Everyone, get ready.
A new round of financial crisis is coming, and we are celebrating the Mid-Autumn Festival. On the other side of the ocean, the United States is undergoing major changes, and every move of the United States next is becoming the biggest uncertainty factor in the global economy. On October 4, the yield on the US 30-year Treasury note surged to 5% for the first time. The last time this scenario occurred was in 2007, and the following year the global financial crisis broke out.
Not only that, the US 10-year Treasury yield continued to rise to 4.8%, and the US Treasury yield continued to climb, but the US price is experiencing a sharp decline. The 10-year U.S. Treasury market traded 40%, and the price of the 30-year bond fell directly. At present, the US long-term bond market is at risk of collapse, and the collapse in trading prices is very close to the decline in US long-term bond prices during the global financial crisis in 2008.
If the current crisis persists, the probability of another global financial crisis similar to the one in 2008 increases dramatically. The United States still has $7.6 trillion of US debt due in one year, reaching the highest level in the past two years, and debt service pressure has risen sharply.
But what if U.S. revenues can't repay so many maturing bonds? Only by continuing to borrow money, continuing to issue bonds, and using the newly borrowed money to pay off old debts. That's what the United States has done for so many years. This operation is very much like a Ponzi scheme. However, the United States is the world's largest economy, and the international status of the US dollar is very strong, which is why the United States has such an unscrupulous money-printing development model.
However, as the Fed has continued to raise interest rates since last year, the interest paid by the United States has risen sharply, and this year's interest expense will be as high as $1.3 trillion, which has also led to an increasingly large US fiscal deficit. Who will take over the long-term bonds of the United States? Both China and Japan are selling U.S. bonds, and their holdings are falling to new lows.
Since last year, the Fed has reduced its balance sheet by reducing its holdings of $60 billion in a single month. The Fed's interest rate hike is justified to curb inflation, but the continued rate hikes continue to raise interest rates. The dollar continues to decline in the market, and for the US banking sector, the crisis may be repeated. At the critical moment, the United States took out a huge amount of money to support the crisis in the US banking industry temporarily.
But the crisis has not really been resolved, and it could erupt again at any time. The U.S. banking sector may have lost more than $700 billion in the first three quarters of this year. If US interest rates continue to rise, the banking crisis will repeat itself. At present, the US banking crisis has not broken out for the time being, because the Fed is underpinning, and the BTFP tool has played an important role. But when this instrument expires in six months, will the banking crisis be able to be re-contained? The US dollar interest rate hike has become a major factor in the global economic turmoil, and if the United States does not raise interest rates, or even begins to cut interest rates, then all previous efforts to raise interest rates will be in vain. High inflation could return, and the economy would fall into the Great Recession. If you continue to raise interest rates and trigger a global financial crisis, the economy will also be in trouble.
Therefore, every move of the Fed affects the nerves of the global financial market, the risk of the global financial market still exists, and the financial crisis is on the way. Moreover, the big country game is extremely fierce, and the severity of this round of US dollar interest rate hikes may be beyond imagination.
