Arthur Burns’ Secret 1979 Warning

Issue #83, Volume #3Arthur Burns’ Secret 1979 WarningBy Porter Stansberry • Friday 22, May 2026View in website

Inside today’s Daily Journal…

Essay: Arthur Burns’ Secret 1979 Warning
Central banks running from Treasuries
UAE and Oman look to solve Iran War
Booz Allen Hamilton’s mixed earnings bag
Chart Of The Day… Hovnanian Enterprises (HOV)
Today’s Mailbag

The Most Important Central Bank Speech Of All Time And Why It Was Kept Secret For Decades

In 1979, Belgrade, Yugoslavia, was the Dubai of the Soviet bloc.

Belgrade was the leading industrialized city in Eastern Europe. Rebuilt after World War II, it was a city shaped by the demands of the communists, which included heavy manufacturing for the military. Their plans didn’t include wastewater treatment or any regulations on air pollution. Its filth and stench were a warning of the catastrophe that would emerge a decade later in its civil war.

It was the most unlikely place in the world for the leading bankers of capitalism to gather. And it was the site of the most unlikely speech ever given by any central banker: a warning about the imminent failure of central banking.

Arthur F. Burns was chairman of the Federal Reserve from February 1970 until January 1978. He taught Milton Friedman at Rutgers. He advised four U.S. presidents. He smoked a pipe in every photograph. In the eyes of his profession, he stood at the summit of American economic thought.

He also presided over the worst peacetime inflation in American history, the rapidly escalating prices of the 1970s.

One Sunday in late September 1979 in Belgrade, Burns delivered the annual Per Jacobsson Lecture. The Per Jacobsson Foundation invites only the most senior figures in global finance – central bank governors, finance ministers, the principals of the International Monetary Fund (“IMF”) and the World Bank.

Burns’ lecture runs roughly 12,000 words. It is a moral and economic indictment of central banking. And it was a dire warning – to the entire world – of the enormous monetary reset that would begin just two months later. But this speech was kept secret for almost a decade.

It was only published after Burns’ death in 1987.

If you understand it, you have a chance of surviving what’s about to happen to America. If you don’t understand it, you have no chance.

Burns’ argument was not that the Federal Reserve botched the job of maintaining price stability in the previous decade, although he admitted plenty of error. His argument wasn’t about how central banking failed. It was about the far deeper failures, the why central banking fails.
Burns’ warning was that, in democracies, the promises of the politicians will always outpace the taxes necessary to support them. This, inevitably, creates permanent and growing fiscal deficits. Burns explained that central banks were no longer being used to support legitimate government financing, but instead, had become the bridge to spending that would otherwise be impossible. He said:

The proliferation of government programs led to progressively higher tax burdens on both individuals and corporations. Even so, the willingness of government to levy taxes fell distinctly short of its propensity to spend. Since 1950, the federal budget has been in balance in only five years. Since 1970, a deficit has occurred in every year. Not only that, but the deficits have been mounting in size. Budget deficits have thus become a chronic condition of federal finance. They have been incurred when business conditions were poor and also when business was booming. But when the government runs a budget deficit, it pumps more money into the pocketbooks of people than it withdraws from their pocketbooks – the demand for goods and services therefore tends to increase all around. That is the way the inflation that has been raging since the mid-1960s first got started and later kept being nourished.

And then Burns told the world that the only way forward was a drastic change to this accommodative policy – a global monetary reset was inevitable.

If the United States and other industrial countries are to make real headway in the fight against inflation it will first be necessary to rout inflationary psychology – that is, to make people feel that inflation can be, and probably will be, brought under control. Such a change in national psychology is not likely to be accomplished by marginal adjustments of public policy. In view of the strong and widespread expectations of inflation that prevail at present, I have therefore reluctantly come to believe that fairly drastic therapy will be needed to turn inflationary psychology around.

What did “drastic therapy” mean? A complete monetary reset. Sixty days after Burns delivered his remarks in Belgrade, Paul Volcker – Burns’ successor at the Fed – began the most violent monetary tightening in U.S. history. The federal fund rate would eventually climb to 20%. The yield on the 10-year Treasury bond would hit 15% by October 1981, causing a 50% decline in bond prices. Mortgage rates hit 18%. Unemployment touched 11%. Stocks fell until the average earnings multiple on the S&P 500 was 8x earnings. The global monetary order reset. The dollar was saved. And financial assets were virtually destroyed.

