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Silver Institute Report 2023
20 April 2023De-Dollarization
14 May 2023The US economy is in big trouble. We have to heed the old saying ” when the US sneezes, the rest of the world catches a cold” I recently came across a chart of the US 30 Year Treasury Bond which needs to be explored in detail. I have mentioned before that good investors have the ability to be positioned in the right asset at the right time.
The US 30 Year Treasury Bond Chart below tells a story.
One of the most important indicators of the economic and financial health of any country is the performance of their government bonds. If the bond interest rate starts to go up, it means that investors are demanding a higher interest to compensate for the higher risk to invest.
So, let us take a look at what happened to the rates in the US last year.
At the beginning of 2022, the federal reserve rate ( that’s the one we all watch ) was 0.08%. At the end of 2022, the rate shot up to 4.33%. This is a massive 5,312% rise. The whole US economy now has to bear the negative impact of these rate hikes we have seen last year. This decimated companies especially growth companies because of higher lending costs, staff layoffs, putting capital projects on hold. The biggest problem for the US is their enormous federal debt burden of more than $31 trillion dollars. This is bigger than their national GDP folks. They are spending more than they earn. Their national debt interest payment for 2022 was $475 billion. This is the highest nominal dollar amount in history and about 1.9% of GDP, the highest in 21 years. The US debt to GDP ratio is 120.35% right now. The US 30 Year Treasury graph above shows that a mega trend change from dropping interest rates to rising interest rates have taken place.
The only way they can pay this interest and avoid default, which by the way is due in early June this year, is by raising the debt ceiling again. Two days ago the US House Of Representatives, where the republicans have the majority, passed a debt increase bill by 2 votes only. This must now go to the US senate, where the democrats have the upper hand, to pass it into law.
Unfortunately this bill contains some very toxic conditions which include cancelling Biden’s student loan forgiveness drive as well as green energy rebates and other conditions that Biden promised in his election campaign. There is no way that the senate will pass this bill as it is right now. Some serious horsetrading will have to happen in the next month to find a solution.
I do believe they will find a way as they always do. Unfortunately they only succeed in kicking the can down the road. Eventually this US house of cards will collapse and there are only two ways this can happen. A slow puncture where the us stock markets will be allowed to slowly loose steam over a number of years, or a very short and painfull stock market crash.
Make sure you are positioned in the right asset class when this happens. Physical gold bars and silver bars and coins should be a good portion of your wealth as a safe haven asset class.