As of Nov. 8, the total U.S. federal debt was near an all-time high of $29 trillion, or about 126 percent of U.S. GDP. The average American is saddled with $86,949 in debt, and the average U.S. taxpayer is saddled with $229,705 in debt.
The latest data show that the US deficit in fiscal year 2021 was $2.77 trillion, the second highest on record, and only less than $3.13 trillion in fiscal 2020. This means that the U.S. economy needs to peddle more U.S. Treasuries to global investors to hedge against the risk of a nearly $3 trillion deficit. And press billionaire Jim. Rogers has repeatedly warned that the United States is the world's largest debtor country, and debt is everywhere, and sooner or later it will have to pay a price. The sustainability of the U.S. debt-economic model is in the hands of major central bank buyers around the world.
Since 2018, at least 30 central banks around the world have cumulatively dumped $1.3 trillion in U.S. Treasuries. The latest change is that the U.S. Treasury Department's International Capital Flows Report released on October 19 showed that (there will be a two-month delay in official U.S. Treasury data) In the 12 months to August, global central bank-level U.S. Treasury buyers have continued to reduce their holdings of U.S. Treasuries, with global central banks net selling up to $34 billion in August. Among them, At least 14 countries in China, Switzerland, the Cayman Islands, India, Singapore, Saudi Arabia, the Netherlands, Israel, Poland, the Philippines, Sweden, Italy, Chile, and Colombia have reduced their holdings of U.S. Treasuries to varying degrees.
China, for example, reduced its holdings by $21.3 billion in August, reducing its holdings to $1.05 trillion, the lowest holding size since 2010. Five of the six months from March to August this year net reduced U.S. Treasury bonds totaling $53.6 billion.
For example, Saudi Arabia reduced its holdings of $4.1 billion in U.S. Treasuries in August this year, and for seven months from November last year to August this year, it has been selling U.S. Treasuries for seven months, accumulating a cumulative $13.5 billion in U.S. Treasury bonds, and the total size of the U.S. Treasury bonds has reached about 10% of the total number of U.S. Treasuries held by the country. The analysis believes that since Saudi Arabia has been a supporter of the us dollar and the us dollar-dominated global commodity trading system for many years, when Saudi Arabia begins to reduce US debt sharply, the organic combination of oil-dollar-US debt may face an impact.
Not only that, last week's OPEC+ led by Saudi Arabia, the oil producer, rejected the US call to double the crude oil production increase to 400,000 barrels per day, and OPEC+ approved a 400,000 barrels per day increase in December. Then, according to Bloomberg, on November 6, a day after the OPEC+ meeting, Saudi Arabia announced the official selling price for December, and next month will raise the official selling price of crude oil for all buyers. This has sparked discontent in the U.S. economy, mired in a crisis of inflation and supply chains.
According to a report recently quoted by the US media AXIOS, the US Congress has begun to launch a legislative action called N-OPEC around the monopoly position of Saudi-led OPEC in the international crude oil market, in this regard, some people familiar with Saudi energy policy said that if the United States passes NOPEC, then it will sell oil in currencies other than the US dollar, they said, "The US dollar is their core option." In addition, Saudi Arabia once announced or will terminate the petrodollar agreement and trade oil in dollars. The McGill International Review columnist also analyzed that the U.S.-Saudi petrodollar agreement may have to be terminated early. This further explains that it is no accident that Saudi Arabia has suddenly continued to sell US debt on a large scale.
Once Saudi Arabia continues to sell US bonds on a large scale, the analysis believes that it is likely to follow Russia's example and close to the operation of clearing US bonds. This means that the US debt and the US dollar, as well as the US debt economic model, may be abandoned by many oil producers around the world, which is also the epitome of the expectation that the US debt economy may be in trouble.
Bloomberg reported in an analysis weeks ago that the pandemic could lead to a debt crisis in the United States. U.S. Treasury Secretary Yellen has warned many times in the past few weeks that if the U.S. debt ceiling is not sustained, then the United States may run out of funds one day in the next few days, which will affect the credit of U.S. debt and the credit of the dollar. The current U.S. debt ceiling also expired in early August, but the U.S. Congress extended the time, and this tipping point is expected to be in December.
At the same time, the U.S. Treasury Department has been hinting since last year that it may consider issuing 50-year and 100-year Treasury bonds, which is at least 20 years higher than the current longest cycle of 30-year Treasuries. Goldman Sachs analysts recently suggested that the U.S. Treasury should issue 1,000-year Treasury bonds based on current borrowing costs. While not yet adopted, it suggests that the U.S. economy will continue to borrow more from major global buyers.
This once again shows that for the already heavily indebted U.S. economy, it is almost impossible to leave the debt, and the debt addiction may be carried out to the end. Otherwise, a range of economic initiatives, including its latest proposed $1.2 trillion infrastructure plan, could all be frustrated.
Or it is based on this that the U.S. economy needs to build high-quality debt credit to ensure that U.S. debt will continue to be favored by major buyers around the world, because relying solely on the Fed to print money and buy back U.S. debt models may cause the U.S. debt economy to fall into a dilemma of illiquidity, not to mention that according to the latest statement of the Federal Reserve on November 3, this month will begin to shrink bond purchases. Analysts expect the Fed's $120 billion-a-month bond-buying operation since March last year to come to an end by mid-2022.
Therefore, at this time, the US Treasury and the US dollar need more support from global buyers. In response, Kudlow, a former chief economic adviser to the White House, said, "The integrity of the United States to repay its debts is sacrosanct, and so is our commitment to keeping the dollar as the world's reserve currency." Fox Business TV host Stuart Varney noted that the United States has never broken the contract on debt. If we do, who will lend us the money again? That is to say, the US economy has no right at any time, and it is impossible to rely on any US Treasury debt.
The US media CNBC earlier analyzed and reported that when major global buyers sold US bonds sharply, the impact on the US economy may be unimaginable. The US financial website Zerohedge quoted experts as saying that with the surge in the US federal deficit, increasing the risk of default and other factors, if the risk factors increase, some major US bond buyers such as China also have or will clear the US debt. And once this happens, the bottom card of the US nearly $3 trillion deficit may be at risk of being uncovered. (End)