As the US Treasury Runs Out of Creditors, Its Options Dwindle

US News & Politics
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In 2020, interest payments were a little over $500 billion, but they have almost doubled since then.

Congressional Budget Office projections show that these interest payments will take up ever-larger portions of the federal budget, causing deficits to sink even further. The government will have to use more debt to pay off past debts.

On top of all of this, the US Treasury is running out of buyers for its debt. The Fed, which has always been a ready buyer of government debt with newly created money, is allowing its holdings of US Treasury securities to roll off its balance sheet. It cannot resume monetizing the debt without exacerbating price inflation, which is still above its stated target of 2 percent.

Like the Fed, foreign governments such as China and Japan are also reducing their purchases of Treasurys, leaving the US with a smaller customer base for its debt.

This too-much-supply and not-enough-demand phenomenon came to a head at an October Treasury auction that turned into a fiasco when thirty-year yields reached 4.837 percent and primary dealers, who are required to purchase any leftovers, had to mop up over 18 percent of the auctioned debt.

So, everybody’s appetite for US government debt is running low, and that includes foreigners, the government’s own money printer, and favored financial institutions.

What does this mean for next year, when $7.6 trillion in government debt will mature? This is almost a third of all of the US’s outstanding debt, which means a ton of supply is about to hit this market with already declining demand. Unless the government decides to tighten its belt and dramatically reduce spending (flying pigs are more likely), it will have to replace maturing debt with more new debt.

Is the end near or will the idiots in DC cut spending???

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What happens next???

You choose:

  1. Treasury auctions continue to founder, leading to a debt crisis. Treasury yields skyrocket as the whole world loses confidence in the US government’s ability to repay its debts

  2. A financial crisis and official recession occur, which gives the Fed “permission” to flood the economy with new money, lower interest rates, and make another massive purchase of government debt, as it has in prior crises. The issue with this scenario is that the Fed is still in the throes of its battle against price inflation.
    If we are capable of learning from experience, we know what it takes to get out of such a mess: a painful but healthy and necessary correction precipitated by a Volcker-style sharp increase in interest rates.

  3. The US government performs a “soft default,” similar to its actions in the 1930s and in 1971, in which the dollar is transformed in such a way as to rescue the government from its debt obligations. In the 1930s, the government devalued the dollar by changing its gold redemption ratio from $20.67 to $35.00 per ounce, as well as limiting and prohibiting gold ownership for US citizens. In 1971, Nixon “temporarily” (read: permanently) reneged on the US’s promise to redeem foreign governments’ dollars for gold.
    One avenue the US could take along these lines is the implementation of a central bank digital currency (CBDC). A CBDC could be programmed to have negative interest rates and other incentives that would push CBDC holders to buy government debt. Such a tyrannical move would be disastrous for citizens, but the ability to control interest rates, increase tax revenues, and direct and stimulate spending makes this option very attractive to a debt-riddled government that has painted itself into a corner.

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Just for perspective purposes we shouldn’t have to pay taxes ever again!

No US citizen should ever pay taxes again.

“Foreign aid is taking money from the poor people of a rich country and giving it to the rich people of a poor country.”

– Ron Paul

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Taxes have become a way to redistribute wealth in the US. The ACA is a perfect example.