to manage and the currency itself becomes the problem
- Japan's trajectory—where they accumulated 260% debt-to-GDP, lost currency value while raising rates, and entered a box with no escape—shows the inevitable path ahead for the US within 2-5 years
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Futures-based commodity ETFs carry unacceptable counterparty risk because they do not hold physical metal but hold paper derivative contracts, and in financial crisis like 2008 when AIG faced counterparty failures, derivatives counterparties can cease to exist, potentially leaving ETF holders without commodity exposure or government bailout protection during currency crisis.
“nothing that involves Futures contracts is low risk you know C certainly not risk-free but it's it's got that counterparty risk you mentioned and in a financial crisis counterparties are just going to be dying all over the place”
During Great Resignation (2021-2023), workers had significant bargaining power due to pandemic layoffs, stimulus payments, and forbearance programs, causing quits ratio to spike and wage growth to surge, but this exceptional period has normalized and pendulum has swung back to employer favor, with quits ratio returning to historic norms and wages now growing at slowest pace in 3 years.
“during what was called the Great resignation um where people were essentially telling their employers to take the job and shove it and that's because they were feeling flush from uh uh the stimulus during covid”
The most important lesson from decades of investing is that one winning streak should never convince an investor they cannot lose, because even successful investors can be wrong; the pattern is that investors make profits, become overconfident about their edge, increase risk, and then suffer major losses that exceed their previous gains, highlighting the critical importance of risk management over confidence.
“you should not let uh one winning streak convince you that you can't lose because I I think that's that's one of the big lessons that everybody has to learn”
As unemployment rises in recession, consumer spending declines because employed people lose jobs, which forces employers to lay off more people due to declining consumer demand, creating self-reinforcing downward spiral where initial employment losses trigger spending collapse which triggers further employment losses.
“if that happens obviously that power structure between labor and and employer uh Falls much further into the employer's standpoint and then of course we have the big questions of um you know does that mean there's a recession here and and obviously as people lose their jobs they start uh being able to spend less”
Ore grades (the concentration of minerals in mined material) have declined significantly over the past 50 years, meaning extraction of the same quantity of commodity now requires processing much larger volumes of rock, which increases cost, environmental impact, and capital requirements for new mines.
“the orbanes that we're going after today are much more dilute than the ones that we went after 50 years ago which are much more dute than the ones that uh you know folks in the older days went after with their pickaxes um so we just we have to do an awful lot more work to get what's out there out of the ground um and concentrate it you know smelt it concentrate it refine it”
At 260% Japanese debt-to-GDP, a 1% rise in interest rates means an additional 2.6% of GDP must be paid annually just in interest costs, making any further rate increases completely unmanageable, but normally when currency is falling you must raise rates to defend it, leaving Japan in a box with no solution—the same box the US will enter as it follows Japan's path.
“if you have um debt at 260% of GDP and your interest cost goes up by just 1% that's an extra 2 point uh 2.6% of GDP that you're paying out in interest that's completely unmanageable”
Attempting to inflate away government debt by targeting inflation above interest rates will backfire catastrophically because investors will anticipate the currency depreciation and front-run it by borrowing at the lower (nominal) interest rates while knowing they can repay with depreciated currency, causing debt to become even more parabolic and worse than if inflation had been lower.
“if if it's government policy to have 4% inflation and interest rates are two or 3% then obviously you want to borrow money at two or 3% knowing you get to pay it back at um uh a depreciated with a depreciated currency and that means debt goes par parabolic even more parabolic than it is”
Excess savings accumulated by US consumers during the pandemic ($2 trillion) have been completely spent, and the continuation of economic growth during the pandemic period depended on this spending rather than organic economic activity, making the current consumer spending decline predictable and unavoidable.
“we build up like $ two trillion dollars of excess savings um and we spent that money and that's why the economy continued to grow rather than tipping into a recession and staying there because of the pandemic well all that money's been spent now and it's gone”
The AI investment bubble has misallocated massive capital (hundreds of millions to billions collectively) across AI chip makers and AI companies, but most entities spending on AI have not yet figured out profitable use cases, which will force demand moderation and expose the extreme valuations in AI stocks like Nvidia to sharp downside.
