Economist Peter Schiff warned this week that Japan's bond market crisis could trigger selling pressure on the country's $1.1 trillion holdings of US Treasuries, describing the situation as a potential pin that pricks the larger US economic bubble. Schiff made the comments on The Peter Schiff Show Podcast as major technology stocks declined amid investor skepticism over artificial intelligence capital spending, with Alphabet falling 10% and Oracle dropping 41% for the year. Japan's 30-year government bond yield hit a record near 4% while the yen fell to a 40-year low against the dollar, raising questions about the Bank of Japan's policy options and their implications for US markets.
Technology Stocks Decline as Investors Question AI Spending Returns
Alphabet fell 10% this week after the company announced higher capital spending than investors expected. Oracle dropped nearly 8% during the week and is now down 41% for the year. Meta fell 7.3%, Amazon lost 6.8%, and Microsoft slipped 2.7%, pushing its year-to-date decline to 19.3%. Schiff said the market's reaction marks a shift from prior quarters, when hyperscalers announcing bigger artificial intelligence budgets typically saw their share prices climb. "Investors are now finally starting to question whether or not these investments are in fact going to pay off," he said.
Schiff compared the roughly three-quarters of a trillion dollars in annual AI capital spending to the buildout that preceded the dot-com crash. He said many of the early internet favorites that investors poured money into eventually went bankrupt without ever recovering their spending. He does not doubt the long-term potential of AI, but argued markets are overestimating near-term returns on hyperscaler investment.
SpaceX and Tesla Record Weekly Losses
SpaceX shares dropped another 7.7% during the week and now trade 49% below the stock's post-IPO high. The company's public float is set to expand from 5% to 40% of shares by the end of the year, a change Schiff explained could add further pressure on the stock. Tesla fell 18% over the same stretch and sits 35% below its 52-week high. Together, the declines in Tesla and SpaceX cost Elon Musk close to $100 billion in a single week, according to Schiff's estimates.
Japan's Bond Yields Hit Record Levels as Yen Weakens
Schiff pointed to Japan as a bigger and more immediate risk than the AI selloff. The yen fell to its lowest level against the dollar in 40 years. Japan's 30-year government bond yield closed near 4%, a record for that maturity, while the 10-year JGB yield climbed to levels last seen in 1996. Japan's public debt exceeds 200% of gross domestic product, and the country's benchmark policy rate remains at just 1%.
Schiff said the Bank of Japan faces a choice between raising rates aggressively, which could trigger a domestic recession and a wave of repatriated capital, or staying passive and risking a currency collapse. Either path, Schiff stressed, has consequences for the United States. Japan holds more than $1.1 trillion in US Treasuries, the largest foreign holding of any nation. Schiff said a Japanese debt crisis could force large-scale selling of that position. "It may be the pin that pricks our bubble," he said of Japan's situation relative to the US economy. Schiff added: "The Japanese bubble popping ends up pricking the even bigger US bubble."
US Treasury Yields Reach Highest Level Since 2006
The 30-year US Treasury yield closed the week at 5.16%, the highest level since 2006, while national debt has surpassed $39.6 trillion. Schiff noted the government is carrying more than four times the debt it held in 2006, making today's borrowing costs harder to absorb than the last time yields were this high.
Oil Prices Climb Above $100 as Gold Advances
Oil prices climbed above $100 a barrel and are up roughly 30% in July alone, driven by tensions tied to Iran. Schiff said the increase all but guarantees a hotter Consumer Price Index reading when July data is released in August. Gold rose about 1% on the week despite the jump in bond yields and oil prices, a combination Schiff called notable given gold's recent inverse relationship with oil since the Iran conflict began. Mining stocks outperformed the metal, with the GDX index up 5.6% and the GDXJ up 5.8%, a move Schiff read as a possible signal that a bottom is forming in the sector.
Schiff Critiques Jobless Claims Data and New Tariffs
Schiff challenged the Trump administration's framing of a recent drop in weekly jobless claims to 187,000, arguing the growth of gig work and weak hiring trends make the metric far less meaningful than in past decades. Separately, he criticized new tariffs imposed on roughly 60 countries under a provision of the Trade Act of 1974 aimed at goods linked to forced labor, calling the policy an unconstitutional tax that ultimately falls on American consumers rather than foreign governments.
FAQ
What did Peter Schiff say about Japan's impact on US markets?
Peter Schiff said on The Peter Schiff Show Podcast that Japan's bond market crisis could force the country to sell its $1.1 trillion holdings of US Treasuries, describing the situation as a potential pin that pricks the larger US economic bubble. He stated: "The Japanese bubble popping ends up pricking the even bigger US bubble."
Why did technology stocks decline this week according to Schiff?
Schiff said investors are now questioning whether artificial intelligence capital spending will pay off, marking a shift from prior quarters when bigger AI budgets typically boosted share prices. Alphabet fell 10% after announcing higher capital spending than expected, Oracle dropped 41% for the year, Meta fell 7.3%, Amazon lost 6.8%, and Microsoft slipped 2.7%.
How high did Japan's bond yields and US Treasury yields reach?
Japan's 30-year government bond yield closed near 4%, a record for that maturity, while the 10-year JGB yield climbed to levels last seen in 1996. The 30-year US Treasury yield closed the week at 5.16%, the highest level since 2006, while US national debt surpassed $39.6 trillion.
