On February 23, geopolitical risks between Russia and Ukraine once again triggered a shock rise in oil prices, potentially accelerating already sharply rising U.S. inflation and exacerbating concerns that the Fed needs to aggressively tighten monetary policy. U.S. inflation rose to a nearly 40-year high of 7.5 percent in January, with the energy component of the index surging 27 percent.
Oxford Economics said every $10 sustained increase in oil prices would increase overall CPI by 0.3% year-on-year. Bank of America Global Research reported on Feb. 22 that Brent crude oil is expected to rise to $120 a barrel by the second quarter of 2022.
BWC Chinese network financial research team according to inflation inertia theory data analysis, the united states of high inflation has not yet peaked, is expected to the first half of 2022 CPI will remain at a high of 7%, as shown in the figure below, the bank of the United States inflation expectation index has risen to a record high of 100. This also means that the U.S. real federal funds rate (EFFR) has become negative 6.91% inflation-adjusted (7.5%), which, as the chart shows, is currently at its most negative since 1954.
This has also caused the current real interest rates on U.S. savings accounts, certificates of deposit, and treasury bills to plummet into a staggering minus 7.0 percent range, and the real yields on 10-year U.S. Treasuries, the anchor of global asset prices, have slipped into the abyss of minus 5.6 percent, and even most corporate bonds with high returns have yields well below inflation, which means that U.S. bond investors have to take more risks, even by posting interest upside down and not recovering their costs.
As the chart below provided by Deutsche Bank researcher Jim Reid shows, currently, 85% of US Treasury yields of different maturities in the US bond market are lower than the current inflation rate, and the actual yield is negative.
As the Bank of America report points out, as high inflation persists longer and deeper, this will cause real interest rates on U.S. Treasuries to fall into a much larger negative area, in other words, it also means that all overseas U.S. Treasury holders, including China, Japan, Ireland, the United Kingdom, Saudi Arabia, Germany, Australia, etc., will or will have to pay interest to the U.S. Treasury in order to hold U.S. Treasuries, which is equivalent to paying the United States in disguise, which was previously unthinkable.
A financial regulatory institution in the United States
At present, the total debt deficit shown on the real-time clock of the US Federal Treasury debt like the aircraft dashboard below has jumped three levels in a row to more than the $30.1 trillion mark, and the data is still growing rapidly, more than 8 times more than when Reagan made his departure speech in 1989, Deutsche Bank said that printing money at the current rate will expand to 9 trillion by March.
According to data released by the US financial market monitor TreasuryDirect on February 21, as of February 10, the US fiscal deficit increased by more than 5.4 trillion yuan in 11 months, but relatively speaking, the deficit in the same period of fiscal 2020 was 1.2 trillion, but now the Treasury Department pays 19.8 billion less interest than in 2020, and the reason why interest expense can be significantly reduced is because the real interest rate of US Treasuries has dropped sharply. The Congressional Budget Office has made long-term projections based on current policies, which include moderate normalization of actual government bond yields. According to these projections, the federal debt will exceed 200% of GDP in 2051.
This will become even clearer against the backdrop of a resurgence of the U.S. federal debt ceiling woes on March 11. This has made the indicator ten-year US Treasury yield hit 2.03% in recent weeks, the highest in more than two years, which was far away from investors, and even showed a trend of heavy selling, and the short of US Treasuries has squeezed Wall Street, which is obviously the result of the OPENING of bottomless monetary policy in the United States. The latest data is feeding back this trend.
According to data monitored by Bloomberg on Feb. 22, U.S. Treasury outflows rose to $97.1 billion in the 10 weeks to Feb. 20. The current trading conditions in the US Treasury market are the worst in more than a decade, and the weakness of most Treasury auctions in the US Treasury Department has also exacerbated the market sell-off.
According to the latest international capital flows report released by the US Treasury Department on February 16, in December last year, China significantly reduced its holdings of US$12.2 billion to US$1.0687 trillion, and Japan also sharply reduced its US Treasury by US$23 billion to US$1.304 trillion in December, which also means that both China and Japan have ended their two consecutive months of significant increases in US Debt in 12 years last year.
Trend of Chinese purchases of U.S. Treasuries before November 2021
Immediately after, Jim Rickards, a veteran Wall Street economist and author of the book "Currency Wars" in the United States, said last week that since the 2008 US financial crisis, mainstream currency analysts around the world have been looking for signs that the major currency role of the us dollar has been reset, and it is clear that the current new coronavirus crisis will weaken the role of the us dollar. Because the current dollar has no gold support, and is constantly diluted by the Fed's bottomless release, the BWC Chinese the financial research team of the net headline number has also emphasized many times on different occasions, in fact, when the dollar is out of the gold standard and the dissolution of the Bretton Woods system, the two things themselves show that the value of the dollar has weakened.
In this regard, Mooney, a defender of the US gold standard, further said that most of the economic and financial problems in the United States are not caused by simple globalization and unemployment, for which the Fed should bear responsibility, and at this juncture, an unexpected thing happened.
According to an updated follow-up report published Feb. 20 by top hedge fund manager Crispin Odey, the U.S. Treasury may soon confiscate privately held physical gold and may try to monetize gold because the U.S. has virtually lost control of inflation since the coronavirus crisis, crispin Odey said, and it's clear that smart people have realized that the U.S. is now monetizing trillions of U.S. debt, which means that U.S. individuals no longer have private gold rights Hoarding gold is even more illegal, and this will become clearer in the context of the precedent of confiscation of gold in U.S. history (see figure below for details of the incident: In 1933, then President Roosevelt confiscated the gold of American citizens by infamous executive order), signs are already showing.
We note that in recent months, several parts of the United States, including Idaho, Utah, Oklahoma and Arizona, are accelerating legislation or have made gold and silver legal currencies on a par with the U.S. dollar, trading will be the same as cash, and profits tax will no longer be levied. At the same time, more than a dozen digital gold currencies (digital gold wallets) are also beginning to perform the general equivalent function in the process of commodity trading. The report also seems to indirectly reflect the institutional loss of trust in the dollar, so this significance is most clearly reflected in the value of gold in the era of great inflation, that is, the uncontrolled paper money issued by the United States will depreciate rapidly due to persistently high inflation, but gold will not.
But when smart central banks really need to address America's rising debt and inflation risks, the replacement of dollars in money markets will occur. Because, when the monetary policy of the United States targets its own economy without considering spillover effects, it will overdraft the dollar and credit for U.S. assets, and there is no free lunch in the world. (End)