Whether everyone admits it or not, U.S. debt is a time bomb after all.
Although U.S. bonds have never defaulted in the past 100 years and are one of the world's most creditworthy currency sovereign bonds, the absence of a thunderstorm in the past does not mean that there will be no accidents in the future.
As the balance of U.S. bonds continues to soar, the current interest expenses on U.S. bonds are getting bigger and bigger, and the pressure on U.S. Treasury Secretary Yellen is also increasing.
According to economist David Stockman, the size of the US debt will reach a record high of $35 trillion in a month, and will exceed $37 trillion by 2024, and may even hit a new high of $40 trillion.
While Treasury balances continue to soar, Treasury yields also continue to soar.
Since February 2022, yields on U.S. Treasuries have continued to soar as the Federal Reserve enters the path of interest rate hikes.
Among them, the yield on 10-year Treasury bonds fell to 4.74% at its peak in 2024, and the yield on two-year Treasury bonds exceeded 5%.
Short-term Treasury yields are higher, with a one-month yield of 5.51%, a two-month maturity of 5.47%, a three-month yield of 5.47%, a four-month yield of 5.51%, a six-month yield of 5.43%, and a one-year yield of 5.17%.
Against the backdrop of rising U.S. Treasury yields, although U.S. Treasury bonds are still in demand, including Japan and the United Kingdom, some allies continue to inhale, but the corresponding annual interest payments by the U.S. Treasury are also increasing rapidly.
According to data released by the U.S. Treasury Department, U.S. Treasury investors will receive up to $900 billion in interest on U.S. government debt in 2023.
After entering 2024, the interest expense of U.S. bonds has further increased, and in March 2024 alone, the interest paid by the U.S. Treasury to Treasury bond holders will reach about $89 billion, which translates into $2.87 billion per day and $2 million per minute.
Based on the current yield on U.S. Treasury bonds and the rate of growth of U.S. Treasuries, the interest paid by the U.S. Treasury in 2024 is likely to exceed the $1,000 billion mark.
This interest expense is a direct headache for Yellen.
You must know that in fiscal year 2023, the net fiscal revenue of the U.S. federal government after tax rebates is only 4.44 trillion US dollars, while the net expenditure scale is as high as 6.13 trillion US dollars and the fiscal deficit is as high as 1.695 trillion US dollars.
It is equivalent to the interest paid on the Treasury bonds in the United States for only one year, accounting for nearly 20% of the U.S. fiscal revenue, and this proportion is likely to continue to grow in 2024, possibly reaching about 25%.
What is even more frightening is that on the one hand, the balance of US debt is growing, and interest expenses are increasing, and on the other hand, the US fiscal revenue is on a downward trend.
In 2023, the U.S. federal government's fiscal revenue will decrease by $457 billion from the previous fiscal year, a year-on-year decrease of 9.3%;
After entering 2024, the federal government's fiscal revenue has not changed significantly, and the federal government's revenue in the first quarter of 2024 is $1.05 trillion, which is only about $0.03 million more than the first quarter of 2023.
Moreover, judging from the current economic growth trend of the United States, it is expected that the US fiscal revenue may slow down or even decline in the future.
According to data released by the U.S. Department of Commerce, in the first quarter of 2024, U.S. GDP grew at an annualized rate of 1.6% quarter-on-quarter, much lower than the previous market forecast of 2.4% growth.
In the face of this dilemma, the Fed may drive economic growth by cutting interest rates, but another big problem facing the United States at present is that inflationary pressures have not been completely eliminated.
In March 2024, the inflation level in the United States increased from two months, and the CPI increased by 3.48% year-on-year in March, an increase of 0.4 percentage points from February.
According to the current inflation level in the United States, it is expected that the Fed will not be able to cut interest rates before September 2024, which means that the US economy may still be under downward pressure.
With the continued rapid rise in debt balances and interest on the one hand, and the slowdown in the economy and the slowdown or even decline in fiscal revenues on the other, the United States will face increasing pressure to repay its debts.
If nothing else, the United States still uses the old-fashioned method, that is, to achieve the purpose of deferring the debt by borrowing new money to repay the old, as long as they can issue new debt and pay the interest, even if the debt balance is large, they can continue to play.
Although it can avoid a default on US bonds in the short term, it will inevitably lead to a decline in the credibility of US bonds in the long run, which will make them less attractive.
In fact, in recent years, some countries, including China, Russia, Switzerland, and other countries, have begun to sell US bonds continuously, and instead increase the value of other assets such as gold and renminbi.