‘It Looks Like a Huge Crisis Coming’ – Mark Thornton’s Warning

In this episode of 'Little by Little,' host Andy Schectman interviews Austrian economist Mark Thornton about the current state of the global economy and financial markets. Thornton frames the broader context as being in early stages of what could become World War III, with the U.S. engaged in quasi-military conflicts over resources, particularly oil, against Russia, Iran, and China.

Regarding the business cycle, Thornton argues that while surface-level economic indicators appear healthy (GDP growth, low unemployment, stock market highs), deeper structural problems exist. Two-thirds of American households are experiencing declining real purchasing power due to inflation, despite official statistics suggesting lower inflation rates. He contends that real inflation is significantly higher than reported, with wage rates falling when adjusted for actual price increases. This creates a bifurcated economy where the wealthy prosper from asset appreciation while the majority struggles.

Thornton identifies multiple breaking points approaching: corporate and individual balance sheets, the bond market, private equity and private credit markets, and the federal government deficit. He specifically highlights private equity and private credit as leading candidates for the next market crisis, noting the recent simultaneous departures of heads of credit at Blackstone and BlackRock as potentially indicative of worse problems ahead. The Fed's quantitative easing program—presented as addressing liquidity issues—masks deeper deterioration in private credit assets.

On government bonds, Thornton explains that rising Treasury yields despite expectations of rate cuts reflect deteriorating trust in U.S. fiscal responsibility and geopolitical reliability. The 30-year Treasury yield breaking above 5% signals investor distrust, particularly among sophisticated bondholders. Real returns for bondholders remain extremely low when adjusted for actual inflation.

Regarding artificial intelligence, Thornton characterizes it as a classic speculative bubble driven by excess credit, similar to previous bubbles in railroads, electricity, and the internet. While AI productivity gains are real, massive overinvestment driven by cheap money has created unsustainable valuations. He notes that significant AI revenue depends on government contracts for surveillance and control of the American population, mirroring Chinese social credit systems.

Central banks globally—particularly BRICS nations, China, Russia, Turkey, and Poland—are aggressively purchasing gold while reducing Treasury holdings, understanding something absent from Western public awareness. These nations recognize gold's value as money that functions under all conditions, including conflict, whereas fiat currencies collapse during global instability. Gold purchases represent a strategic shift away from dollar-based assets and toward real monetary assets.

Thornton concludes optimistically about the future, noting younger generations have disconnected from both major political parties and mainstream media, understand the structural problems created by previous generations, and are receptive to Austrian economics and free market solutions. He encourages education in understanding how markets function without government intervention.