The U.S. Congressional Budget Office (CBO) dropped a fiscal bomb on Valentine's Day, predicting that the cumulative budget deficit in the United States will reach an astronomical 20 trillion dollars and the federal debt will climb to 48 trillion over the next decade. The report reveals a striking trend: interest expenses are expected to grow exponentially in the coming years, with interest costs expected to double from $650 billion to $1.3 trillion by 2031 and further to $1.6 trillion by 2034, a record 3.9% of GDP, signaling a serious test for the U.S. financial system.
At the same time, the U.S. Treasury market has experienced severe turmoil recently, with the 2-year yield surging 15 basis points from 4.63% on 14 February, reflecting extreme concerns about the inflation outlook.
Entering 2024, a trend of de-dollarization is quietly surging in various states in the United States, with more than a dozen states such as Texas and Ohio issuing announcements proposing that gold and silver can be used as an alternative to the dollar as a daily medium of exchange and a means of debt repayment, showing that the confidence of these state governments in the dollar credit system has wavered. Tennessee passed bill HB2804, which gives gold and silver legal tender status and removes the relevant transaction tax, prohibiting the federal government from interfering with its gold holdings. So far, 38 states have explicitly declared their independence from the US dollar in the financial system, adopting the gold and silver standard or making it legal tender.
As more and more states abolished taxes on the purchase of physical gold, American households and elites began to buy gold in large quantities as insurance against currency depreciation and inflation. This phenomenon is a critical moment when the US dollar's status as the global reserve currency is facing potential challenges.
A few days ago, Texas Senator Brian Hughes and Rep. Mike Dorazio jointly submitted a forward-looking proposal SB2334, suggesting that in the context of increasing debt pressure, the United States should return to the gold standard system, and even launch a digital currency fully backed by gold reserves to break the monopoly of the dollar. The proposal has garnered a lot of attention around the world, especially at a time when many countries are embracing gold-backed digital currencies, especially in the United States.
In this regard, West Virginia Congressman Mooney sharply pointed out that excessive money printing is the root cause of the current economic difficulties and financial risks, which will not only erode the value base of the dollar, but also may trigger a complete collapse of the US debt economy. The Fed should take responsibility for its monetary policy and review and adjust the existing mechanism.
The successive monetary independence measures taken by nearly 40 states in the United States not only mark a major transformation of the U.S. financial and monetary system, but also one of the most significant changes after the collapse of the Bretton Woods system, and it is very likely to herald the arrival of a new round of dollar crisis. The repricing of huge national debt and questioning the credibility of the US banking system and the national debt are profoundly affecting the global economic order.
The report on international capital flows shows that the pace of foreign investors' reduction of their holdings of US Treasuries continues to accelerate, with China and Japan playing the role of major sellers, and their holdings of US Treasuries and those of other large central banks may fall to around 10% in the next few years, and even some smaller economies such as Middle Eastern oil producers may clear their US bond holdings. This series of moves forced US Treasury Secretary Janet Yellen to express her deep concerns about the US financial system in a congressional hearing.
While the United States is mired in debt, domestic financial reform movements at the local level and divestments by international investors are intertwined, which together constitute a strong shock to the dominance of the dollar. In the face of a historical turning point, how the United States responds to this unprecedented tide of reshaping the monetary system and whether the global financial market can smoothly survive the adjustment cycle of the US dollar's status have become the focus of attention in the global economic field.