The surge in U.S. debt default risk will detonate the global central bank’s U.S. debt asset market

On December 18, just as the debt tsunami in the United States surges and the flow of U.S. debt shrinks, the U.S. Treasury market will face another test next week. In order to avoid the collapse of the Treasury market, the Treasury Department will issue $89 billion in U.S. debt to rescue the market. However, the current decline in U.S. bonds has expressed panic about market expectations.

According to the monthly statement released by the U.S. Department of the Treasury on December 15, the United States had its largest monthly budget deficit of $314 billion in history in November, which also brought the federal government's deficit to $380.58 billion in the first two months of fiscal year 2024. Dollar. The U.S. Congressional Budget Office estimated in a report released on December 14 that the cumulative U.S. budget deficit over the next ten years will reach about $20 trillion, nearly twice last year’s annual budget deficit.

In the past year, the U.S. federal government had to spend one-fifth of the funds it collected to pay interest on debts totaling nearly $880 billion. This suggests that the impact of the Fed's current tightening cycle on the economy may be more serious than the market thinks.

Former U.S. Treasury Secretary Summers said in an interview with the media on December 14 that the risks in the U.S. financial market today are strikingly similar to those that appeared before the 2008 financial tsunami. The Federal Reserve’s aggressive catch-up monetary tightening policy is heading towards U.S. debt. Throwing a financial nuclear bomb into the economic powder keg.

This reminds U.S. bond holders that U.S. Treasury bonds are becoming increasingly unstable, increasing investors' confidence in staying away from U.S. bonds. According to data from the latest international capital flow report released by the U.S. Treasury Department, foreign investors’ investment in U.S. Treasury bonds continues to decline, and China, Japan and the United Kingdom, the top three overseas creditors of the United States, are also selling U.S. debt significantly. In the next few years, major buyers of U.S. debt at the global central bank level, including China and Japan, may each sell another 700 billion in U.S. debt to reduce the risk of exposure to U.S. dollar assets, such as some Middle East oil-producing countries. Global central banks with only tens of billions of dollars in holdings may also clear their U.S. bond holdings.

Accelerating the liquidation and selling of U.S. debt now will undoubtedly shake the fundamental logic of U.S. economic growth, dilute the monetary dividend of the U.S. dollar, and weaken the U.S. dollar's ability to export inflation and harvest seigniorage, laying a debt time bomb for the debt-addicted U.S. economy. .

Wall Street prophet Peter Schiff further analyzed in a report updated on December 14 that after the risk of U.S. debt defaults surges, a larger banking crisis and economic recession will erupt, which is likely to accelerate the global The central bank continues to sell off U.S. debt assets. Combined with the historical experience of two previous technical defaults in the United States, at least US$35 trillion in international funds may be withdrawn from the United States.

Analysis of the reasons for the sell-off in U.S. Treasury bonds.

The first is that the current monetary policy pursued by the United States has greatly reduced the stability of the U.S. national debt. The quantitative easing policy introduced by the United States after the global financial crisis has also had a relatively large impact on the global economy. But now that Biden has become the president of the United States, the use of monetary policy has become increasingly crazier and less bottom-line. Especially since 2020, the monetary policy implemented by the United States has completely exceeded the scope of "quantitative easing". And it has entered a crazy "big release" track, with "no upper limit" on currency issuance, interest rates dropped to "zero", and some even entered the "negative" category, causing global market liquidity to flood and bubbles to increase significantly.

Secondly, the current lack of credit of the U.S. government has put the credit of the U.S. national debt facing a severe test. National debt is backed by the national credit, and U.S. national debt is naturally backed by the national credit of the United States. National credit is based on government credit. The lack of government credit will inevitably damage the national credit, followed by the loss of national debt credit. In recent years, the U.S. government's reverence for credit has shown a clear downward trend. It not only lacks credit in formulating monetary policies and disregards global economic and financial interests, but also seriously lacks credit in other aspects, such as the robbery of $7 billion in assets in Afghanistan and the use of The sharp rise in energy prices has caused Europe, especially Germany, to "rob" companies and seize nuclear ship orders from its ally France, etc., etc., which has seriously damaged the credibility of the U.S. government, and has also caused other countries to seriously question and doubt the credibility of the U.S. government. Worry.

Third, for those countries that oppose U.S. hegemony, the United States is increasingly using sanctions and even directly freezing and plundering other countries’ U.S. dollar assets. This banditry undermines financial stability, further damages the credibility of the United States, and prompts more countries to seriously consider reducing their dependence on the U.S. dollar. The United States issues large amounts of U.S. dollars at extremely low printing costs in exchange for resources and commodities from various countries, and obtains huge benefits from them. This unfair and unreasonable dollar hegemony will inevitably backfire on the United States itself.