The $40 Billion Per Month T-Bill Plan To Solve The “Liquidity” Crisis
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The spending will never stop… Liquidity issues in the T-bill market… It’s what happened to GE in 2008… $40 billion per month… The End Of America… A small-cap breakout… Time’s Person of the Year… A sign of the top…
We are approaching the “end game” with the U.S. government’s management of its debt load.
Federal debt is now more than $37 trillion. The interest to service that debt this year will exceed $1.2 trillion. That’s more than the U.S. defense budget. A generation ago, in 2000, the debt-to-GDP ratio was only 33%. Today it’s more than 120%. And that ignores the massive obligations of Social Security and Medicare (~$75 billion) that remain “off balance sheet,” but continue to come due, more and more, every year.
While most investors will ignore these problems, they are going to have a profound impact on our whole society, not just on your investments. It’s the government’s incessant expansion of the money supply that creates inflation, causes America’s affordability crisis, and creates the wealth inequality that’s fueling the rise of socialism.
I’ve written about these problems many times, but what happened this week is the first concrete action I’ve seen by the Fed that validates my hypothesis that we are two to three years away from a collapse in the U.S. Treasury market.
To minimize its interest expenses, the U.S. federal government has shifted the bulk of its debt into short-duration Treasury bills. A bill is an obligation that comes due in less than a year. Moving most of the outstanding debt “shorter on the curve,” lowers the government’s interest expense, because debts due in less than a year have a lower interest rate than notes or bonds with much longer durations.
But putting so much debt into short-term paper is also very dangerous. It sets up a funding tempo – vast debts must be refunded almost constantly – that frequently leads to a crisis.
This is more or less what GE did in the 2000s as it amassed an enormous $700 billion debt load. And as I warned about GE back then, when institutions have so much debt coming due every day, every week, every month, it’s only a matter of time until something goes wrong and there’s not enough time to work out a viable solution. Without the government’s bailout in 2008, GE would have gone bankrupt in less than a week.
Total government debt has doubled in the last decade and most of these additional obligations have been financed at the extremely “short” end of the Treasury market. Ten years ago, the amount of T-bills outstanding was only $1.7 trillion… or less than 10% of GDP. Today, there are $5 trillion worth of T-bills outstanding – a 194% increase and an amount of debt that’s equal to nearly 20% of GDP! |
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