US Debt Worst 1H Performance, Economy May Stagflate
On July 1st, it was reported that the first half of 2022 seemed to have experienced a financial massacre for the U.S. market.
U.S. stocks were beaten up like baby seals, and U.S. bonds suffered heavy losses...
According to Bloomberg data, the S&P 500 fell by 21.22% in the first half of this year, marking the worst performance since 1962, with the U.S. stock market hitting a 60-year low.
Meanwhile, the Nasdaq Composite Index fell by 30%, with the worst performance even worse than the crash in the first half of 2002.
U.S. media claim that these ugly numbers have sparked calls for a rebound, but the current quagmire seems to be plunging the U.S. economy into the risk of stagflation, where severe price increases lead to worsening inflation, but the U.S. economy stagnates or even goes into recession.
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The U.S. dollar has soared nearly 10% in the first half of this year, the largest half-year increase since 2010.
However, it has not been able to curb the high inflation in the United States.
The U.S. inflation index in May has already reached a level of 8.6%, the highest in 40 years.
It is worth noting that U.S. media claim that U.S. Treasury bonds have encountered the worst first half in history in the first half of this year.
The yield on 2-year U.S. Treasury bonds rose by 220 basis points in the first half of the year, and the yield on 30-year U.S. Treasury bonds rose by 123 basis points.
The yield of U.S. Treasury bonds moves inversely with the price, the higher the yield, the greater the decline in U.S. Treasury bonds, and the more selling pressure.
Global buyers continue to trigger a wave of selling U.S. Treasury bonds.
As billionaire Jim Rogers said, the U.S. economy today seems to be paying a high price for being addicted to debt.
The United States is the world's largest debtor nation, with debt everywhere, and money printing has also been everywhere over the past years, which will eventually have to be paid for.
According to data released by the U.S. Treasury in June, the U.S. Treasury and the Federal Reserve have printed and released a total of $36 trillion in basic liquidity (M1, M2), increased debt limits, the Federal Reserve's balance sheet, fiscal budget deficits, and a package of economic stimulus plans in just 38 months.
In 1958, the United States' debt was $280 billion, but as of July 1, 2022, the U.S. public debt has reached $30.55 trillion, equivalent to 108 times the level of several decades ago.
Since the 1980s, the U.S. debt level has doubled every 8 years on average.
According to this trend, by 2030, the U.S. debt may reach about $60 trillion.
This figure may exceed 250% of the U.S. GDP.
The endless growth of debt, if accompanied by the Federal Reserve's interest rate hikes and balance sheet reduction, will fall into a new predicament.
The Federal Reserve has raised interest rates three times in the first half of the year, raising the interest rate to 1.5% to 1.75%.
And since June, it has officially started to reduce the balance sheet.
Federal Reserve Chairman Powell said on June 24 that the Federal Reserve's balance sheet will eventually be reduced by about $2.5 to $3 trillion.
Analyst Kyle Bass said that since the pandemic in 2020, the Federal Reserve has printed 40% more dollars than the amount in circulation at the beginning, and now the Federal Reserve has suddenly withdrawn liquidity, which means that the U.S. economy will fall into a recession.
Federal Reserve Chairman Powell Bass believes that in the face of inflation, the Federal Reserve is powerless, and it is expected that this round of interest rate hikes will not exceed 200 basis points, and it is expected that in 2023, the Federal Reserve will need to cut interest rates in the case of stagflation.
At that time, the Federal Reserve may face restarting the dollar printing machine and carrying out QE again.
The phenomenon of U.S. debt monetization will become more serious.
The "new debt king" Gundlach said that without debt growth, the U.S. economy would be in negative growth.
And the Federal Reserve continues to open the dollar printing machine, which may push the U.S. economy to the "boundary of Yin and Yang", and we (the U.S. economy) are on the way to hell.
Many phenomena indicate that the U.S. economy is getting closer and closer to the debt crisis.
The U.S. financial website ZeroHedge has been continuously following up on the report, saying that the current dollar debt market may have a Ponzi scheme.
In the past few months, some cities in the United States have suddenly seen a large number of wealthy people fleeing due to debt reasons.
For example, as of June 30, more than 12,000 millionaires in the United States are staging a real version of the exodus.
And in Illinois over the past 7 years, about 110,000 people have left.
The reason for the evacuation is precisely the increase in taxes and the severe debt crisis in the state.
According to the latest data released by the Federal Reserve, U.S. consumer debt is approaching a record $16 trillion.
