The U.S. national debt crisis has always been what we often refer to as a "gray rhino" event, which is a crisis that is destined to erupt and be faced. The latest data and indicators show that this crisis is getting closer and closer to us.

Is the U.S. national debt crisis getting closer?

Today, we will continue to delve into the U.S. national debt crisis and the series of economic recession signals triggered by U.S. Treasury yields. Writing is not easy, so welcome to like, share, and bookmark.

Gray rhino eruption! Yield surge? U.S. national debt is halved!

The U.S. national debt has many troubles, one of which is that the yield on U.S. national debt has set a new high.

According to the latest data, the yield on U.S. 5-year national debt has soared to 4.5%, approaching the highest point since 2022. We know that the higher the yield on U.S. national debt, the higher the interest the U.S. needs to pay for issuing national debt, which means that the interest expenditure in the U.S. government's financial spending will be much more than before.

The yield on U.S. 5-year national debt soars to 4.5%

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In 2020, the United States needed to pay $345.5 billion in national debt interest for one year. However, if the yield on national debt continues to increase, it means that the U.S. government needs to face a national debt interest rate of nearly 5%, thereby bringing a huge burden to the finances.

Let's do a simple calculation. By the end of 2024, the U.S. government has $4.43 trillion in short-term bonds maturing. According to past thinking, the U.S. government would "borrow new to repay old" to hedge this part of the national debt.

However, the Federal Reserve did not raise interest rates before, and the United States only needed a very low financing cost to hedge, which is about 0.25%. But now, with a financing cost as high as nearly 5%, it means that the Federal Reserve needs to pay a huge interest expenditure.So, if the current interest rates are maintained, once the U.S. government's portion of this debt is fully refinanced by 2024, the U.S. would need to pay approximately $1.33 trillion in interest expenses.

What does this number signify? It is about three times that of 2020 and roughly equivalent to one-third of the annual revenue of the U.S. federal government, making it an extremely alarming figure. This surge in U.S. government interest expenses also implies losses for U.S. Treasury investors.

Why do I say that? Isn't a higher yield on Treasury bonds better? Actually, in the investment category of bonds, a higher yield means the bond's face value will be lower. For example, on Monday of this week, there was a batch of 30-year U.S. Treasury bonds issued three years ago that experienced a significant drop in face value.

These bonds had a face value of $1, but their current price has plummeted to around 50 cents, effectively halving the bond price. If you held these bonds three years ago and sold them now, it would mean you have incurred a loss of half of your investment. Moreover, the U.S. debt interest rates were not this high at that time.

Of course, if you believe that the U.S. will always be powerful and U.S. Treasury bonds will never default, you could choose to hold onto them for 30 years, and I believe the U.S. government will give you the principal and interest you deserve.

However, for U.S. investors who need to sell Treasury bonds in the near future, the outcome is a sharp drop in prices and significant losses. This also signifies the impact of U.S. debt on the U.S. Treasury market.

Has the total U.S. debt exceeded $33 trillion? Is the death spiral beginning?

In addition to the new highs in U.S. Treasury yields and the halving of some U.S. debt, the U.S. debt situation is also continuously deteriorating.

According to the Treasury Department, the total amount of U.S. debt has now exceeded $33 trillion, which means that the previous total of $32.4 trillion in U.S. debt has once again been surpassed. The continuous increase in the total debt has already raised concerns within the United States.

U.S. government debt surpasses $33 trillionFor instance, due to the continuous increase in the scale of U.S. debt, the U.S. international rating agency Fitch downgraded the long-term foreign currency issuer default rating of the United States from AAA to AA+, marking the first time Fitch has lowered its rating.

The mountainous debt issue led the U.S. Congress to vote against the annual budget of the U.S. Treasury, holding up the budget because Congress believes that the Treasury's budget proposal would add up to $1 trillion in fiscal deficits, exacerbating the U.S. debt crisis.

