2 Trillion in US Debt Sold, May Be Wiped Out
As of September 19th, the total U.S. federal debt has piled up to a new record high of $28.8 trillion. However, the fate of the debt ceiling, which expired at the end of July with a limit of approximately $28.5 trillion, remains uncertain. So, what does it mean for U.S. debt if the debt ceiling is not raised by the end of the current fiscal year on September 30th?
The latest developments indicate that on September 18th, Reuters reported that multiple parties from the U.S. federal and state levels have implored legislators to address the federal debt issue. They warned that the debt issue could trigger an economic crisis. The foreign media analysis suggests that negotiations are expected to take place during the week of September 20th. The White House warned on Friday that if the debt ceiling is not raised, the U.S. economy could fall into recession, leading to an inability to repay debt, economic growth would slow down, unemployment rates would rise, and the labor market could lose millions of jobs.
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At the same time, a local U.S. consortium stated that if the debt issue is not resolved, it could trigger a chain reaction in the U.S. credit market, leading to a lack of funding for medical services and other provisions. Others have said that if the debt ceiling is not raised, it seems that the U.S. economy will not have the funds to deal with emergency expenditures for fires, hurricanes, and the evacuation of refugees from Afghanistan.
Furthermore, Nomura's latest analysis suggests that the current U.S. debt ceiling negotiations could lead to the most severe fiscal brinkmanship faced by the U.S. economy since 2015. If the debt ceiling is not raised, the U.S. Treasury may soon be depleted, and the federal government could face a shutdown in October due to a lack of funds. This would also be one of the recurring episodes of past shutdown dramas.
It is worth noting that from 2019 to July 31st of this year, the U.S. debt ceiling has been in a suspended state. Since August 1st, after the debt ceiling expired, the U.S. Treasury has been using extraordinary measures to maintain various expenditures and operations. However, for the U.S. economy, which heavily relies on debt to offset massive deficits, this is merely a temporary and desperate measure. In this regard, Nomura analysis suggests that the U.S. Treasury's extraordinary measures will be exhausted between mid-October and mid-November. If the debt ceiling is not suspended or raised again, the U.S. Treasury may default on some debts.
Economist Lou Crandall stated that the U.S. Treasury will run out of deposits before October 22nd. Morgan Chase strategist Jay Barry said on September 13th that the risk of a technical default by the U.S. federal government due to unresolved debt ceiling issues still exists. If this happens, a technical default could lead to a downgrade in the U.S. credit rating. U.S. Treasury Secretary Janet Yellen has warned about this potential expectation more than once.
U.S. Treasury Secretary Janet Yellen called again for raising the debt ceiling on September 16th local time. She previously stated that if the debt ceiling is not raised, the U.S. will default on Treasury bonds in October. It is expected that the U.S. Treasury will likely be depleted in October, which would cause a financial crisis, and the U.S. will be unable to pay all debts. This would also put Americans' jobs and savings in a difficult situation.
Adding insult to injury, against the backdrop of increasing expectations that the U.S. may default on Treasury bonds, Nomura estimates that the Federal Reserve will announce a reduction in bond purchases at the FOMC meeting on November 2-3. This means that the Federal Reserve may no longer provide relief for the U.S. fiscal deficit, ending the monthly $120 billion U.S. Treasury bond repurchase that has been in place since last March. In other words, it will no longer take over U.S. Treasury bonds. Once this operation is carried out, the Federal Reserve may become the biggest short seller of U.S. Treasury bonds. In fact, the Federal Reserve is not the Federal Reserve of the U.S. economy; it is a consortium of several U.S. banks, and behind it is a series of Jewish bankers, with profit being their ultimate goal.
Some analysts suggest that the U.S. Treasury could simply mint a "trillion-dollar coin" and deposit it into the Federal Reserve account to continue offsetting the massive U.S. deficit. However, U.S. Treasury and Federal Reserve officials have both stated that this is not feasible. Indeed, with U.S. inflation data reaching a 5% level for three consecutive months, continuing to print money without restraint is tantamount to pushing the dollar down the path of losing its reserve status. In this regard, the so-called "old debt king" Gross said earlier that he was heavily shorting U.S. Treasury bonds when the U.S. reached a 5% inflation figure.
Based on the above, it is believed that the likelihood of the U.S. debt ceiling being raised is high. Fox Business TV host Stuart Varney pointed out that the U.S. has never defaulted on debt. If it did, who would lend us (the U.S.) money again? Therefore, at any time, the U.S. has no right and dare not default on any account, including U.S. Treasury bonds.Since 1960, the drama of the U.S. debt ceiling reaching its limit has played out 78 times, with each instance resulting in an increase of the limit as the solution. Notably, the U.S. Treasury has hinted since last year that it may consider issuing 100-year U.S. Treasury bonds. This implies that more debt will be borrowed globally. However, in the context of the Federal Reserve potentially losing favor for U.S. Treasuries, the continued preference of global central banks for U.S. debt becomes particularly important. According to an analysis by experts cited by the U.S. financial website Zerohedge, if the risks associated with U.S. debt increase, some major buyers may consider eliminating their holdings of U.S. Treasuries.
The impact on the U.S. debt economy could be unimaginable. It is worth noting that since 2017, although there have been individual months where the world's major central banks have slightly increased their holdings of U.S. Treasuries, the overall trend has been one of net selling, with a cumulative sale of up to $2 trillion worth of U.S. government bonds.
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