At present, the U.S. financial market has fully digested the optimistic sentiment brought about by the Federal Reserve's interest rate cut. Subsequently, due to the unexpected surge in non-farm employment growth in September and the resurgence of inflation, there is a significant fog surrounding the prospects for further rate cuts by the Federal Reserve, causing Wall Street to fall into a panic amidst record uncertainty.
Superimposed on this is the recent emergency "deep-water bomb" dropped by the Federal Reserve into the market, stating that they are "not in a hurry to cut interest rates quickly." Meanwhile, the alarm bell for U.S. finance has rung again, and as the core asset of the United States, U.S. Treasury bonds have screamed to express this panic.
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This is undoubtedly a silent thunderclap for the Federal Reserve, which is currently struggling to determine the appropriate degree of interest rate cuts to ensure a soft landing without reducing the attractiveness of U.S. Treasury bonds and triggering inflation. It will further expand the loss scale of its balance sheet, weaken the Federal Reserve's ability to help finance new U.S. Treasury bonds, and increase the interest costs of the already strained U.S. fiscal spending, making the "robbing Peter to pay Paul" dilemma more prominent. The latest data is reflecting this trend.
According to a report published by the U.S. Congressional Budget Office (CBO) on October 9, the U.S. deficit for the fiscal year 2024 is expected to reach a staggering $1.8 trillion, the largest deficit since 2020. The largest part of the spending increase comes from the interest on U.S. Treasury bonds, which will grow by 34% to $950 billion, while social security and non-military spending also increase.
The CBO's latest debt forecast also indicates that the cumulative deficit from 2025 to 2034 is expected to reach $22.1 trillion, 10% higher than the forecast in August, which is an increase of $2.1 trillion. It suggests that by 2030, the U.S. federal unpaid debt will reach $50 trillion, then grow exponentially, and the net interest cost of U.S. debt will soar to $8.1 trillion within a decade.
According to public data from the U.S. Department of the Treasury, as of October 9, its unreimbursed national debt has already reached a high of $35.68 trillion, increasing by 57% over the past five years.
The CBO report also shows that the "baseline" deficit will grow by $22 trillion over the next 10 years, and the total debt interest payments over the next 30 years are estimated to be about $66 trillion, accounting for nearly 40% of all federal revenues by 2052. In the coming decades, interest costs will exceed non-military spending in 2029, Medicare in 2046, and social security spending in 2049.
If inflation is higher than the CBO's forecast, and the Federal Reserve lowers interest rates by less than the 3% predicted by the agency, then the rise in these debt interest costs may be faster than expected.
According to the explanation in the report updated and published by Wall Street prophet Peter Schiff on October 6, "The Federal Reserve's interest rate cut is just the beginning, followed by the 'deep-water bomb' of quantitative easing to ignite hyperinflation, flooding the market with a torrent of liquidity in an attempt to delay economic recession. This will lead to greater national debt and higher inflation rates, which will further accelerate the shift of smart money. At least tens of trillions of dollars of foreign buyer funds may withdraw from the U.S. asset price market within a few years.
This will be more explicit against the backdrop of the U.S. rating agency Moody's warning in a report published on September 25 that "if the United States does not take substantive debt reduction measures," it will downgrade the country's highest 3A credit rating. Moody's reason is that under the pressure of huge fiscal deficits, the United States' debt-bearing capacity has decreased.Worse still, analyses indicate that regardless of who wins the U.S. election on November 6th, it will be challenging to halt the recession and inflation in the American economy. Neither candidate can prevent the further expansion of U.S. debt. According to an estimate in a report published by the Committee for a Responsible Federal Budget (CRFB), a bipartisan policy think tank, on October 7th, Trump's economic plan would increase U.S. debt by $7.5 trillion, while Harris's economic proposal would add $3.5 trillion to the debt.
Adding insult to injury, a report released by the Federal Reserve on October 4th stated that the Fed is also losing a significant amount of money, which is detrimental to the institution and poses a more severe problem than preventing an economic recession. This will not only impact the U.S. economy but also the pockets of American taxpayers.