“the AI bubble is not working out the way everybody expected L there there are a huge number of people out there building AIS but very few people have figured out a way to make a profit from all the hundreds of thousands of dollars or tens of millions of dollars that they're putting into their AI hundreds of millions of dollars collectively but uh you know it depends on how much each individual person is spending but they're all spending serious money um in for their own situation and uh unless they figure out a way to make money in in the very short run right now then the demand for AI chips is going to have to moderate”
The Lehman Brothers collapse in 2008 demonstrated that allowing even one major financial institution to fail creates systemic panic and threatens to collapse the entire financial system, which is why governments now bail out 'everybody in sight' immediately upon sensing crisis, creating moral hazard where large entities know they will be rescued regardless of their risk-taking.
“you look back at um Layman Brothers which people blame for the Great Recession in two 2008 2009 and that was one brokerage house that um the government let go busts rather than bailing it out and that spooked everybody else that they were all wondering who was next and acting accordingly and the economy basically almost died back then it was a very close call and the government had to step in with trillions of dollars of bailouts and so that's kind of where we are um any thing that um it used to be a mini crisis that was unpleasant but that you got through it now is an existential threat”
Stock market has historically viewed soft employment data as positive (because it suggests rate cuts) and bond markets today are responding positively to weak jobs data with falling Treasury yields and rising gold/silver prices, but this historical pattern of rate cuts supporting stocks during recessions has broken down during major bubble bursts (tech 2000-2002, housing 2007-2009) when stock markets fell 50%+ despite aggressive Fed easing.
“there are times where rate Cuts do lead to stock market gains and and but there are the key distinction there if you go and parse the history is where valuations are and the most recent um major rate cutting episodes uh in response to the tech bubble and the housing bubble um were absolutely um accompani with very strong Market sell-offs over 50% declines”
Electrifying global transportation and power systems requires enormous quantities of commodities, with the projected copper demand alone exceeding all copper mined in human history up to now, creating fundamental supply-demand imbalance that will drive commodity prices substantially higher regardless of macroeconomic conditions.
“we need more copper than we have found found in all of human history up until now in order to um in order to make good on the plans that are now in place so what does that mean that means much higher copper prices right”
Most people surveyed (Transunion) worry about inflation, interest rates, and housing prices; relatively few worry about recession or stock market; these consumer survey results suggest contrary indicators are in place (low worry about stock market at all-time highs is typical of 'slope of hope' market rallies that precede crashes).
“there's there's I would say these these you know um low amounts of worry about uh the possibility of recession in stock market I would say those maybe are pretty good contrary indicators”
Debt saturation exists when consumers have taken on the maximum debt they can afford—either they cannot afford additional debt without missing other payments or lenders cut them off by refusing new credit based on deteriorated balance sheets—and current spike in personal interest payments indicates consumer debt saturation has been reached.
“you get to a point where the consumer takes on the maximal amount of debt that they can afford to they either can't afford to take on any more debt because then they can't meet their other debt Services payments um or the lenders cut them off”
Government cannot moderate its debt accumulation by reducing spending or raising taxes because any contraction in government spending slows the economy, triggering private sector bad debt explosions that force the government back into bailout mode, which increases borrowing again—therefore the system is past the point where there is anything that can be done about debt growth and it can only accelerate.
“if a government tries to scale back its borrowing which is to say if it spends less or raises taxes that slows the economy down and then you get all the the bad debt in the private sector starting to blow up”
It is increasingly unclear whether it is even possible to create another $1 trillion in currency and inject it into markets to generate another $50 trillion in global debt because the system is reaching physical limits on how much debt can be created and serviced, and this fundamental constraint is why the coming decade represents the end of the fiat currency experiment.
“it's not clear that's even possible you know and and I think that's why this decade is basically the end of the experiment because we're we're reaching the point where the numbers are just so big”
Shorting the stock market is an extremely dangerous strategy unless perfectly timed because equities have no theoretical upside limit whereas short positions have unlimited loss potential, making it easy to lose massive amounts when short positions go against you; despite potential for life-changing profits when timing is right, shorting should only be done with small position sizes due to extreme timing risk.
