The Federal Reserve cut interest rates ahead of schedule, and U.S. bonds can't bear it
According to the minutes of the Federal Reserve's latest monetary policy meeting, the Fed paused interest rate hikes again in December, keeping the federal interest rate at 525%-5.50% level.
And Fed Chairman Jerome Powell, who has always been hawkish, also made a rare dovish release, saying:
"Rate cuts are starting to come into view, and policymakers are thinking about when it's appropriate to cut rates. ”
In addition, the Fed's dot plot expects interest rates to remain at 4 next year6%, which means that the rate is cut at 025%, the Fed will cut interest rates three times next year.
Why did the Fed unexpectedly "capitulate" and choose to cut interest rates in advance?
In addition to the economic slowdown and the employment data are not optimistic, the more fundamental reason is that the scale of the US debt has soared, and the US debt cannot bear it.
As Saranda Young, director of the US Office of Management and Budget, wrote in a letter to the House of Representatives of the US Congress:
"There's no magic money to deal with emergencies, and the U.S. is running out of money and running out of time. ”
On December 10, the U.S. Department of the Treasury and the U.S. Congressional Budget Office issued a report
According to the report of the US Treasury Department, the US net borrowing for the October-December quarter is estimated at $776 billion, while it is expected to borrow $816 billion between January and March next year, again setting a new record.
The report of the Congressional Budget Office showsIn the first two months of fiscal year 2024 (October and November of this year), the total US federal fiscal deficit is estimated to be $383 billion, which is another $47 billion higher than the already record fiscal year 2023.
It is clear that the US fiscal situation is tightening, especially as geopolitical problems intensify and US spending increases, and large borrowing is the only option at the moment.
But the key problem is that the United States is short not only of money, but also of time.
In order to cover the growing fiscal deficit, the United States has to borrow more and more debt, which will lead to increased debt pressure, and in the current high-interest rate environment, the interest on the federal public debt has soared, further exacerbating the US fiscal deficit problem, and eventually forming a vicious circle.
Especially now that the scale of the Fed's reverse repo is continuing to decline sharply, it has fallen by 1 in just half a year since MayOf the $36 trillion, only $837.8 billion remains.
The main reason for the sharp decline in the Fed's reverse repo is that the auction of U.S. bonds is cold, and the currency takes out the money from the Fed to buy short-term U.S. bonds and take over for U.S. bonds.
But what is clear is that this situation will not last long, and this is the fundamental reason why the Fed chose to cut interest rates early, surprisingly softening the market.
Following Fitch's downgrade of the U.S. sovereign credit rating in August, another international rating agency, Moody's, also downgraded the outlook of the U.S. sovereign credit rating from "stable" to negative in NovemberThe political impasse between the two parties in the United States has exacerbated the US debt crisis.
On December 15, the U.S. Treasury clock showed that the total U.S. debt had reached 33The all-time high of $92 trillion is about to exceed $34 trillion.
But even though the United States, the world's largest debtor, is built entirely on a huge debt foundation, the United States still cannot reach an agreement on the debt issue.
Since the beginning of this year, the U.S. Congress and the White House have repeatedly been mired in chatter disputes over the U.S. budget deficit and the debt ceiling
"If we fail to continue the large-scale issuance of US Treasury bonds to the world, the United States will be plunged into an unprecedented economic and financial catastrophe. ”
However, the US Congress has a different view on this, holding that the US practice of "tearing down the east wall and making up the west wall" is just drinking water to quench its thirst, and sooner or later it will lead the country into the abyss.
Therefore, if Congress does not agree with the US Treasury to continue to issue bonds to the world, it will undoubtedly be a catastrophe for the US economy, casting a shadow on the US debt crisis again.
It is also in this environment that U.S. bonds are much less attractive to global central banks and investors, beating the dollar and becoming a more reliable safe-haven asset.
Since the beginning of 2020, the "overseas creditors" of the United States have set off a wave of selling of U.S. bonds, taking China as an example, as the second largest holder of U.S. bonds, in September again **27.3 billion U.S. bonds, and the size of U.S. bond holdings fell to 776.4 billion U.S. dollars.
In addition, Japan is the largest holder of U.S. bonds, compared to 1At a peak of $3,286 trillion, a total of $240.9 billion of U.S. bonds have been sold as of September, with a cumulative net selling ratio of 18%.
In contrast to the sell-off of U.S. bonds, countries around the world have set off a "rush to buy", beating the dollar and becoming a more popular high-quality asset.
According to the data of the World ** Association, in 2022, global central banks will buy 1,136 tons, more than double the 450 tons in 2021.
Not only that, but this year, this "rush to buy" has not yet ended, and the global central bank demand for gold is still strong, with 387 tons of gold purchased in the first half of the year, a record high in the same period.
In the final analysis, it is the position of US bonds and even the US dollar in the hearts of global countries that is being shaken, and the reduction of a series of US dollar assets, including US bonds, is inevitable, which is also a microcosm of the global investors who are moving away from the US market.
On December 15, U.S. financial **zerohedge reported that if the size of the U.S. debt reaches $35 trillion by the end of this year, it means that the United States will pay interest of 2 per year for it$3 trillion.
In terms of the current fiscal situation of the United States, this figure is almost unaffordable, and this is the fundamental reason why the central bank is selling US bonds and grabbing **
People have lost faith in the US debt, and the bankruptcy of the US debt economy is a foregone conclusion, but it is not known when it will happen.