U.S. Treasury yields suddenly turned higher on Monday, with the 10-year U.S. Treasury yield rising 5.3 basis points to 4.256%, and the 3-year U.S. Treasury yield rising the most, reaching 9.1 basis points to 4.397%. Global stock markets were in the doldrums as U.S. bond yields soared.
Global central banks purchased 800 tons of gold in the first three quarters of 2023. This is only a public figure, but what about privately? Central banks of various countries quietly united and abandoned the U.S. dollar to embrace gold, and the price of gold continued to rise.
Buffett has always believed that gold is not a good investment. It is very simple. Gold is equivalent to a zero-interest rate bond. When the credit of the US dollar is strong, it is certainly more cost-effective to buy U.S. bonds than to buy gold. No matter how bad it is, U.S. bonds can always give some interest.
Buffett bought gold for the first time in 2020. The old man knew that if the U.S. dollar was printed like this, his credit would be destroyed sooner or later. Of all the bonds, gold would of course be the most reliable.
From Buffett to central banks of various countries, everyone has invariably bought gold to hedge against the credit collapse of the U.S. dollar. The result is that the sharp rise in U.S. bond yields has failed to attract enough market funds to buy U.S. bonds, and U.S. bonds cannot be sold.
In March of this year, due to the sharp rise in U.S. bond yields and the bankruptcy of Silicon Valley Bank, the U.S. debt held by U.S. banks already suffered huge floating losses. Even if the accounting rules were changed, there was no way to solve the liquidity problem, so the Federal Reserve secretly gave U.S. banks A wave of water was released.
The old United States is a master of financial creativity. The name of this wave of operations of the Federal Reserve is called the Bank Term Financing Program (BTFP) to provide additional funds to banks, allowing depository institutions to obtain loans for up to one year with any collateral that complies with open market operations.
How much money will be loaned out under this plan? God knows, it’s not on the Fed’s balance sheet anyway.
Which banks actually borrow money from the Fed? How much did you borrow? Haha, this is the top financial secret in the United States. If you tell it, you are afraid that the bank that borrows the money will be run. This is related to the financial security of the United States!
So who will take over the U.S. debt?
In fact, they are still domestic chickens and dogs in the United States. Everyone buys U.S. bonds and goes to the Federal Reserve for mortgage loans, all betting that the Federal Reserve will cut interest rates soon. Then these U.S. bonds obtained during the period of high interest rates will rise sharply, and they will earn money. It’s an interest differential.
This is why even though U.S. debt has plummeted and banks have recorded floating losses on their books, everyone seems to be calm and calm on the surface and can continue to buy U.S. Treasury bonds.
After all, on the bright side, the Fed’s balance sheet shrinkage has shrunk by 1.15 trillion from the highest of US$8.95 trillion in April 2022 to US$7.796 trillion at the end of last month.
There is a clear liquidity loss of 1.15 trillion, coupled with the asset black hole formed by the plummeting U.S. debt and floating losses, facing such a big thunder, can it be solved by fiscal releases alone?
The Federal Reserve is both responsible and upright. It is very shameless. It openly shrinks its balance sheet, but secretly releases more water to combat liquidity problems.
Theoretically speaking, as long as the Fed’s mess is vague, it can step on the left foot and the right foot and spiral upward. There will never be a problem with the U.S. debt, because as long as BTFP is operated in the dark, it can be used as a vest by major banks. Continue to add liquidity to U.S. debt.
In order to obtain more loans with favorable terms, major banks will of course be willing to act as white gloves for the Federal Reserve to support the crumbling U.S. bond market.
I have mentioned a metaphor before, the hollowing caused by fluidity. If you stir a glass of water crazily in one direction, the water level will rise, and then there will be a big hole in the middle of the quilt. The faster you stir it, the higher the water level will rise. faster.
But as long as the mixing speed slows down and the hole in the middle is filled, the water level will drop very quickly.
