Like stimulating an old mule

What may be approaching is not just a stock market correction…but a correction of the entire capital structure…not to mention the empire that heaved it up. This could be a serious reckoning.

Liabilities exceed assets by $97 trillion. Source: 2026 Medicare Trustees Report

Thursday, June 11th, 2026

Bill Bonner, writing from Youghal, Ireland

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What a jolly little war…as long as you are not in the middle of it…or have to pay for it…or buy gasoline…The Washington Post:

US launches strikes on Iran after downing of Army helicopter, prompting retaliation

Next at bat, Reuters:

Iran strikes US bases in Gulf after Trump orders attacks near Hormuz

The press goes on to explain that the Iranian bombing is retaliation for the US bombing of Iran…which was in retaliation for the Iranians shooting down a US helicopter, which was loitering over the Strait to enforce a siege which was imposed in retaliation for the Iranians’ siege which was in retaliation for the US bombing which was meant to demolish the Iranians’ nuclear bomb program…that America’s own spy organizations said didn’t exist…and which Donald Trump claimed to have demolished a year ago, even though the spooks said it didn’t exist then either.

Got that?

Hope so, because we’re not going to repeat it.

Instead, we’re going to move on. We’ll fade all the bombing and besieging …as distracting as they are…to focus instead on what we’re supposed to ignore: that the feds have made an unholy hash of US finances….and every day the stench grows stronger.

Opinion: The true national debt just hit $1 million per U.S. household

Marketwatch:

The effective U.S. national debt just crashed through $100 trillion for the first time in history, and now stands at an extraordinary 400% of annual gross domestic product — but almost nobody seems to care. The shocking news is (as usual) buried in the footnotes of the annual report from the Medicare Trustees. In Table V. F2 on page 218, right where everyone will see it, the federal government reports that the commitments of Medicare and Social Security now exceed their assets by an eye-watering $97 trillion, which is more than three times U.S. gross domestic product.

This tally includes, of course, only the feds’ own obligations. But all through the economy, the funny money regime has inflated asset prices…and the debt that supports them.

Somehow, someday…all that gaudy debt and rococo valuations will be squared up…to what they are really worth. The prevailing assumption is that the excesses will be inflated away. While that is probably right, we need to be cautious. It may not be that easy.

Stimulating an economy is like stimulating an old mule. Sometimes, no amount of prodding or coaxing will get him to move. You can lay on the lash, too…but like bombing Iran; the stubborn SOB might dig in his heels.

American consumers and investors – like the Japanese before them – might dig in their heels too. Having grown older and more cautious since the last crisis, they might not be so eager to do it again. They may not party like it was 1999…or 2007…or 2021, for example. They might not buy the dip at all.

So, what may be approaching is not just a stock market correction…but a correction of the entire capital structure…not to mention the empire that heaved it up. This could be a serious reckoning that rolls through the whole economy. Almost everything has been whipped to a froth by the fake ‘money.’ It is fake because it – and all the assets quoted in it – masquerade as purchasing power for goods and services that aren’t there.

While the situation is endlessly complicated, it leads us to a homey insight: come the crisis, either goods and services get priced much more highly…or, asset prices go way down. One way or another, the two sides of the national balance sheet need to zero out.

And while we do not pretend to know exactly what is coming, we are sure we have the leaders we need to make it worse. The feds are already on the hook for $40 trillion. Plus, the unfunded obligations of Social Security, Medicaid and Medicare. Then, there is the additional $2 trillion per year (assuming no increase!) in deficits.

Where is all that money to come from? Thanks to bombing, sanctioning, seizing, tariffing….and generally acting like a jackass…fewer foreigners will be in the room when America auctions new debt.

Over the last five years, for example, the Chinese have reduced – not increased – their UST holdings, by some half a trillion dollars. Overall, foreigners bought 14% of US Treasury offerings in 1995. The total peaked out at 60% in 2008…and has been going down ever since.

They’re not likely to get much support from the Fed either. Historically, a major buyer, now the Fed has its eye on inflation; it will be loath to ‘print’ more money just to soak up Uncle Sam’s deficits. The Wall Street Journal:

Consumer prices were up 4.2% in May from a year earlier, the Labor Department said Wednesday, accelerating from 3.8% the previous month. That was the highest year-over-year print since April 2023 and a sign that high energy costs stemming from the conflict with Iran are continuing to push up price pressures.

How this will play out, we don’t know.

We’ll stay in Maximum Safety Mode until we find out.

Until tomorrow,

Bill Bonner

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