Is your money about to lose value while stock prices go up at the same time? The bond market showed a warning sign not seen since 2007, the year before the last big financial crash. Felix Prehn, an economist and former investment banker, says the situation happening right now looks like one which made some people very rich in the past, while everyone else fell behind.
Estimated time to read: 7 minutes
How Does The National Debt Affect The Stock Market?
The US government must pay back or replace $8 trillion of outstanding debt in the next 12 months. It’s the largest single amount ever recorded.
When the government can’t pay off old debt right away, it must borrow new money to cover it. Because interest rates are much higher today than when the debt was first borrowed, replacing it costs a lot more money. The increasing debt causes interest rates to increase, and increasing interest rates make it more expensive for companies to borrow money, which can lower stock prices.
Felix Prehn explains the connection between the growing national debt, interest rates, and the stock market, using real numbers and documents instead of guesses.
Key Takeaways:
- An increasing national debt forces interest rates up, and increasing interest rates lower stock prices.
- Felix Prehn teaches three steps: protect your money, keep good investments, and look for ways to profit.
- The bond market shows a danger sign not seen since 2007.
- Japan selling U.S. debt makes it more expensive for the U.S. government to borrow money, and it affects your investments.
- The federal government cannot grow its way out, cut spending enough, or refuse to pay back a debt this large.
- A widely shared online post about Japan’s central bank losing its independence is false. Here are the facts.
Why Increasing National Debt Pushes Interest Rates Up
Much of the government debt was first borrowed years ago when interest rates were still low. Interest rates are much higher today, so every time the federal government replaces old debt with new debt, it pays a much larger interest. The extra cost adds tens of billions of extra dollars a year in new interest payments, on top of an annual deficit already near $2 trillion.
Increasing interest costs affect the federal budget, and they affect your money too.
When the federal government offers higher interest rates to attract buyers of treasury securities, other borrowing costs in the economy increase as well, including rates on loans and credit which businesses depend on.
When it costs companies more to borrow, they have less left for growth, hiring, and profit, and reduced profit can lower stock prices. Higher interest rates also make fixed income investments pay more compared to stocks, so some investors move money out of the stock market into treasury securities, adding more downward pressure on stock prices.
As the problem worsens, the federal government also has far less room left to manage the problem than it did in the past.
Why The Federal Government Struggles to Manage the Debt
Today, total federal debt equals about 120% of the size of the entire U.S. economy, measured by gross domestic product. Compare the figure to the early 1980s, when the Federal Reserve, under chairman Paul Volcker, raised interest rates sharply to stop high inflation. At the time, national debt equaled only about 30% of the size of the economy. The federal government had far more room to handle rising rates then than it has now.
A government facing debt at the level seen today has three basic choices when it’s time to pay back:
- grow the economy fast enough to outpace the debt
- reduce government spending
- print more money and let inflation reduce the value of the debt over time.
Felix Preh says governments rarely choose the first two options at the scale needed. That leaves the third option, and it carries direct consequences for stock prices, savings, and the price of hard assets like gold and silver.
One more event ties directly to the warning sign covered above: one of the largest foreign buyers of U.S. debt changed direction.
Why Japan Selling U.S. Debt Affects Your Investments
Japan sold $66 billion worth of U.S. government debt in a single month, to protect the value of its own currency. Japan has long been one of the largest foreign holders of U.S. treasury securities, buying U.S. debt with money borrowed cheaply at home. When Japan sells rather than buys, the U.S. government loses one of its largest sources of demand for new debt.
Fewer buyers for Treasury securities means the U.S. must offer even higher interest rates to attract the buyers it needs. With the government forced to offer higher interest rates, the mechanism covered above continues at a higher speed
A rumor spread online recently, claiming a false story about the reasons behind Japan’s shift.
The Truth Behind The Viral Rumor About Japan’s Central Bank
A rumor spread online saying Japan’s government no longer controls its own interest rates, and that the United States is secretly controlling them instead. If the rumor were true, it would mean Japan’s bond sales were a forced political move, not a financial decision, and would change how investors read the situation.
The rumor is false. Japan’s central bank raised interest rates on its own, a normal step central banks take to slow down inflation.
