PodcastSoar FinanciallyJason Shapiro

Why The Bond Market Could Break Everything! | Jason Shapiro

Jason Shapiro argues that government deficits and the AI buildout are increasing demand for cash, while rising rates could strain government finances and raise AI financing costs. He does not consider AI a bubble now and says 5% rates are not necessarily extraordinary, but warns that continued rate increases could force government support and put the system at risk if markets reject it. He also discusses signals in bond, equity, gold, and currency markets; separately, the interviewer questions the relationship between Fed liquidity and rate increases.

Fixed IncomeInterest RatesGovernment DebtMarket LiquidityArtificial IntelligenceGold

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Key Takeaways

Jason Shapiro argues that persistent deficits and the AI buildout are competing for cash, which could push interest rates higher if money supply does not keep pace. He is especially concerned that higher rates could strain government finances and make AI financing more expensive.

The interviewer describes the Fed’s monthly $40 billion non-QE purchases and other liquidity sources as a continuing flood, questioning the logic of raising rates without reducing that liquidity. Shapiro separately believes that if rates keep rising, the government may have to support markets with QE or a similar measure.

Shapiro says there is a limit to how much governments can print, though he does not know when or where it will be reached and expects the market to signal it. He also warns that if markets reject government support, the system could be in serious trouble.

TECHNOLOGY

AI Bubble Sentiment — Jason Shapiro argues that AI does not fit the classic bubble pattern he associates with widespread public enthusiasm. He points to hostility toward AI and opposition to data centers. He does not consider AI a bubble now, while acknowledging it could become one, be overvalued, or continue as a bull market.

“But as far as being like a classic bubble goes, you know, every time I mention the word AI, my wife who is a teacher and who works with children…”—

ECONOMY

Cash Demand — Jason Shapiro argues that persistent government deficits and the massive AI buildout are competing for cash, increasing demand for money. If the money supply stays the same while demand grows, he says, the price of money—and therefore interest rates—rises.

“Personally, I think it's more the function of a cost of money thing…”—

Liquidity And Rates — The interviewer describes the Fed's monthly $40 billion non-QE purchases and other sources of liquidity as a continuing flood. The interviewer questions whether raising rates without reducing that liquidity is counterintuitive; this is the interviewer's framing, not Shapiro's stated conclusion.

“And the Fed is running a nonQE QE program and through various aspects whether it's you know being injecting hard cash into the market or through through bank deregulation to…”—

MARKETS

Printing Limits — Jason Shapiro believes there is a limit to how much the United States and other countries can print, but he does not know when or where it will be reached. He says the market will signal when that limit is reached, and the signal will be visible in the tape.

“The problem is, is it going to be this week, this decade, or this century? I have no idea. You know, I do strongly believe at some point…”—

Rates In Context — Jason Shapiro argues that 5% interest rates are not necessarily skyrocketing. They are higher than three years ago but remain within a range seen over decades. He says he does not yet regard that level as skyrocketing.

“When interest rates are 15%, then they're skyrocketing. I can't really call 5% skyrocketing. Are they higher than they were three years ago?…”—

Bond-To-Equity Flows — Jason Shapiro says the data he has seen makes it look as though investors may be pulling back from bonds and moving money into equities. He acknowledges that he does not know whether they are actually pulling back.

“So the fact that they're pulling back or they say they're pulling back, are they actually pulling back? I don't know…”—

FORECASTS

Rates And Market Risk — Jason Shapiro believes that if interest rates keep rising, the government may have to support the market with QE or a similar measure. He sees the market's response as pivotal: if markets reject the intervention, he believes the system could be in serious trouble. He also warns that if markets conclude the government cannot afford higher rates, rates could rise further, prompting support and money creation that might either save the system or make conditions worse.

“at some point…”—

Fed Rate Hike

Shapiro says the expected 25-basis-point Fed hike was somewhat more hawkish than anticipated, but he thought markets wanted tighter policy and subsequently responded favorably.

What the Market Wanted

He describes “the market” as price action across participants, noting that stronger data and hawkish signals had coincided with stocks rising and long yields falling.

Why Rates Are Rising

Shapiro attributes rising rates mainly to growing cash demand from persistent government deficits and the enormous AI buildout, rather than to oil-driven inflation alone.

The Liquidity Problem

The interviewer challenges the coexistence of higher rates and continued liquidity support; Shapiro argues elected governments are unlikely to rein in spending and liquidity.

The Money Printing Problem

Shapiro says governments will keep financing deficits and AI until markets reject their currency or debt, while acknowledging an eventual limit to money creation.

Bond Market Breaking Point

He does not regard 5% yields as historically extraordinary, but warns that further increases could prompt QE and become dangerous if markets reject that support.

When QE Returns

Shapiro sees stablecoin-backed Treasury bill demand as a possible source of liquidity and a way to help finance government borrowing and buy longer-dated debt.

Treasury Intervention

He says Treasury intervention is acceptable if it works, and hopes stablecoin-related mechanisms can help prevent a breakdown in government financing.

Who Wants U.S. Debt?

Shapiro views reduced appetite for long-term sovereign bonds as understandable across countries, while noting that investors may be shifting into equities rather than abandoning the U.S.

Gold & Silver

He explains gold’s recent strength through expectations that hawkish policy could lower future long-term rates, while acknowledging that daily moves in gold and silver can be hard to explain.

Where’s the Opportunity?

Shapiro says gold and silver have alternated between trading as risk assets and as crisis hedges, and that market behavior can shift between those roles.

Is AI a Bubble?

He rejects the claim that AI is already a classic bubble, comparing today’s skepticism and public opposition with the enthusiasm that characterized historical bubbles.

The Biggest Risk

Shapiro says AI valuations may be debatable, but sees financing failure—not simply the technology’s popularity—as the more consequential threat to the sector.

What If Everything Breaks?

His central concern is that rising yields could strain government finances and AI funding, with failed monetary support threatening the system; he says stocks need not automatically collapse.

Jason Shapiro

Shapiro directs viewers to Crowded Market Report’s free YouTube videos and website, and the host thanks him and closes the episode.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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