The Federal Reserve has released a report on the economic situation of U.S. households for three consecutive years (surveying more than 12,000 people), showing that 40% (nearly half) of people cannot take out $400 in cash for emergencies, or they need to borrow money or sell things.
In the United States, as more and more people pay the price for being addicted to debt.
According to the latest 2021 annual homeless assessment report released by the U.S. Department of Housing and Urban Development (HUD), there are more than 326,000 people homeless every night in the United States.
One in every 1,000 Americans is homeless.
Obviously, Keynesian economics is not omnipotent, debt is impossible, but too much debt will cause all kinds of problems.
Today's U.S. economy seems to be using stagflation and debt crisis to illustrate the problem.
And in the first half of this year, while U.S. Treasury bonds were being sold off, the world's main central bank buyers also moved away from U.S. Treasury bonds.
According to the latest TIC data released by the U.S. Treasury on June 16, the data is delayed by two months as usual, and foreign official institutions sold a total of $158.3 billion in U.S. Treasury bonds in April this year.
In March this year, foreign buyers sold a total of $97.3 billion in U.S. Treasury bonds.
That is to say, in March and April this year, foreign buyers have sold a total of $255.6 billion in U.S. Treasury bonds.
Equivalent to a total value of about 1.7 trillion yuan of U.S. Treasury bonds sold by foreign buyers.
In the first half of this year, at least 30 countries holding U.S. debt sold U.S. Treasury bonds to varying degrees in different months.
For example, Japan, the largest overseas holder of U.S. debt, sold $13.9 billion in U.S. Treasury bonds in April, and Japan sold a record high of $73.9 billion in March, equivalent to Japan selling a total of $87.8 billion in U.S. Treasury bonds in two consecutive months, with positions falling to $1.2185 trillion, the lowest level since January 2020.
At the same time, Israel sold $750 million in April, currently holding $5.2 billion, and in December last year, it held $6.91 billion in U.S. Treasury bonds, equivalent to Israel selling a total of $1.71 billion in U.S. Treasury bonds, with a selling ratio of 18%.
And the world's largest oil-producing country, Saudi Arabia, although slightly increased its holdings of U.S. debt in April, Saudi Arabia reduced its holdings by $120 million in March, and since February last year, it has started to reduce from the previous $13.29 billion, a total reduction of $1.74 billion, with a total reduction ratio of more than 13%.
At the same time, Switzerland has been selling U.S. Treasury bonds for two consecutive months in March and April, selling a total of $2.49 billion in U.S. Treasury bonds, with a selling ratio of about 8.3%.
Analysis believes that Japan, Israel as traditional economic allies of the United States, and Saudi Arabia as the dominant country of petrodollars, Switzerland as a neutral country and one of the world's largest financial centers, when they sell U.S. Treasury bonds in large amounts, the wave of selling U.S. Treasury bonds may continue.
It is worth mentioning that the latest data from the U.S. Treasury shows that China reduced its holdings by $3.62 billion in April, with positions falling to the lowest since June 2010 at $1.0034 trillion.
Among the main overseas holders of U.S. debt, China's selling force in April is the largest, leading the wave of selling U.S. Treasury bonds.
It is still the second-largest overseas holder of U.S. debt.
And from December 2021 to April this year, China has been reducing its holdings of U.S. Treasury bonds for five consecutive months, with a total reduction of $7.75 billion.
Equivalent to a total of 519.7 billion yuan of U.S. Treasury bonds sold during this period.
CNBC, a U.S. media outlet, said that if the big buyers of U.S. debt abandon U.S. debt in large amounts, the loss to the U.S. economy will be "nuclear" level.
Rogers believes that the key factor for the sustainability of U.S. debt is in the hands of the world's main buyers.
Zerohedge analysis believes that as the U.S. economy may fall into stagflation, it is difficult to curb inflation, and the risk of default increases, some major buyers may clear U.S. debt.
Ray Dalio, the founder of the world's largest hedge fund Bridgewater and a billionaire, said that the development of the world economy has a cyclical characteristic, and the current U.S. economy is similar to the situation of the United States in the late 1930s.
BWC Chinese financial team noticed that as shown in the above figure: the GDPNow model updated by the Atlanta Fed on June 30 estimated the actual GDP growth in the second quarter, which has been revised down from 0.0% on June 15 to a contraction of -1.0%, lower than 0.9% on June 6, and lower than 0.3% on June 27.
The U.S. Census Bureau's near-term forecast for the growth of actual personal consumption expenditure and actual private buyers' investment in the U.S. domestic total investment in the second quarter has been reduced from 2.7% and -8.1% to 1.7% and -13.2% respectively.
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