The rumor matters because it points investors toward the wrong reason behind Japan’s bond sales. Someone who believes the rumor might expect a political resolution, and misjudge what comes next in the stock market and the bond market.
The real reason is simpler: Japan is protecting the value of its own currency, and the decision has a side effect of pushing up the cost of U.S. borrowing. A reader who understands the real reason behind Japan’s bond sales can judge their own investments on facts, not on a rumor.
Felix Prehn breaks down a response to the entire situation in three practical steps.
Felix Prehn’s Three-Step Plan: Protect, Keep, Profit
Felix Prehn teaches three steps for handling a period like this one.
- Protect. Know how much cash you have on hand and avoid heavy borrowing, so a sudden shock cannot force you to sell investments at the worst possible moment.
- Keep good investments. Avoid selling quality investments in a panic during a scary headline. In 2008, people who sold at the bottom locked in their losses, while people who kept their positions saw the value recover over time.
- Profit. Learn which assets have historically performed well when a government responds to heavy debt by printing more money. Hard assets like gold and silver, which cannot be printed, are examples covered in this piece.
The step people skip most often is the first one, and it is the step that determines whether someone can follow through on the other two. Acting out of fear rather than facts is the most common cause of losses during periods like this.
Felix Prehn’s Winston app gives students a way to follow real data on where large investors are putting their money right now.
What Felix Prehn’s Winston App Shows About Gold And Silver
Felix Prehn’s Winston app tracks institutional buying and selling activity in the gold and silver markets, using real data rather than rumors or guesses.
The app currently shows a smart money score of 74 for gold, meaning far more institutional buying than selling, a sign that large investors are already positioning for an increasing national debt and its effects.
Felix Prehn states plainly that the three steps above do not guarantee a result, and he is not a financial adviser. History shows that people who understood past situations like this one earned more money than people who reacted to fear. But remember, past performance never guarantees future results.
Get the free research report at felixfriends.org/japan.
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Frequently Asked Questions
What is the Congressional Budget Office, and does it track the national debt?
The Congressional Budget Office is a federal agency that produces economic research and reports on federal spending and federal revenue. Felix Prehn’s discussion focused on real-time bond market reactions rather than the agency’s official projections.
Does an aging population affect federal spending and the national debt?
An aging population can raise government obligations tied to programs like the Social Security Administration over time. The transcript does not cover the specific factor in detail, so the point stays outside the scope of this article.
What is the difference between the debt ceiling and the debt limit Felix Prehn discussed?
The debt ceiling, also called the debt limit, is a legal limit on how much money the federal government can borrow. Felix Prehn’s discussion centered on the $8 trillion coming due for repayment or replacement, not on any debate over raising the debt ceiling.
Does tax revenue affect the national debt Felix Prehn described?
Tax revenue, also called tax receipts, is one factor in the size of the annual deficit, but the transcript did not cover tax revenue or tax breaks directly. Felix Prehn’s discussion focused on borrowing costs and interest rates instead.
Do mutual funds or pension funds hold U.S. treasury securities?
Mutual funds and pension funds are common holders of treasury securities in general, but the transcript did not cover their specific holdings. Felix Prehn’s discussion focused on Japan as a foreign holder of U.S. debt.
Does the debt ceiling involve extraordinary measures?
Extraordinary measures are steps the U.S. Treasury can use to manage spending when it nears the debt ceiling. The transcript did not go into this process. Felix Prehn’s discussion stayed focused on the $8 trillion rollover rather than the debt ceiling debate.
What does Felix Prehn mean by the phrase “the prepared get rich, the panicked get poor”?
Felix Prehn uses the phrase to describe how, in past financial crises, people who stayed calm and understood the situation earned more money, while people who panicked and made rushed decisions lost money.
Watch Video: US Panic: Japan’s Central Bank Just Collapsed!?
Video published on July 28, 2026
Disclaimer
The content on the website is for informational and educational purposes only. It does not constitute and should not be construed as financial or investment advice or an offer to purchase or sell securities. The content is not personalized or tailored to a specific person or group of persons, nor to their personal investment or financial needs. You should consult a financial adviser or other investment professional authorized to provide investment advice. Investing comes with risks, including the risk of loss. Presentations of trades made by Goat Academy or its personnel are not a guarantee that any investment decision made by a student will be successful. Past performance is not a guarantee of future performance.