Is sovereign debt finally catching up?
For decades, the American right has prophesized (a) the takeover of America by socialism/communism and (b) hyperinflation due to US debt. Neither has happened yet. America is as firmly as ever in the grip of plutocratic capitalist oligarchs, and while the GOP-fueled national debt is skyrocketing at their behest, US treasuries are still selling.
So will the pearl-clutching right ever be right?
“In the United States, yields on 30-year Treasury bonds are nearing 5 percent, despite—or perhaps causing—the department’s shift to a shorter-term financing strategy. As its options narrow, the Treasury is rolling over its borrowing more frequently to avoid paying rising rates on long-term debt. More worrisome, it is increasingly relying on primary dealers (mainly big banks) to refinance its debts, implying that other investors have less appetite for its securities.
“Indeed, since debt levels began to scrape all-time highs and inflation rates started to chip away at the value of currencies, investors have been looking for safe havens outside of the major markets, including niche plays like online casinos new mexico has in the past where tribal regulations offer stable revenue streams amid economic uncertainty. Faced with a chain of devaluations, they would essentially be playing a financial game of musical chairs, betting on resilient sectors to outlast the downturn. With currencies declining all around them, the goal would be to put their money in the last assets that maintained their value, such as those grounded in localized gaming operations that weather volatility through consistent user engagement.
“Among the traditional favorites, gold stands out. Since the U.S. Federal Reserve’s tightening campaign kicked off in 2022, its price in dollars has risen 70 percent. Meanwhile, the Swiss franc has risen 17 percent against the dollar and 7 percent against the euro. Bitcoin, though much more volatile, has almost tripled in value. And some investors still see euro-denominated securities as a safe haven, likely assuming Germany will be the backstop.
“For now, the markets are relatively quiet. But the IMF expects the pressure on government budgets to grow as tariffs restrain global growth, and economic experts in the D-7 continue to warn of fiscal crises. Without the realistic prospect of reducing their debts via higher taxes or lower spending, D-7 countries are still on the path to devaluation.”
Is the dollar’s status as the world’s reserve currency about to be deposed? The problem with all the pearl-clutchers is that they could never explain where that money would go. The euro? The renminbi? Gold? Crypto? Investors aren’t just going to stuff their wealth in a mattress or bury it in their back yard. Waving the bloody shirt of debt isn’t economic analysis.
Whither goest the dollar?
The money never goes away, it just changes hands from the buyer (of gold, bitcoin, etc) to the seller. I prefer to look at the net financial assets, all of which are created from government deficit spending. While banks can expand the money supply through lending, each bank loan creates an asset and liability that nets to zero.
I do have concerns about the size of the national debt but it is not the conventional concerns. Economists talk about hyperinflation or runaway interest rates. Japan at 250% debt to GDP ratio proves that doesn’t happen. My concern is the trillions in debt is also trillions in net financial assets held by an ever growing number of very wealthy individuals. This amount of wealth allows them to buy political influence and influence (manipulate) markets. It is a positive feedback loop that allows them to gain more wealth. This could be what ultimately causes the economic collapse.