Very bad days ahead for the world economy due to the excessive US debt, as the US keeps increasing its debts to continue to show growth and apparent prosperity. The logic of the Biden administration is in this way to hide the problems that the US has acquired from bad economic governance. He wants to reach the 2024 elections having created the illusion for everyone that everything is going well.<\/p>\n\n\n\n
Growth based on debt is not growth, but a slow death trap. As usual, the answer lies in math, history and, of course, the bond market.
Today we can see the biggest global debt bubble in history. And the cost of that debt is going up, not down.<\/p>\n\n\n\n
Therefore, the world would be much better off if it understood boring things like government bonds. We need to understand Uncle Sam’s IOU yields (with a particular focus on the US 10-year), which is a market indicator of the cost of debt. And since debt is the only wind beneath the wings of the post-2008 American dream, when those yields rise like the fins of an approaching shark, we all need to pause and think deeply, realistically, and therefore differently.<\/p>\n\n\n\n
So we have to understand how scary it is to see GDP rising in tandem with 10-year bond yields. Debt-based development is an oxymoron.<\/p>\n\n\n\n
GDP rises because government deficit spending rises far beyond sustainable levels. In the short term, spending always leads to growth. But when that spending turns into a national credit card with a cap, short-term growth comes at a serious price.<\/p>\n\n\n\n
While spending, even deficit spending, has quick benefits, the consequences of debt and financial pain take longer to see their economic impact.<\/p>\n\n\n\n
The more the Fed raises interest rates, the fatter and more expensive US deficits become as GDP grows due to deficit spending. This leads to the case of “fiscal sovereignty,” which even the St. Louis Fed admitted in June, is leading to higher inflation, despite the fight against inflation.
Why; Because growing deficits are causing US debt costs (interest expenses) to skyrocket, into the trillions per year.<\/p>\n\n\n\n
To service this debt the US issues bonds\u2026IOUs that its Treasury cannot pay\u2014unless, of course, it prints a lot more fake money. And those IOUs (i.e., US Treasuries) are growing at an alarming rate, which means bond prices (which move inversely to supply) will fall and yields (which move inversely to price) will rise.<\/p>\n\n\n\n
So when we see GDP growth rising as much as bond supply (and thus yields), and at a rate not seen in 55 years, that’s not good news \u2013 it’s horribly, horribly bad news. Not only are interest rates rising along with GDP, but deficits are growing even bigger and thus this vicious cycle of debt is becoming deadlier and darker.<\/p>\n\n\n\n
And that means the need to cover those deficits by printing trillions out of thin air is becoming increasingly clear, which means inflation is no longer a debate. At some point down the line, the cost of these debts will require a monetary response (printing money on the moon) that will by definition be inflationary and not help markets.<\/p>\n\n\n\n
In addition to inflation ahead, stagflation is also coming. In such a setting, the value of the US dollar will sink quickly.<\/p>\n","protected":false},"excerpt":{"rendered":"
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