(Bugout.news) For years experts – not doomsayers, honest-to-goodness financial experts (and a few politicians who listen to the experts) – have been warning that the massive (and growing) U.S. national debt will eventually cause a meltdown of our economy.
That day may finally be arriving.
As reported by CNBC, U.S. bond yields – the instruments the government uses to finance that massive debt – may soon begin producing negative yields, following German government bonds and, soon, Japanese bonds:
It’s an inevitable question: Could U.S. 10-year yields turn negative now that German 10-year yields have fallen below zero for the first time ever and Japanese 10-year yields have dipped to record lows of negative 0.17 percent?
According to Dennis Davitt, partner at Harvest Volatility Management and a noted options market veteran, it may well happen.
“I think you could see negative rates in the U.S. If Germany and other countries in the world go even further negative, it turns into a number line game. So where zero lies on the number line, who knows?” Davitt said Tuesday on CNBC‘s “Trading Nation.”
Davitt goes on to say that rates are being driven down by a couple of things – slow global growth (which is due in large part from anemic U.S. growth – we are, after all, the consumer nation), stimulative Federal Reserve policies, and too damned many regulations (which again, drive down growth).
“The European banks under their Basel regulations, much like our Dodd-Frank, are forced to hold a certain amount of assets on their balance sheet [and] those assets have to be government-issued debt. So they’re forced to own those assets.”
For that reason, no matter how low yields fall, “there’s a buyer in the marketplace,” he said.
But that’s today. Several things could change that would make those bonds even less attractive (and therefore less able to finance the debt).
What about those Fed policies – like, what happens to the federal budget when the Fed jacks up interest rates, as it surely must at some point?
Easy – more of the federal budget will have to go to service (pay interest on) that debt, meaning there will be even less for roads, bridges, the military and so on. That’s because expenditures for entitlements – Social Security, Medicare, all those welfare programs – are mandatory and will always be funded first.
And when that happens, the end is truly near. The only way to stave off complete bankruptcy will be to massively cut spending in vital areas or massively raise taxes to fill the budget gap. Either one would be disastrous for our economy.
There is also this: As reported by Zero Hedge, Goldman Sachs’ international tracker of the economy just fell to its lowest point since 2009.
“Several major economic indicators have recently disappointed, including both the May employment report and the ISM non-manufacturing survey. While highly valuable, even these individual indicators can be noisy from month-to-month,” Goldman said in an investor note. “We therefore rely heavily on our current activity indicator (CAI), a composite measure of economic activity based on the correlations between a large number of high-frequency indicators. The CAI now stands at 1.2% in May, down from 2.2% in April, but with the 3-month moving average still at 1.7% versus 2.0% in December.”
Understand that throughout history – at least spanning the past few centuries – poor economic times generate unrest among the populace, which eventually spills over into nastiness and chaos as more and more people who are hard-pressed figure out they’ve got nothing to lose in attempting to overthrow the old order. As much as Americans would like to think so we are not immune from that kind of economy-driven social breakdown.
Meanwhile, Obama and his Democratic sycophants in Congress and the media will continue to lie about “how great” the economy is because what other choice do they have? They sure can’t tell the truth.
Fact is, Obama wanted this as part of his “fundamental transformation” of a country he obviously hates. But regardless of how the economic chaos comes about, our concern should be with how we’re going to deal with it.
To be forewarned is to be forearmed. Knowledge truly is power.
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