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The $40 Billion Per Month T-Bill Plan To Solve The “Liquidity” Crisis
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The spending will never stop… Liquidity issues in the T-bill market… It’s what happened to GE in 2008… $40 billion per month… The End Of America… A small-cap breakout… Time’s Person of the Year… A sign of the top… |
Table of Contents
We are approaching the “end game” with the U.S. government’s management of its debt load.
Federal debt is now more than $37 trillion. The interest to service that debt this year will exceed $1.2 trillion. That’s more than the U.S. defense budget. A generation ago, in 2000, the debt-to-GDP ratio was only 33%. Today it’s more than 120%. And that ignores the massive obligations of Social Security and Medicare (~$75 billion) that remain “off balance sheet,” but continue to come due, more and more, every year.
While most investors will ignore these problems, they are going to have a profound impact on our whole society, not just on your investments. It’s the government’s incessant expansion of the money supply that creates inflation, causes America’s affordability crisis, and creates the wealth inequality that’s fueling the rise of socialism.
I’ve written about these problems many times, but what happened this week is the first concrete action I’ve seen by the Fed that validates my hypothesis that we are two to three years away from a collapse in the U.S. Treasury market.
To minimize its interest expenses, the U.S. federal government has shifted the bulk of its debt into short-duration Treasury bills. A bill is an obligation that comes due in less than a year. Moving most of the outstanding debt “shorter on the curve,” lowers the government’s interest expense, because debts due in less than a year have a lower interest rate than notes or bonds with much longer durations.
But putting so much debt into short-term paper is also very dangerous. It sets up a funding tempo – vast debts must be refunded almost constantly – that frequently leads to a crisis.