“if you um if you buy something it can only go down 100% but if you short it it can go up a th% and you might be on the hook for it all the way up so it's it's dangerous”
Housing market is frozen because house prices have risen so far and so fast while mortgage rates have surged, making it mathematically impossible for the average person to afford the average house, so almost no one is buying except private equity vultures who use cheap financing to buy neighborhoods, convert them to rentals, and extract maximum rent from people.
“housing is just Frozen house prices have gone up so far so fast and and mortgage rates are now way up so that the average person can't buy the average house anymore”
The US financial system and global economy depend critically on a small number of stocks (approximately 10 as of the interview, described as the 'Magnificent Seven' mega-cap tech stocks), with most of them being wildly overvalued by historical metrics of price-to-earnings and comparable valuation measures, making a burst of this concentration similar to the dot-com bubble burst and 2000 crash highly probable.
“the global economy depends on the US economy and the US economy depends on the US Stock Market and the US Stock Market depends on 10 stocks only four of which are profitable”
Real-world anecdotal evidence from job seekers shows severe difficulty finding employment—people report sending hundreds of resumes with minimal callbacks, young college graduates with in-demand degrees struggling to find entry-level work—contradicting official narrative of strong labor market, suggesting official data is either lagging reality or systematically biased.
“for the past year but certainly in recent months um I've not I've heard tons and tons of stories both from people I know and reading online um of people saying how hard it is to get a job in today's market”
The US economy faces near-term economic contraction driven by exhausted excess savings, surging consumer debt service costs reaching unsustainable levels, commercial real estate crisis hitting regional bank balance sheets, and housing market collapse from affordability breakdown, all culminating in recession and equities bear market within 1-2 years.
“put all that stuff together and you get a um slowing consumer spending slowing housing um and um an economic contraction in the year ahead and then probably an equities bare Market”
Consumer concerns about job security are rising even among employed people who have not yet lost jobs, suggesting job loss concerns are leading indicator that may precede actual unemployment increases—real anxiety about labor market is developing in advance of official data fully capturing deterioration.
“they haven't gotten laid off yet but they're increasingly concerned about their job”
Physical commodity ETFs that actually store and hold physical metals (not futures-based ETFs) create a self-reinforcing bull market mechanism where inflows purchasing physical metal remove supply from the market, raising prices, which justifies additional inflows, which removes more supply—creating a perpetual motion machine where ETF inflows and commodity price appreciation reinforce each other.
“by taking um that commodity off the market the ETF other things being equal raises the price by restricting the supply of that commodity so it's kind of a perpetual motion machine the more U money it raises to buy Commodities and takes them off the market uh other things being equal the higher the price of the commodity goes”
The central challenge for investors is not determining whether a financial crisis is coming—it clearly is—but positioning defensively in advance to protect capital and potentially profit, with the intellectual framework being that those who lose the least in the downturn will be ahead relative to those who lose more, making defensive positioning a profitable strategy regardless of short-term market moves.
“the intellectual challenge isn't to figure out whether we're headed for a crisis we clearly are but to figure out how you position yourself so that you're at least protected and in a best case scenario that you make life-changing money”
After near-term recession hits, central banks will immediately jettison 'higher for longer' rate policy and return to aggressive rate cuts, QE asset purchases, and potentially negative interest rates again, replicating the stimulus playbook used in previous decades but extending moral hazard by reinforcing beliefs that governments will bail out big players regardless of risk taken.
“the world's central banks um will will jettison the whole higher for longer thing immediately as soon as a recession and INE equities bare Market starts to happen and they'll go back to cutting interest rates aggressively”
It is much harder to stay permanently poor than to become poor after being rich, because once you've built wealth it's easier to lose it through repeated bad decisions than it is to acquire wealth initially, making the preservation of wealth through discipline and risk management more important than aggressive wealth acquisition.
“it it to add one thing to it it is it's much harder to be rich um or it's much it's much harder to just be poor forever than it is to be rich and then be poor again”
Market internals (percentage of stocks above moving averages, bullish percent, stocks trading above trend lines) have deteriorated significantly from the blistering rally of fall 2023, showing narrow participation in market highs and deteriorating breadth despite S&P 500 making new highs, which is traditionally concerning for market that looks heavy under valuation weight.