Data shows that for the fiscal year of 2024, its losses have already surpassed $201.2 billion, with a negative profit of $20 billion handed over to the U.S. Treasury. The Fed's report indicates that it will continue to face losses for a considerable time in the future, further weakening its ability to help the U.S. Treasury issue new debt financing.
As the international financial research team has emphasized on multiple occasions, the true mission of the Federal Reserve is to serve the fiscal expenditures and debt financing of the United States, as well as to support interest groups including Jewish capital and the Fed's own interests. Inflation and unemployment rates are byproducts of its primary tasks.
This directly ignites concerns about America's debt repayment capabilities, causing investors to increasingly worry about the high cost of repaying U.S. debt. It opens the prelude to a new round of U.S. Treasury bond sell-offs. This has also prompted Wall Street hedge fund managers to sound the集结号 for a major liquidation of U.S. bonds and stocks. On October 9th, the auction results for the record-high $58 billion 3-year Treasury bonds offered by the U.S. Treasury collapsed, highlighting weak demand with tail spreads reaching historical highs. The bid-to-cover ratio and interest rates were both below expectations, leading to a retreat by foreign buyers.
In response, Jamie Dimon, CEO of JPMorgan Chase, warned on October 9th at the New York Institutional Investor Committee that "the fate of the U.S. economy will be far worse than a recession." Dimon said that the U.S. will enter a state of declining economic growth, but inflation and unemployment rates will begin to accelerate, similar to the U.S. in the 1970s. "By the way, I won't take it off the table," this recession is not something that can be stopped by a few interest rate cuts by the Federal Reserve.
These latest analyses indicate that the Fed may have overdone it in its previous aggressive interest rate hikes, leading to the possibility that the U.S. economy could evolve into a recession storm. Especially as the market fully digests the optimism brought by the Fed's interest rate cuts, the overvalued U.S. financial and bond markets may experience another major liquidation. It is clear that the Fed is now preparing to harvest and sell off the huge amount of U.S. debt and soaring debt deficit risks accumulated since the subprime mortgage crisis.
There is no doubt that the U.S. is brewing a hurricane-style harvest of U.S. debt. According to Frank Holmes, CEO of U.S. Global Investors, in a report updated and published on October 9th, the U.S. is preparing to reduce actual debt through printing money and quantitative easing. In the future, the re-stimulated rise in inflation and the depreciation of the dollar may devour the cost of U.S. debt, harvesting the profits of U.S. debt held by creditors.
This indicates that the Fed gambled all its credibility in the September interest rate meeting with an emergency large-scale interest rate cut to alleviate the plight of U.S. debt on the brink of collapse. "Debt King" Gundlach also believes that this is not something the Fed can stop with a few interest rate cuts. This is also the logic behind why the Fed, while about to turn on the printing press like a flood beast, still continues to harvest and recover these U.S. bond assets through quantitative tightening.
On October 3rd, American billionaire Musk once again warned of "the U.S. going bankrupt" in terms of America's debt economy and federal spending. The sudden withdrawal of thousands of wealthy individuals in the U.S. and the phenomenon of more than 40 states declaring monetary independence seem to be revealing the secret that the U.S. debt economy is going bankrupt.For Wall Street, in the wake of the Federal Reserve's "deepwater bomb" of slower interest rate cuts, the expectation that the risk of U.S. debt default is making a comeback, what kind of cycle of wealth harvesting storm will be experienced in the future, perhaps, no one can predict, and no one can escape. This is also one of the reasons why gold prices have been setting new historical highs this year and foreign buyers are returning to the Chinese asset market.
For example, David Tepper, a Wall Street hedge fund magnate, publicly stated last week that he would "buy everything related to China." In addition, according to several Wall Street investment bank research reports and market observers' analysis, in the following period, foreign buyers who have withdrawn from the stock markets of the United States, Europe, Japan, India, South Korea, Indonesia, Singapore, Malaysia, and Thailand will continue to return to the Chinese stock market. Most of the funds that have withdrawn from the international market will be invested in the Chinese market.