Burns knew it was coming. He tried to warn the world – and the bankers wouldn’t let him. Today, the same warning applies, but on a vastly larger scale. Will you listen…?

From 1950 to 1979 – for 29 years – the federal budget reached balance only five times. Through the entire decade of the 1970s, it ran deficits every single year. The debt ballooned.

And today? Fiscal year 1999 was the last full year of a genuine on-budget surplus in American history. The deficits have been growing in every year since. Twenty-seven years of growing deficits and ballooning debts.

The arithmetic now exceeds anything Burns could imagine in Belgrade. Burns called deficits averaging 2% of GDP a “chronic condition.” We are running deficits that are 5.8% of GDP in peacetime, with full employment, with no recession on the horizon. This is the most extraordinary fiscal posture the United States has ever sustained outside of total war.

And you haven’t heard a single banker or politician or economist say a single word about how this is completely unsustainable.

Net interest payments on the federal debt climbed from 1.6% of GDP in 2021 to a record 3.2% in 2025. If rates continue to rise, our government’s interest expense will soon reach 5% of GDP. Just in interest payments. In dollar terms, net interest will rise from $970 billion in fiscal 2025 to $2.1 trillion by the early 2030s. On this trajectory, by 2036, interest alone will consume more than 30% of every federal tax dollar.

Interest on the debt is the fastest-growing line item in the federal budget.

And every additional dollar of interest forces the Treasury to issue new debt, which pushes yields higher, which raises interest expense, which forces more issuance. Economists call this debt fueled doom loop “fiscal dominance.”

What they should call it is the bankruptcy of our government.

In 1979, the monetary reset had a name: Paul Volcker. Fed chair Volcker drove the federal funds rate to nearly 20% in 1981. He pushed the 10-year Treasury yield above 15%. He crashed the economy to save the dollar. But that option no longer exists.

When Volcker took the Fed chair in August 1979, federal debt held by the public stood at roughly 25% of GDP. Net interest expense ran about 1.7% of GDP. Higher rates, for a short period of time, wouldn’t threaten the stability of the government’s budget.

In 2026, federal debt held by the public sits at 101% of GDP and climbs to 120%. Interest already consumes at 3.2% of GDP. With $30 trillion of debt held by the public, every additional percentage point of average interest cost adds roughly $300 billion to annual interest expense.

A Volcker move today – funds rate to 15% – would add trillions in annual interest within three years. At those rates, interest alone would exceed total federal revenue.

Thus, this time, the monetary reset will not be like the last time. We can’t afford it. What will happen this time is letting the inflation run, higher and higher, while using the central bank to peg interest rates at a level the government can afford. As a result, inflation is going much higher.

It is inevitable. But, even so, just like in 1979, no one sees what’s coming.

The five-year, five-year forward inflation expectation rate – the bond market’s expectation of average inflation across the five-year window beginning five years from today – is only 2.21%.

Meanwhile, despite the soaring stock market, we are in the midst of some of the biggest bond market losses in history. Look at long-duration Treasuries since 2020. The iShares 20+ Year Treasury Bond ETF (TLT) – the standard proxy for the long end of the U.S. yield curve – peaked in August 2020. Through 2025, it has lost roughly half its value. The U.S. bond market has been in a continuous drawdown for 68 months. That’s the longest bond bear market ever.

This is what the early stages of a monetary reset looks like. The 1979-1981 episode was resolved in roughly 24 months because the Federal Reserve could raise rates and the government could afford them. The current episode drags on – five and a half years and counting – because the Treasury can’t afford it. And that means it’s bankrupt.

Our creditors see what’s happening.

Over the last five years, China has sold roughly $400 billion of U.S. Treasuries, dropping its holdings by half.

What are central banks buying instead of Treasuries? More than 1,000 tonnes of gold per year in 2022, 2023, 2024, and 2025. This represents the largest official-sector accumulation of gold since the closing of the gold window in 1971.

This is the “End of America” – the end of U.S. financial hegemony over the world. America’s creditors no longer believe the U.S. Treasury can be repaid in real terms.

Why was President Trump in China? When a debtor flies halfway around the world to see his creditor, the meeting is never just about tariffs.

The 1979–1985 reset moved through a predictable sequence:

September 1979: Burns’ warning in Belgrade
October 1979: Volcker’s “Saturday Night Special.” The Fed pivots from targeting interest rates to targeting bank reserves. Yields rip higher.
1980–1982: Fed funds rate touches 20%. Ten-year Treasury yield breaks 15%. Deep recession. Long bonds destroyed.
September 1985: Plaza Accord: The U.S., Japan, West Germany, France, and the UK agree to engineer a coordinated devaluation of the dollar. Over the next two years, it falls by nearly half.
The bond bull market begins. The secular inflation in goods ends. The secular inflation in financial assets begins.

