As an analyst, I always look for one thing in the markets that will spark a crisis. That is panic. When the people in charge of the world’s biggest economy start to panic, we all have to sit up and take notice because our finances are being threatened. In a previous article I wrote that the US lawmakers will find a way to raise the debt ceiling and it is happening right now. They are doing it because it is the easy way out. They are still not prepared to take their medicine at this point. This is the calm before the storm folks. The graph above shows just how dire the cash balance in the US is relative to the debt that has to be paid. The US debt to GDP ration right now is 120.47%.
The current inflows into gold bars and coins has only been seen twice in the last 50 years. The smart money is moving into gold big time. They are sensing trouble coming.
It is my opinion that the amount by which they are going to raise the debt ceiling will be the biggest in history. This will give the Fed some wriggle room as well as the means to not let the markets crash before the next US election. I have my doubts if it will work.
Unlike previous debt ceiling talks, the Fed are now facing unprecedented high inflation, several bank failures and a lack of investor demand for US treasuries. This situation will put tremendous pressure on traditionally safe haven investments like government bonds. Do not forget that the whole world’s financial well being depends entirely on the value of US treasury bonds. If US bond markets tank, we all go down.
The graph to the left clearly shows the alarming rate at which US Treasuries are being sold by foreign investors. This is a sure sign of diminishing trust in the US economy and a warning that the US markets are heading for a correction. Over the last 3 years the Federal reserve and big US banks have bought these Treasuries but this has now stopped. The only solution to this problem is for the Federal reserve to step up as buyer of last resort.
The take away message here is simply that the ultimate safe haven investments which used to be US treasuries, is no more! Here is a question? Where are all those billions of dollars going to go now!
It is going to gold and silver for sure!
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