U.S. rating agencies downgrade the credit rating of the United States.

And once Congress continues to hold up this budget, while the Chinese people are celebrating the National Day, the U.S. government will fall into a "shutdown" situation. This contrast is really very stimulating.

Many people ask, is this time the U.S. Congress holding up the budget to shut down the U.S. government due to the struggle between the two parties in the United States?

In fact, the party struggle is only part of the reason, and another part of the reason is indeed because the budget for the fiscal year 2023 in the United States is too exaggerated. If it is not stopped, the United States is likely to fall into a terrifying death spiral due to the high total debt, coupled with the high interest rates after the Federal Reserve's interest rate hike.

And if the death spiral starts or accelerates, then the U.S. government will either go bankrupt or choose to "default" and clear the debt, leading to the collapse of the U.S. dollar's credibility. Of course, there is also the most terrifying third option, which is to divert domestic contradictions through war. Who is the opponent? We won't say much.

The Federal Reserve's interest rate hike, coupled with the large issuance of U.S. Treasury bonds, has put the United States into a death spiral.

So far, more and more countries have become less firm in their "unlimited" debt issuance capacity and credibility of the United States. More and more countries have developed a sense of insecurity towards U.S. Treasury bonds. Although the United States is still issuing Treasury bonds as much as it wants, the market will buy as much as it issues, but this ratio has begun to decline.

For example, a few years ago, when the U.S. Treasury issued bonds, on average, about 5 people applied for each U.S. bond, but now? Less than 3 people, indicating that everyone's desire to grab U.S. bonds is decreasing, which is also a reflection of the decline in the credibility of U.S. Treasury bonds.Back to the main topic, there are only 10 days left until the deadline for the passage of the U.S. fiscal budget. Will the U.S. government face a shutdown? In fact, the possibility is not small, as the U.S. government has experienced multiple "shutdowns" in its history, each of which has caused billions of dollars in losses to the U.S. economy.

In 2019, the Trump administration faced a shutdown.

Fortunately, this loss is not as severe as the U.S. debt ceiling, so under the influence of multiple factors, the two parties in the United States sometimes do not "rehearse" like a debt crisis, but rather genuinely shut down the opposing party's government. Even if a shutdown would harm the interests of millions of Americans, it is still considered worth it.

Summary

Overall, as the U.S. national debt continues to rise, the country faces increasingly complex and severe economic pressures.

On one hand, the $33 trillion U.S. debt total reflects the imbalance of the U.S. government's fiscal revenue and expenditure, indicating deep-seated issues in the U.S. economy. On the other hand, with Congress holding up the budget and not passing it, the risk of a U.S. government shutdown increases, and the delay in the release of economic data are all signs of an economic downturn in the United States.

The U.S. Congress is holding up the budget bill and not passing it. The U.S. government is at risk of a shutdown.

Furthermore, as the intensification of various games and severe political divisions, the interests of the American people will be harmed; more seriously, high debt and interest payments will occupy fiscal funds, reducing investment in people's livelihoods and also crowding out private investment. This will affect the long-term development potential of the U.S. economy.

We are concerned about the U.S. national debt issue, not only because it will damage the interests of the United States itself, but also because the United States is the world's largest country. If there is a problem, it will inevitably have a chain reaction on the world.

For example, the current Federal Reserve interest rate hike cycle, coupled with the rampant issuance of U.S. national debt, will lead to significant fluctuations in the exchange rate market, posing a more serious challenge to the currency value of developing countries! For example, the depreciation of the renminbi this time, the Federal Reserve should bear the main responsibility. The reduction of foreign exchange reserves in other developing countries and economic depression also make the United States and the Federal Reserve responsible.Pay attention to the US recession, and be vigilant against the US harvest!

Therefore, in the face of the economic problems within the United States, we need to pay attention and assess the impact on our economy and life. We also need to take defensive and response measures to resist the harvest of US interest rate hikes and the dollar sickle!