The modern sequence will not look identical. The Fed cannot be Volcker – the government can’t afford it – the math forbids it. The monetary reset this time won’t be to rebuild the dollar. It will be to escape it.

Watch these markers between now and 2029:

The Social Security Trust-fund cliff. Social Security OASI (Old Age And Survivors Insurance) insolvency will arrive around 2029. A general-revenue bailout, financed by new Treasury issuance, becomes inevitable.
Continued Fed accommodation. Real interest rates become negative as inflation moves above 6% but the Fed doesn’t raise rates fast enough to prevent enormous losses in long bonds.
The printing resumes. When 10-year yields threaten to break the level at which Treasury interest expense turns unmanageable, the Fed returns to large-scale asset purchases.
A final reset in 2029. A global inflationary crisis leads to a formal U.S. Treasury default and a creditor negotiation. A formal Plaza-style accord – Beijing, Tokyo, Riyadh, Frankfurt at the table lead to a new global monetary agreement with gold and Bitcoin at the center of global trade.

Burns ended his Belgrade lecture with a sober line. He said central banking would ultimately fail, not because central banks couldn’t provide stability and liquidity to the markets, but because they did.

His warning was that central banks, by providing credit support, would enable governments to destroy their economies with debt and unsustainable promises. And so they have.

Prepare. Prepare now.

To learn more about the coming monetary reset and how to prepare, please read Porter’s new, best-selling book 2029: The End of America: Why the Age of Paper Money Is Ending And How to Survive the Coming Global Monetary Reset, available now at Amazon.

Tell me what you think of today’s Journal: porterstansberrydirect@gmail.com

Good investing,

Porter Stansberry
Stevenson, Maryland

3 Things To Know Before We Go…

1. Foreigners dump Treasuries. The value of U.S. Treasuries held by international investors fell by $139 billion in March, the largest drop since September 2022. The selling was led by Japan, which unloaded $48 billion in Treasuries, followed by China’s $41 billion in sales. The world is fleeing from U.S. government debt at the same time that Treasury issuance sets new record highs, pushing up yields and thus U.S. borrowing costs.

2. Booz Allen’s EPS beat, brought to you by the IRS. Booz Allen Hamilton (BAH) closed fiscal 2026 with revenue of $11.2 billion, down 6.4% year-over-year, but earnings per share of $1.78 beat the $1.34 consensus – however, the largely mechanical earning beat related to an $86 million IRS reserve release. The full-year earnings margin actually remained flat at 11.0%. Backlog hit a record $38 billion, but FY27 revenue and EPS guidance remain below FY26’s. Shares rose 3% today on the news.

3. Gulf states press Trump to stand down on Iran as Tehran moves to formalize Hormuz tolls. The UAE, Saudi Arabia, and Qatar have urged President Trump to resume diplomacy and not military operations against Iran. Trump agreed to postpone a planned strike this week. Meanwhile, Iran is negotiating with U.S. ally Oman to establish a permanent toll system for the Strait of Hormuz, where passage fees have already reached $2 million per vessel. Iran has controlled transit through the strait since the war began in February, and formalizing that grip would represent a huge shift in global energy logistics. Roughly 20% of the world’s oil supply passed through the strait prior to the war.

Chart Of The Day… Hovnanian Enterprises (HOV)

Shares of Hovnanian Enterprises (HOV) rose 18% yesterday, despite its fiscal Q2 results looking weak. Revenue dipped to $667.6 million and the company posted a $0.46 per-share loss versus $2.43 in earnings a year ago. Bearish consensus was calling for a $2.06 loss and just $633 million in revenue. Less bad than feared was enough to spark the rise in share price.

Mailbag

In yesterday’s Daily Journal, “The Violent Lives Of Black Americans,” Porter wrote about the level of violence among blacks in America and how law enforcement’s inability to treat all people equally, regardless of race, has led to more homicides. He advocated that statistics among various groups be recognized to ensure the safety of all people.

