|
n. Illinois | It means that the Federal Government will be spending more on interest payments going forward. This will increase the deficit which will need to be borrowed. The treasury will issue new bonds to finance it. Someone or something has will buy them. Historically China and Japan were the largest buyers of our debt. However they have stopped adding to the amount that they hold and in fact are shrinking the amount of our debt that they hold.
So the question is who will replace them? the answer is I do not know nor does anyone else. My guess is the Federal Reserve will be buying more and more of the debt with the printing of more fake money (they call it quantitative easing or QE) the rest of us just call it printing money out of thin air with the consequence of that being more inflation pressures.
Its possible that the regulator agencies will limit the amount that the banks can loan out which is what they did after the 2008 mortgage crisis and the printing of fake money back then. The FDIC forced the banks to hold more and more of their liquidity at the Federal Reserve (and the Fed started paying interest to the banks on those deposits) to keep the banks from loaning the money back out. This has the effect of slowing the flow of money down and keeping inflation lower (this is all theory with no real life proof)
Its possible that some other part of the world will show up to replace the demand that the Chinese and Japanese took but who will that be? Its not going to be Russia, Europe is a mess and going broke so I doubt that they are going to replace the Chinese and Japanese demand. Africa? South America? The Middle East? Biden froze Russian assets that they had in the international banking system (something never done before) So If your managing a countries currency risk and your in opposition to the United States would you take the risk ??
Congress is broken and incapable of fixing our fiscal mess Neither party wants to lose political power for a generation or more. Politician's will always default to the decision that kicks the can down the road. Some day in the future (I hope its a long time in the future) the can will have become too big to kick, We have seen what happens in other countries when that happens. Hyper inflation and economic disaster.
We are still the economic power house of the world, Almost all of the rest of the world depends upon the United States and their exports to us to sustain their economies. Maybe we find a way out of this fiscal mess. Lots of people have bet against the US economy and have lost every time.
Good Luck, Keep your powder dry but don't crawl under a rock and stop growing/expanding, use debt when appropriate and where it fits your current cash flows. | |
|
What does this mean going forward - reformed banker or others?