The debt continues to increase. Who will buy it? If it’s not China or Saudi Arabia, it will be the Fed. Brrrrr…
Storm over rates
The volatility in US government borrowing rates is raising a lot of eyebrows on Wall Street. Borrowing rates are at their highest since the 2007 crisis. The 10-year rate is back at 4.50%.
The average interest rate on all US debt reached 2.92% (end of August figure). This is the highest average rate since 2011. Except that the debt has since more than doubled (+120%)…
The direct consequence is a painful bill of 1000 billion per year in interest. This is more than the defense budget. These interests represent 20% of Uncle Sam’s income ($4.9 trillion in 2022).
This slate will get even worse as a third of the US debt matures over the next two years. In 2024 alone, the US Treasury will have to roll over more than 7,000 billion in debt with a much higher borrowing rate.
Rates are so high that the value of 30-year US debt securities (offering a low rate of 1.25%) has halved. It is also this latent loss which caused the bankruptcy of the SVB bank at the start of the year.
How high will rates go? Hard to say. The Fed has stopped raising its key rate, but inflation is already making a comeback. The Consumer Price Index (CPI) increased by 0.63% in August compared to July. On an annual basis, that would be 7.8%…
For what ? Because the price of a barrel is close to $100. The CEO of JP Morgan Jamie Dimon born “wouldn’t be surprised if it climbs to $120 – $150”…
The price of diesel will be reflected in all prices of consumer products that are transported by trucks and boats. More than 95% of global transportation runs on oil.
Exponential debt
The total national debt of the United States has increased by almost $1.6 trillion since the debt ceiling was raised. And nearly $2.3 trillion in the past year alone.
So much so that this debt has just crossed 33,000 billion dollars. It’s very simple, the total American debt (government + households + businesses) represents approximately 1/3 of the global debt…
Of this grand total of 33,000 billion dollars, 6,800 billion Treasury bills are not traded on the markets. They are held by US government pension funds, the Social Security Trust Fund, etc.
Which gives us $26.2 trillion in marketable securities. The latter are traded by investment funds, central banks, etc.
The Fed recently offloaded 500 billion as part of QT (Quantitative Tightening), but still has a whopping 5,000 billion. The QT refers to the fact that the Fed is selling the debts it bought back in the wake of the 2007 crisis.
Foreign central banks also own a significant portion ($6,580 billion). In total, nearly 8,000 billion of US debts are held by foreigners:
Red curve: Debt held by foreigners
Problem, as the graph above shows, the rest of the world no longer wants to finance the American debt. The Chinese central bank, the second largest holder of US debt after Japan, has been offloading it for several years.
Saudi Arabia is doing the same and all BRICS member countries are adopting the same strategy in a more or less diffuse manner.
QE and Bitcoin
We therefore have 7,000 billion in US debt which will mature over the next two years to which should be added 1,200 billion because of QT.
Furthermore, if the price of a barrel continues to rise, many central banks will have to sell their US debt reserves to pay for imports.
But who will absorb such quantities of US debt? Person. In other words, the Fed will have to bring out its money printing machine…
The debt ponzi must continue, at all costs. Politicians will always choose inflation over recession and massive unemployment. THE CBO (Congressional Budget Office) therefore predicts that the US debt will reach 50,000 billion in 2030…
Without forgetting that what is true for the United States is also true for Europe where the debt is also on an exponential trajectory.
This is how the system of money creation through debt with interest is a ponzi. The value of money will become diluted more and more quickly as energy becomes scarcer. Peak oil (reached in November 2018) and the ambition to reduce CO2 emissions promise a drop in productivity which will result in more debt and inflation.
All economic actors must realize that we are changing the inflationary paradigm. In this new era, the 21 million bitcoins will be the essential cash asset for businesses and everyone’s savings.
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