“We Need to Address These Issues”

Bill S. writes:

Thank you, Porter, for having the courage to address a subject that many of us have wrestled with for some time. While we may not have been aware of the specific data that you’ve shared, we have been aware that common sense has been abandoned in favor of political correctness in today’s culture. The left preaches color-blindness as an attribute we should all espouse, except when it points to an offense committed by a person of color. I am not a racist, but I do find myself being extra wary when I am around a group of African-American individuals, especially at night. I ask myself why that is: it is because they are statistically more inclined toward aggression, as your data has clearly shown. Making excuses for bad behavior by claiming racism is truly an affront to most people’s intelligence. Your data and our eyes do not lie. Until the African-American community addresses these issues, we will never reach racial harmony in this country.

“Violent Lives Of Black Americans”

Raymond H. writes:

Porter,

Boy, you really stepped in this time. How DARE you cite empirical data and statistics! Doubtless, you will receive hate mail and cancellations.

I never studied the data you accessed, but you quantified my observations in growing up in a racially mixed neighborhood in the 1950s and now over 50 years practicing law. No, I never handled criminal cases. I could not cite statistics, but have wondered for years why the relative crime rates between black and white, as reported by day-to-day news accounts, clearly illustrated what you presented. Apparently, it is not a sociological origin, and I conclude it is simply endemic until the phenomenon is better explained.

Thanks for going out on a limb to point out that the emperor has no clothes. You do have balls.

Porter Comment: In 2020, 7.4 per 100,000 black women committed murder, according to the FBI. That was more, per capita, than white men. I think it’s extraordinary that facts like these (the 7x higher violent crime rates in the black population), the global prevalence of black violence, and the historic prevalence of black violence is largely ignored (and completely forbidden to discuss) because it forces us to ask very hard questions, that currently, don’t have any clear answers. One thing is certain – like I wrote yesterday – there is no excuse for violent crime in America. We should have a zero tolerance policy for all violent crime.

“Murder Rates In The U.S.”

Mary N. writes:

No doubt the facts recorded are correct. Yet not one mention of the extraordinary ownership by nearly all U.S. citizens of violent weapons. Mostly multiple ownership, it seems. No other country on earth provides such abundant wherewithal for killing. So, what else should you expect?

Porter Comment: I’ve got bad news for you…

There are lots of places in America where most people own guns. In states like Montana, Idaho, Wyoming, and West Virginia the majority of adults own firearms. The homicide rates in these places are extraordinarily low – as is the population of black people. The percentage of the population that is black is a far more powerful indicator of violent crime than gun ownership rates in America. In America, violent crime is tightly correlated with black populations, not guns.

“Disparate Impact”

H Busch. writes:

Dear sir,

As a Black man, born and raised in St. Louis, Missouri, in the late 1940s to the mid 1960s, I am so glad that someone has highlighted this travesty in America. Your article really hits home how dangerous some Black people truly are.

Even before the Mike Brown incident in Ferguson, I’d read that Europeans are educated/briefed on what places in America not to visit whenever they decide to vacation here. Ferguson was at the top of the list.

Even though born and raised in the ghettos of St. Louis, I have no desire at all to return from my current home in PA., to live there. It’s simply because of the high crime rate there… despite the most recent data below.

It’s really unsettling to me to know that our law enforcement officers have their hands tied by this Disparate Impact nonsense. However, the FBI has reported this recently:

“The projected U.S. murder rate in 2025 dropped to approximately 4.0 per 100,000 residents, which makes it the lowest rate recorded in the U.S. since 1900. This 20% to 21% decrease from 2024 represents the largest single-year decline in homicides on record.

This historic milestone is detailed in data from the Council on Criminal Justice (CCJ) and preliminary statistics from the FBI’s Crime Data Explorer.

While 2025 likely brought the murder rate to a century low, experts note that crime reporting methods have changed significantly over the last 125 years.”

“Impact on Specific Cities:Chicago: Homicides fell by roughly 28% to 30% compared to 2024, giving the city its lowest number of murders since 1965Baltimore: Killings plummeted by roughly 30% to 60% compared to 2019, putting the city on track for its lowest homicide rate in nearly 50 yearsSt. Louis: The city recorded its lowest homicide numbers in over a decade, with 141 murders in 2025 representing a notable reduction in citywide violent crimeDetroit: The city shared in the downward trend, echoing the historic drops in violent crime seen across major U.S. urban centers”

What’s your opinion on these most recent stats? Thanks. God bless!

Porter Comment: Thank you for your letter! The reverse in the homicide rates in the last one to two years has occurred because of a return to more aggressive policing and the end of the consent decrees. Also, many of the notoriously lax prosecutors (like Mosby in Baltimore) have been voted out of office.

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