Chuck Cowan’s Post

We need to elect a fiscally conservative administration to put the brakes on the US "debt speed". We also need to eliminate exemptions fro PAYGO: "If, over the course of a year, laws are enacted that are projected to increase the deficit, statutory PAYGO requires that deficit increase to be paid for by automatic spending reductions (known as sequestration) over the next several years." Congress has abused exemptions to the point that PAYGO is ineffective. "From the start of the 2024 fiscal year on October 1 to February 28th, the U.S. government debt has increased by $934.2 billion. This is a ‘debt speed’ of $188.6 billion per month; if we extrapolate this trend over the next seven months, then by the end of the 2024 fiscal year the United States government will have grown its debt by $2,263.7 billion. That is $2.26 trillion. In other words, in one year Congress will borrow as much money as the gross domestic product of Belgium, the Netherlands, and Sweden combined. "

The US debt is NOT unsustainable. Debt = global savings in risk-free assets and in the form of money that pays coupons (bonds). Average annual debt growth is consistently at 8%, don't be fooled by graphs with nominal axis. [upper left chart] The insatiable global appetite for safe assets has encouraged and enabled the US deficit growth [upper right chart]. The dollars used to purchase these bonds were previously created by Treasury spending because the Treasury first spends (prints USD) and then decides whether to issue bonds or tax. "But eventually there will be no bond buyers due to the excessive debt level" The bond market disagrees with you. If that phrase were true, bond yields would have skyrocketed to punitive levels. What has happened is the OPPOSITE, they have trended downwards. [lower chart] Furthermore, current leverage rules limit how much a bank can buy and hold of any assets, including US treasuries. Banks buy a mix of assets to optimize return while paying attention to potential risk. The Federal Reserve could simply change this rule, so that the limits no longer apply to treasuries. They've done it before (temporarily) and they can do it again. This would allow banks to purchase larger amounts of US treasuries which further eases Treasury issuances without the need for the FED to step in with QE to lubricate the fixed income markets.

Ray Dalio warns that the US is approaching an "inflection point" as its debt continues to accelerate. With rising debt comes larger interest payments, leading to increased bond issuance. Political dysfunction and a decrease in foreign demand for US debt have further exacerbated the issue. The total US debt now exceeds $33 trillion, and the costs of servicing that debt are rising. As demand weakens and supply increases, the outlook for Treasurys becomes uncertain. Investors should pay attention to Treasury auction metrics, rating agencies' actions, and the buyers of Treasurys. #USdebt #inflectionpoint #economicwarning

Debt Market Outlook: March 2024 Interim budget 2024 was positive for the debt markets as the bond yields went down across curves. In fact, the debt market factored in lower-than-expected fiscal deficits and gross borrowing. Subsequently, the core inflation read at 3.7%, the lowest in the current CPI data series. In the near-term, bonds markets are expected to stay positive mainly due to the expected beginning of a rate cut cycle. Additionally, an increase of FPI debt inflows and attractive global rate cycles will also keep debt markets high. 10 -yr -g sec yield is expected to be in the range of 6.75 % to 7.5%. 1-year T-Bill yields are expected to ease with gradual improvement in the banking system liquidity. Core CPI reading is expected to be below 4% and with healthy growth numbers, no significant trigger is expected from the regulators. Markets are also likely to experience some volatility due to swings in the US yields and continued geo-political uncertainties . Medium to long duration funds are more suitable such as corporate bond funds, dynamic bond funds and gilt funds.

US Debt Risks a ‘Slow-Motion Collision’ with the Fight Against Inflation, Goldman Sachs Says https://lnkd.in/gFQuMX5N Efforts to bring down inflation could collide with high debt loads, a Goldman Sachs warned, highlighting the implications for US debt. … #harvardgoldgroup #goldandsilver #investments #wealthpreservation #wealthprotection #gold #silver #coins #bars #americaneagle #canadianmapleleaf #goldcompay #commodities #inflation #usdebt

Stage Managing the Debt Bubble and the Recession That Never Was   The biggest surprise coming out of the fed tightening is the failure to emerge of the highly anticipated recession. Below I argue that the economy has held up better than expected due, in part, to the "stage managing" of the debt bubble and this stage managing generally involves adding more debt to the system - curing a debt bubble with more debt: 1) Consumer spending, has been sustained by borrowing more, drawing down savings and repaying debt more slowly.   2) Commercial Real Estate (CRE) borrowers are avoiding the day of reckoning by extending debt into 2024 and beyond. 2023 was a relatively benign year in CRE defaults since much of the debt scheduled to mature was extended into 2024 and beyond. This cannot continue forever.   3) Private Equity and Debt ecosystem are keeping the wheels on the wagon through creative financial engineering: a) new debt types issued to support unsustainable debt - eg Net Asset Value (NAV) and Payment in Kind (PIK) loans, b) Private Equity General Partners using continuation funds to catapult overvalued investments into new funds thereby kicking the overvalued can to future investors, c) dividend recapitalizations wherein more debt is issued in order to pay dividends to investors.   4) Ratings agencies (RAs) are provably slow in downgrading obviously troubled sectors like CLOs and CMBS. Failure to downgrade perpetuates the illusion that all is fine and keeps the new issue machine humming - generating more fees to the RAs.   These are all undeniably happening. Can they collectively explain the absence of recession? Quite possibly. And the strong economy resulting from this stage managing, is leading to the dangerous higher-for-longer monetary policy. All in the hope that a Fed bailout emerges before the wheels fall off the wagon. #federalreserve #monetarypolicy #consumercredit #commercialrealestate #privateequity #privatecredit #ratings

Check out the latest commentary from @CeteraIM which discusses the passage of the debt ceiling bill and what lies ahead for investors as they continue to climb a wall of worry. Click here to read more: https://lnkd.in/gprKMXpK

Check out the latest commentary from @CeteraIM which discusses the passage of the debt ceiling bill and what lies ahead for investors as they continue to climb a wall of worry. Click here to read more: https://lnkd.in/gprKMXpK

As significant proportion of the dollar debt was refinanced and fixed at low rates during the post pandemic 2020-2021 period, the recent sharp rise in the FED fund rate hasn't effected much of the existing debt burden yet. The mass debt maturity wall starting in 2024 paired with the higher for longer rate policy, is projected to cause the interest burden to rise beyond 2027. The mass debt maturity wall and it's refinancing has major implications both on the liquidity and income fronts. Read full article here: https://lnkd.in/dtz2bme6

There are many challenges associated with the country’s debt problem, and while it’s easy to blame Fitch’s U.S. debt downgrade, there’s more to it. Read more in today’s Top Market Takeaways.