“there are fewer stocks participating things like percentage of stocks uh above certain moving averages we look at various moving average timelines uh things like bullish percent things like um uh you know percent of stocks trading above trend lines these are all uh more or less turning over or have turned over in in a more defensive negative way”
Gold and silver have broken out of multi-year consolidation patterns and are attempting to break above downtrends on daily and weekly charts; if consolidation breaks hold, technical targets suggest gold should reach $2500-$3000 range and silver should reach $34-35 in near-term, driven by combination of lower rate cut expectations and commodity supply fundamentals.
“gold has this probably this the uh the clearest on the weekly chart this bullish triangle consolidation silver has more of a bullish flag consolidation”
Retail sales growth has completely stalled (0.1% nominal last month, negative on inflation-adjusted basis) and major consumer brands like Walgreens, Starbucks, and Target are forecasting weak spending, confirming that consumers have lost purchasing power and cannot sustain previous spending levels despite official GDP data still showing positive growth.
“last month retail sales grew by like 0.1% um and that's not inflation adjusted um so you take inflation into account and they actually shrink on on a real basis right”
Franco Nevada, a major royalty company, lost approximately $1 billion in value when the Cobre Panama mine was suddenly shut down by the Panamanian government due to environmental protests, demonstrating that even highly diversified royalty companies face significant geopolitical and environmental risks that can impose major losses on concentrated positions.
“the Cobra Panama mine which is one of the world's biggest copper mines was just sarily shut down by the panamian government or Panamanian government uh because of environmental protests and you know that just took a big chunk of future copper production out of the equation”
European Central Bank cut rates last month while simultaneously raising inflation projections, and subsequent Eurozone inflation data showed inflation rebounding upward, serving as cautionary tale that cutting rates prematurely to rescue markets may reignite inflation pressures before deflation is confirmed.
“the ECB uh cut rates for the first time while simultaneously saying their inflation uh projections were going to be increased and sure enough we saw inflation numbers come out um this month in the in the Euro Zone that show a turning back up”
Initial unemployment claims and continuing claims data are beginning to show uptick after being surprisingly low, consistent with pattern where official labor market data lags real deterioration but eventually reveals underlying weakness; combined with wage growth declining to 3-year lows, labor market shows signs of rolling over into recession territory.
“we're now beginning to see surges uh in both these data sets um and uh you know in many ways this just might be you can make the argument that if these are indeed pretty heavily doctored data sets we're getting to the point where the folks trying to doctor the data can't hide the fact anymore that things are beginning to soften”
Royalty and streaming companies in mining finance provide attractive commodity exposure with lower risk than direct mining company ownership because they hold fixed-percentage claims on multiple mines' output, collect fees regardless of commodity price, and because counterparty risk to mining companies (geopolitical, environmental, execution risk) creates diversified benefit: if individual mines shut down, commodity scarcity raises value of remaining royalty streams.
“they're at fixed price or fixed um percentage price relative to the underlying commodity so they've got very wide margins and they're Diversified so that no one streaming or royalty deal can bankrupt them um and yet they still participate in the rising price of the commodity”
Individual mining company stock picking requires deep expertise because mining industry has dramatically rising risks from geopolitical shifts, environmental regulations, and operational surprises; unless an investor has professional-level mining expertise or insider information, the prudent approach is to use broad-based mining ETFs rather than trying to pick individual winners.
“I'm less and less confident of my own ability based on what's been happening lately of um you know being certain about a given mind um being able to get from here to there to three years later”
New Harbor Financial is maintaining approximately 40% equity allocation for most client accounts but has added out-of-the-money put options as tail risk hedge covering 15% of equity exposure with strike price about 5.5% below current market (S&P 500 at 5200) for approximately $120 cost per $50,000 of equity, using the benefits of currently low VIX to purchase inexpensive insurance.
“if you think about this as an insurance policy there's a there's a deductible of about five and a half percent that uh folks would need to pay in terms of uh having some downside Market action but beyond that these puts would kick in and take off the table any further declines for roughly about 15% of our our client um Equity exposure”