Think about what the United States has been doing in the past few years. They insist on de-Sinicizing the supply chain. Although they refuse to admit it, they have done it one by one. When it comes to new energy vehicles, they are even more radical. By closing the country in isolation, the United States is trying to become stronger and solve the problem of hollowing out.
But the reality is that if you want to backfill the hole in the middle, the water level that blows up will have to drop, and asset prices will fall. To solve this problem, more water must be injected.
Biden is playing with subsidies, but honest people who really invest in production, such as TSMC, cannot get much actual subsidies, and their money is taken away by foreign consortiums that are not short of money but are very capable of lobbying. , the result is that the manufacturing industry has returned to loneliness, but the mobility of the whole society has dropped.
This wave of problems was once again thrown to the Federal Reserve. After all, secret and private assistance failed to solve the huge hole in liquidity.
U.S. debt, the most liquid asset, can only be sold at a reduced price. Increasing yields means that the price of U.S. debt plummets. Although U.S. banks can borrow assets from the Federal Reserve, what about banks outside the whitelist? Who will fill their popularity gap?
The longer the Fed plays the hawkish trick of raising interest rates and shrinking its balance sheet, the bigger the hole in this water level will be. It pumps water openly while releasing water covertly. Until one day, it can no longer hold it any longer, and the Fed vest can no longer be found, so it can only be there in person. , this is a big problem.
There have been problems recently with two consecutive U.S. 30-year Treasury bond auctions.
U.S. Treasury bonds have always been known as the anchor of global assets due to their good liquidity. What if there is a problem with this anchor? What to do with the ship Global Assets?
The Federal Reserve is the world’s central bank, but now this central bank can’t even handle the problem of its own domestic national debt. What do you think of it?
The U.S. debt default crisis that has been hyped up every now and then is actually nothing more than internal strife among the gents on Capitol Hill. If we convene a Congress and discuss the conditions for sharing the spoils, and continue to raise the U.S. debt ceiling, there will naturally be successors to hold the U.S. debt. of liquidity.
Now, no matter how high the yields are, we can’t find enough takers. The most terrible thing is that the previous crazy liquidity model of hollowing out and turning high may be a bit unsustainable, which means that the Federal Reserve must release more water. Fill in the blanks to avoid a total collapse in asset prices.
There is only so much wealth in the world. In order to reassure everyone and restore everyone’s confidence in the US dollar, the Federal Reserve pretended to be a hawk and launched a crazy interest rate hike cycle. However, this wave of interest rate hikes failed to bring down any major economy. Harvesting leftovers cannot solve the problem at all. Choosing an unreliable president like Argentina and proposing a bunch of unreliable policy plans may sound wonderful, but in fact it is impossible to implement them.
Those who are watching outside will know at a glance at the results that the United States is too old to come up with any tricks to save the precarious credit of the U.S. dollar. The U.S. dollar can no longer withstand it. How can U.S. debt be held up?
Why are global investors selling U.S. bonds and buying gold? People are scared. Although the interest is good, you still have to keep the principal after all.
During the cycle of raising interest rates and shrinking its balance sheet, the Federal Reserve has taken more and more frequent steps to publicly maintain the liquidity of U.S. debt. This is actually a U.S. debt crisis.
At the end of November, the 3-year U.S. Treasury bond auction could not find enough takers, so you see, the market has little confidence in the Federal Reserve.
Gold hit a new high this Monday and was hit by funds, but what does this mean? Short-term fluctuations are purely a game of funds, and the end of bull profits will be the same, but the long-term trend is only related to the trust of global funds in the US dollar. Look at it now, who still believes in the integrity of the US dollar? After all, the U.S. debt is in trouble, and the Federal Reserve can only openly start printing money to save lives.
Next, everyone can pay close attention to the liquidity of U.S. debt. If any liquidity crisis comes to light, it will be time to add nuclear power to the money printing machine.
Just look at how cowardly the current U.S. debt auction is. It can no longer be broken by a 2% interest rate cut next year. Interest rates are zero, and a big release of money may be coming soon. It depends on what excuse the Fed will find and who will be sacrificed.