A US debt ceiling crisis looms, which could result in the US defaulting on its debt obligations as early as next month, June 1, could be another skeleton in the financial market horror train.
The Empire is skint, maxed out on credit, as another debt ceiling crisis looms.
Secretary of the Treasury Janet Yellen warned in May that bills could go unpaid by June 1, unless Congress agrees to suspend or raise the debt limit before that date.
“The Empire is skint, maxed out on credit, as another debt ceiling crisis looms”
Anomaly in the short end of the treasury market flags the debt ceiling crisis
So short maturity treasuries investors are scrambling for the exit as they dump the one-month treasuries note, sending yields to an eye-watering 5.79%. In a debt default, when the music stops, those holding a debt instrument are left without a chair, standing high and dry.
If investors fear a US default in June, capital flows out of 1-month treasury bills into 2-month treasury bills, which causes a widening yield gap in the short end of the treasury market.
Think about it. Why would an investor willingly hold a treasury bill that matures in June, the month the government could default on its payments, according to Yellen?
“short maturity treasuries investors are scrambling for the exit”
So the one-month treasury bill yields 5.79% compared with two months’ 3.98% (at the time of writing) is an anomaly in the short-end treasuries flagging a US ceiling debt crisis.
The market price of a treasury bill and its corresponding yield move in opposite directions. When demand for treasury notes falls, their yield rises.
Most financial and economic crises originate in the bond market, where analysing capital flows gives investors a heads-up.
So the short-end maturity yield gap, nearly 200 points, or 2%, underscores treasury investors’ unease over the debt ceiling crisis.
“The road to a record 32 trillion US dollar deficit has had a few roadblocks” – Win Investing
The US debt ceiling crisis is a broken record playing out repeatedly
The road to a record 32 trillion US dollar deficit has had a few roadblocks.
Since 1960 Congress has acted 78 separate times to permanently raise, temporarily extend or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents. Congressional leaders in both parties have recognized that this is necessary.
If history is anything to go by, the US debt ceiling crisis might be nothing more than a storm in a teacup
In light of the 2023 bank runs and ongoing liquidity crisis, is there anyone in the room who thinks Congress, whose salaries come from the Federal Treasury, which is bankrolled by the Federal Reserve, a private banking cartel, will blow up the treasury market?
Congress knows that if the debt ceiling crisis is not resolved by June 1, the multi-trillion dollar treasury market, prime collateral pledged by commercial banks to underwrite loans, would sell off in a panic and send treasury yields sky-high.
If the 2008 financial crisis, a localized niche debt crisis in the high-risk subprime mortgage bond was the catalyst for the 2009 great recession, then a 2023 sovereign debt crisis in the US treasury market would trigger a biblical global depression. Things would go Mad Max quickly. We would see global bank runs, sovereign wealth pension funds would collapse, and there would be no safe haven asset.
US debt crisis and gold confiscations.
Executive Order 6102 required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve in exchange for $20.67 (equivalent to $433 in 2021) per troy ounce.
So if Congress ordered the selling of gold in 1933 well below market price, what is stopping Congress from legalizing another type of gold confiscation in 2023 if the US debt ceiling crisis goes apocalyptic?
“Probably the best safe haven asset in today’s troubling times is farmland” – Win Investing
Is the US debt crisis ceiling fear porn or an SHTF event that the tin foil hats have been warning about?
The synchronizing of the clocks, the US debt clock and the Doomsday clock are concerning.
Since 2019, the US population has increased by 1.8%, and the Federal government debt is up 55%. The rate and pace of government spending are on an unsustainable trajectory.
Meanwhile, the escalating war in Europe, now over one year old, with a nuclear-armed superpower is escalating and climate change is real. We could start seeing climate change migration as people leave flooded drought-stricken regions. Climate change and war in Europe are reducing the global supply of arable farming land, which could impact food prices.
Probably the best safe haven asset in today’s troubling times is farmland, in a politically stable region that is unlikely to be ravaged and contaminated by war. But green fertile lands are desirable, they risk being rapped by states of invading armies. Nothing is without risk today.
The truth as to how the US debt ceiling crisis plays out could be found by watching the 1-month treasury yield.
If this latest debt ceiling crisis is a charade, then insiders will start buying the 1-month treasury, and as the price rises, the corresponding yields of the treasury should fall. We should see the yield gap in short maturities narrow.
In other words, watching capital flows in the credit market could give us a heads-up as to whether we are on the cusp of the apocalypse.
Our fifty cents is that the debt ceiling crisis is business as usual, with insiders profiting from fear.
If that optimistic scenario plays out, then recovery in risk assets could gain traction from here, bearing in mind central bank liquidity tightening is maturing in the cycle and investor sentiment is bumping along depression, which could be the best time to buy low.
Keep your eyes peeled on the 1-month treasury yield, as capital flows tell the truth.
Want the latest investor news as it happens?
Subscribe to our Investors Newsletter