The United States is now infinitely close to a financial crisis!
Originally it was unable to make ends meet, and it still owed 33 trillion treasury bonds. However, with the increase in interest rates, it has to pay more and more interest. Recently, with the increase in interest rates, the yield on the 10-year U.S. bond has rapidly increased to 5%. reached levels before the subprime mortgage crisis broke out in 2008.
The rising yields on long-term U.S. debt means that the debt servicing costs of U.S. debt are also rising. If high-interest new debt replaces all the old low-interest debt, interest expenses alone will be close to 2 trillion. Then the U.S. federal government It is really overwhelmed and may shut down at any time, so we can only borrow more money to keep it running!
So this year there was a rare scene of raising interest rates and releasing money at the same time. When Silicon Valley Bank went bankrupt in the first half of the year, wasn’t it that the Fed was forced to significantly expand its balance sheet during the interest rate hike cycle? It wasn’t until the banking crisis subsided that the Fed started shrinking its balance sheet again, and it took one quarter to shrink it. It has reached the level before the accident, so despite the fact that the United States is clamoring to tighten its currency every day, once their finances are in dire straits or important financial institutions are hit by interest rate hikes, the Federal Reserve can tighten the monetary policy that has been in place for two years overnight. Returning to the table, the United States continues to play the game of borrowing new and repaying old overdrafts of credit lines, which will eventually end.
If the U.S. dollar continues to raise interest rates, it has only two options. One is a total debt default and credit bankruptcy, and the other is to continue borrowing at high interest rates while eating until credit bankruptcy. Both are dead ends! At present, it seems that there may be a glimmer of hope for the Federal Reserve to return to cutting interest rates and expanding its balance sheet. In the worst case, the depreciation of the US dollar is obviously more cost-effective than the devaluation of the US dollar with credit bankruptcy! Let’s get this over with now and leave the inflation problem to future generations to solve. But even if the Fed has this idea, it needs to send a clear signal:
Either the economy will decline significantly, or an important financial institution will be hit by another thunderstorm, because in actual operations, the Fed never adjusts across cycles. What it is best at is expectation management. Every time, it will not shed tears without seeing the coffin, and it will never happen without a big thunderstorm. Open the floodgates and release the water. Don’t look at the current tough slogans of crushing inflation. If something goes wrong, the money printing machine will be turned on faster than anyone else. The current situation is that the default swaps of various US institutions are rapidly expanding, and US bond yields are fluctuating. At an abnormally high level, all this seems to indicate that this day is not far away!
Originally it was unable to make ends meet, and it still owed 33 trillion treasury bonds. However, with the increase in interest rates, it has to pay more and more interest. Recently, with the increase in interest rates, the yield on the 10-year U.S. bond has rapidly increased to 5%. reached levels before the subprime mortgage crisis broke out in 2008.
The rising yields on long-term U.S. debt means that the debt servicing costs of U.S. debt are also rising. If high-interest new debt replaces all the old low-interest debt, interest expenses alone will be close to 2 trillion. Then the U.S. federal government It is really overwhelmed and may shut down at any time, so we can only borrow more money to keep it running!
So this year there was a rare scene of raising interest rates and releasing money at the same time. When Silicon Valley Bank went bankrupt in the first half of the year, wasn’t it that the Fed was forced to significantly expand its balance sheet during the interest rate hike cycle? It wasn’t until the banking crisis subsided that the Fed started shrinking its balance sheet again, and it took one quarter to shrink it. It has reached the level before the accident, so despite the fact that the United States is clamoring to tighten its currency every day, once their finances are in dire straits or important financial institutions are hit by interest rate hikes, the Federal Reserve can tighten the monetary policy that has been in place for two years overnight. Returning to the table, the United States continues to play the game of borrowing new and repaying old overdrafts of credit lines, which will eventually end.
If the U.S. dollar continues to raise interest rates, it has only two options. One is a total debt default and credit bankruptcy, and the other is to continue borrowing at high interest rates while eating until credit bankruptcy. Both are dead ends! At present, it seems that there may be a glimmer of hope for the Federal Reserve to return to cutting interest rates and expanding its balance sheet. In the worst case, the depreciation of the US dollar is obviously more cost-effective than the devaluation of the US dollar with credit bankruptcy! Let’s get this over with now and leave the inflation problem to future generations to solve. But even if the Fed has this idea, it needs to send a clear signal:
Either the economy will decline significantly, or an important financial institution will be hit by another thunderstorm, because in actual operations, the Fed never adjusts across cycles. What it is best at is expectation management. Every time, it will not shed tears without seeing the coffin, and it will never happen without a big thunderstorm. Open the floodgates and release the water. Don’t look at the current tough slogans of crushing inflation. If something goes wrong, the money printing machine will be turned on faster than anyone else. The current situation is that the default swaps of various US institutions are rapidly expanding, and US bond yields are fluctuating. At an abnormally high level, all this seems to indicate that this day is not far away!