The latest report released by the U.S. Treasury Department on December 12, Eastern Time showed that the U.S. budget deficit in November soared by $57 billion, or 30%, to $249 billion, setting a record for the month. Meanwhile, the U.S. federal revenue in November fell 10% or $29 billion to $252 billion year-on-year, while spending rose 6% or $28 billion to $501 billion, also setting a record in November.
data also showed that interest costs on U.S. public debt increased by 53% or $19 billion in November. In the first two months of in fiscal 2023 (October and November this year), the U.S. Treasury Department's interest payments increased by $48 billion, or 87%. This is also the surge in U.S. debt interest rates during the Fed's hike in cycle. It is worth noting that the U.S. Congress previously sought to suspend the debt ceiling from to December 16. The latest change is that on December 13, the U.S. Senate will be committed to voting on a bill to keep the U.S. federal government operating for a week after the December 16 debt ceiling deadline, as Democrats and Republican quarrel over a long-term measure that could cost more than $1.5 trillion. In addition, the Senate and the House of Representatives are discussing a bill being drafted to fund U.S. federal finances by September next year.
As of now, the House and the Senate have not reached an agreement on a series of appropriation bills, which means that when existing funds expire at midnight on December 16, relevant funding support from the United States may fall into tension. If the above strategy fails, White House will face a crisis of shutdown, and Washington related staff on vacation domino effect will appear. A similar thing happened four years ago, when a record 35-day outage of federal service almost resulted in the closure of major airports on the U.S. East Coast.
And this series of phenomena have been verified. As the billionaire Jim Rogers warned more than once that the United States is the world's largest debtor country, debt is everywhere, and sooner or later it will have to pay the price. As of December 13, the total federal debt of the United States has reached US$31.43 trillion, which is 121% of GDP. For many years, US economy has been relying on the method of dismantling and replenishing new and old debts to hedge 's huge deficit. This has thus formed the unique debt economic trap of the United States. Of course, this is inseparable from the background of the US dollar as a reserve currency. As the core asset of the US dollar, US bond has become the support of the foreign exchange reserves of many central banks around the world.
Because the currencies of many countries continue to anchor their own dollar reserve ratio to issue, U.S. bonds have also become the core reserve assets of various monetary authorities in the form of investment products. Therefore, from this perspective, the core logic of U.S. economic growth is the boundary of debt scale growth. The U.S. economy is already insolvent, and only the overvalued dollar is struggling to support it. This leads to the fact that once the U.S. Treasury bond is cold, or the risk of geopolitical economy intensifies, U.S. bonds may face no purchase or even large-scale selling. Therefore, some central bank switched to other anchors to issue local currency.
According to the international capital flow report continued to be released by the US Treasury Department, as of the third quarter of this year, central banks around the world generally showed a continuous net selling of US bonds. At least 26 countries including China, Japan, Germany, France, Saudi Arabia and other countries sold U.S. Treasury bonds in different months in the first three quarters of this year. According to data from International Monetary Fund (IMF), the US dollar's share of foreign reserves in global central banks has dropped from a peak of 85% to a historical low of 58%. Foreign reserve managers of central banks around the world have begun to gradually increase the allocation of other non-dollar currencies, and this will continue to be the case.
Senior economist Jim Rickards said that for more than a decade, currency analyst has been looking for signs of resetting global reserve currencies, which will weaken the role of the US dollar. Judging from currency history and market data, the world's largest dollar debt bubble may eventually be pierced by gold (please refer to the US dollar-to-gold value trend reflected in the figure below).
For example, the report of World Gold Association shows that in the first three quarters of this year, the total amount of gold purchases of central banks around the world increased to 673 tons, higher than all the annual total since 1967. Especially in the third quarter, global central banks increased their holdings of gold with the fastest pace in 55 years, buying a record 399.3 tons of gold.
It is worth mentioning that data released by the State Administration of Foreign Exchange on December 7 showed that in November, China increased its holdings of 1.03 million ounces of gold, and its holdings reached 63.67 million ounces, or 1,980 tons. Previously, since September 2019, China's gold reserves have basically remained flat at 1,948 tons. Obviously, the latest changes show that China officially increases its gold reserves for the first time in three years.
UBS analyst Giovanni Staunovo said that China's increase in gold reserves may be part of its reserve diversification plan, rather than a single dollar reserve. As part of the total reserves, China's open gold holdings are still very low, so there may be room for further increase in gold in the future.
Analysts believe that as the US economic capital is insolvent and the White House is facing the risk of shutdown, more and more monetary authorities may transform their foreign exchange reserve layout from the previous single US bond dollar assets to comprehensive assets including physical gold , as well as other non-US dollar currencies. Simply put, eggs cannot be placed in the same basket. This is also a footnote to the US dollar's continuous loss of reserve status. For the United States, which is addicted to debt, it is tantamount to sounding the alarm bell of the US debt economy. Because relying solely on , the Federal Reserve's support for US debt in the United States will lead to the loss of liquidity of US Treasury bonds.
What's more, the Federal Reserve is also gradually moving away from US debt at this time. As shown below, the Federal Reserve's holdings of U.S. Treasury bonds fell by $255 billion to $5.516 trillion as of the end of November, the lowest since its peak in early June. Among them, the Federal Reserve's U.S. Treasury bonds held by the Federal Reserve have decreased by $59 billion in the four weeks since its balance sheet on November 3.
This shows that the Fed is showing a significant sell-off of US Treasury bonds. Because for the Fed, bailing out the US debt economic model is not their real mission. The Fed is a joint institution composed of many American banks. In the eyes of some senior bankers, profit-seeking may be their only goal. It is worth mentioning that as of now, the Federal Reserve's interest rate hike cycle this year, the total U.S. federal debt interest has increased by at least $1.5 trillion. This means that while the Federal Reserve continues to harvest global wealth, interest rate spread, , it is actually harvesting the United States.
Coincidentally, US Treasury Secretary Yellen has issued more than once warnings that US Treasury bonds may face collapse and US debt funds will be exhausted, which will be disastrous for the United States. (End)
