Rising public debts become problematic and a potential crisis when the debt level exceeds the country’s annual GDP.
If the US had a similar 2008 liquidity crisis, its ability to print its way out of the problem by increasing liquidity would be more difficult.
The current public debt of 36 trillion USD is unsustainable and a potential crisis
In 2008, the debt to GDP was 40% and is three times higher today.
The tolerance for credit markets for counterfeiting will decline in a new crisis, which means that the US’s fiscal ability to deal with the liquidity crisis will also decline.
“In 2008, the debt to GDP was 40% and is three times higher today”
WIN INVESTING
When does a crisis become a disaster?
There is no exact science of how long the monetary authorities, the Federal Reserve, can keep creating liquidity to support fiscal spending because it is all a function of confidence.
The US can afford to be more confident when the debt to GDP is 40%, but today, it is 120% of the debt to GDP.
Let’s make these numbers less abstract and assume you have an income of 100,000 USD with a debt of 40,000 USD at a reasonable interest rate.
Fast forward 16 years, your income is 110,000 USD, but your debts are now 120,000 USD.
So think about it. You are now sixteen years older, US birth rates hit a historic low in 2020, and your income in relation to your debts has crashed. Moreover, to make matters worse, the cost of servicing the debt that tripled over the 16 years has more than doubled because of the higher interest rate payments.
In desperation, you grab your keepable walking stick and head to your bank, requesting to see your bank manager for a bank overdraft facility.
“There is no exact science of how long the monetary authorities, the Federal Reserve, can keep creating liquidity to support fiscal spending because it is all a function of confidence”
WIN INVESTING
The banker sees a jaded client nearing sunset with the best productive years behind him.
The reason for requesting the overdraft is to service the interest rate payments on the debt.
Do you think the bank manager is going to extend your credit facilities?
No way. We can almost see the banker shaking his head, worrying about how he will unload the bad loans he made you, cut his losses, and still keep his job.
US treasury bonds are no longer sexy when the country’s population is ageing, which means more unfunded liabilities for retirement pensions and health care and when the public debt to GDP has tripled in 16 years.
The 2023 treasury bond crash, the worst in history, and even the great depression of the 30s underscores an unprecedented imbalance in the treasury market. This oversupply of treasuries and lack of demand as investors fret over the National Debt of 36 trillion dollars, 122.86% of GDP with interest payments now over 1 trillion dollars, the third-largest budget item in 2024, is a red flag. So, Modern Monetary Theory is dead in the water.
“Bitcoin has been a life raft for El Salvador as they converted their reserves when the bellwether cryptocurrency traded at 40,000 USD in 2024” – Win Investing
It becomes a systemic crisis when a once-perceived safe haven asset, treasury bonds, the pillar of Western capitalism, is no longer viewed as a safe store of value.
Bond investors get it. The buyer of last resort, the Federal Reserve, will likely create even more currency and buy the debts that investors are steering clear of.
The Great Gold, Bitcoin and other non-debt assets bull rally might be bond investors quietly making their way out of the toxic bonds to other no-debt assets.
Bitcoin has been a life raft for El Salvador as they converted their reserves when the bellwether cryptocurrency traded at 40,000 USD in 2024.
How many more sovereign states will follow suit?
There lies the crux to this menacing inflation, a debased water-down currency as the economy stumbles.
The melt up of everything is due to the meltdown of fiat currencies, backed by the trust of central banking, which is exhausted.
As the economy shrinks and prices rise in relation to fiat debt-based central bank currencies, the safe haven to protect purchasing power and wealth will be non-debt assets, where value is not a function of leveraging debt.
Land, gold (precious metals) and fine arts protected generations of family wealth in times of war, plagues, and economic and currency calamities over the centuries. So, the bedrock of old money wealth is not stocks and bonds.
“As Europe slides deeper into war, the Euro sinks and USD rallies, triggering demand for treasury bonds” – Win Investing
Crisis in the bond market
We fear the 2023 treasury bond market crash could be the first wave of a potential bond market tsunami.
USD backed by tangibles, gold, commodities or something of tacit value like bellwether cryptocurrency bitcoin-
Just like the petrodollar saved the dollar from the implosion of the 70s, a similar gas deal with Russia and the US for its European satellites, the EU, a USA-Russian dollar gas deal of the century, would prop up demand for the dollar.
Mutual respect amongst the superpowers, Russia and the USA, and peace and prosperity through trade.
But maybe that vision is too idealistic.
What we fear the most is the synchronizing of the clocks.
“The second hand of the Doomsday Clock and the Debt Clock are moving in tandem toward a catalytic event, an implosion,” written in a piece entitled Synchronizing The Clocks, dated January 2023.
Regretfully, that appears to be playing out.
The monetary easing policy of debt expansion fuelled by currency creation appears to have no reverse gear.
Meanwhile, the geopolitical situation and multifront wars continue to deteriorate by the year, month, week and day.
In November 2024, Intermediate Ballistic Missiles in the Ukraine war were deployed by either side of the conflict for the first time on the continent in its bloody century of wars.
Crisis fabrication, a beggar thy neighbour policy
As Europe slides deeper into war, the Euro sinks and USD rallies, triggering demand for treasury bonds.
Another twisted and perverted way of retaining hegemony, keeping the dollar on the throne, is by Queen Ant promoting a policy of war, sacrificing its colonies so that the USD remains the reserve currency.
Hegemony through wars.
