Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Is the Winner of the U.S. Presidential Election - 31st Oct 20
Gold and Silver Prepare For Another Price Advance - 31st Oct 20
Gold Is Likely to Win This Election - 31st Oct 20
Why Trump Can Still Win 2020 Election - Establishment Mainstream Media Wrong Again? - 31st Oct 20
Why Budgies Need their Own Feeders - Parakeets Feeding UK - 31st Oct 20
Can Trump Still Win? US Presidential Election Forecast Matrix 2020 - 30th Oct 20
Why a Biden Win will Keep Metals Prices Rocking - 30th Oct 20
Is Silver the Next Bitcoin? - 30th Oct 20
A New World Monetary Order Is Coming - 30th Oct 20
Do These Explanations Make Sense for This Intraday Stock Market Turn - 30th Oct 20
US Presidential Election Forecast Matrix, Stock Market Uncertainty - 29th Oct 20
Stock Market Turning? Look For These Support Levels - 29th Oct 20
Silver: A Conceivable Dead-Cat-Bounce on the Cards - 29th Oct 20
Stocks are Strong but be Aware of this Continuing Pattern - 29th Oct 20
The Most Profitable Way To Play The Gold Boom - 29th Oct 20
Why You Should Hire An Accountant To Complete Your Tax Return - 29th Oct 20
Global Banking: Some Sectors Look as "Precarious as Ever" - 28th Oct 20
Silver Price Minor Dip Possible Before 2nd Major Upleg Starts - 28th Oct 20
�� How to Carve a Simple and Scary Pumpkin Face for Covid Halloween 2020 �� - 28th Oct 20
Gold Price One Last Dip Likely Then Major Upleg to New Highs - 28th Oct 20
Smart Money Is Going All-In On This New Gold Frontier - 28th Oct 20
Gold Stocks Still Correcting - 27th Oct 20
Gold and Crypto: Is This How Charts Look Before A Monetary Collapse? - 27th Oct 20
Silver's Coming Double Trigger Shotgun Price Explosion - 27th Oct 20
The $126 Billion Gold Opportunity in Australia - 27th Oct 20
Tips to Breeze through Your Spanish Classes Online - 27th Oct 20
Try The “Compounding Capital Gains” Strategy Today - 26th Oct 20
UK Coronavirus Broken Test and Trace System, 5 Days for Covid-19 Results! - 26th Oct 20
How the Coronavirus is Exacerbating Global Inequality, Hunger - 26th Oct 20
The Top Gold Stock for 2021 - 26th Oct 20
Corporate Earnings Season: Here's What Stock Investors Need to Know - 25th Oct 20
�� Halloween 2020 TESCO Supermarkes Shoppers Covid Panic Buying! �� - 25th Oct 20
Three Unstoppable Forces Set to Drive Silver Prices - 25th Oct 20
Car Insurance And Insurance Claims and Options - 25th Oct 20
Best Pressure Washer Review - Karcher K7 Full Control Unboxing - 25th Oct 20
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

U.S. Solvency Contingent on Low Interest Rates

Interest-Rates / US Interest Rates May 14, 2010 - 12:32 PM GMT

By: Michael_Pento

Interest-Rates

Best Financial Markets Analysis ArticleAccording to the Department of Treasury’s Auction Staff, the U.S. auctioned $8.8 trillion in Bills, Notes and Bonds in fiscal year 2009. That number is greater than the entire publicly traded debt, which is currently $8.4 trillion. The reason for the enormous amount of debt issuance is due to our surging annual deficits and rollovers that must occur more frequently because of the government’s decision to issue debt on the short end of the yield curve.


The astronomical size of debt the Treasury must auction each year begs a question; who will buy it? The U.S. saved $464.9 billion last year and is currently saving at a $304 billion annual rate in March. China liquidated $34 billion in Treasuries in December of 2009, while Japan and Europe are struggling to meet their own government obligations.

Since we do not have the domestic savings to fund our own debt and foreigners may not have the will or means to continue to funnel their savings to the U.S., the result is we must depend on current holders to rollover their debt on a continual basis. However, if interest rates begin to rise to their historical levels (the average yield on the 10 year note is 7.3%) investors may balk at rolling over their debt, which would  increase our interest rate expenses and could bankrupt the country. Of course, that leaves our central bank as the buyer of last resort and is the primary reason why gold is rising in all currencies and recently reached an all time nominal high in U.S. dollars.

The U.S. is now more addicted to artificially-produced low interest rates than at any other time in her history. But that’s not just my opinion. Listen to what Ben Bernanke said before the House Financial Services Committee regarding whether the U.S. faces a debt crisis similar to Greece; “It’s not something that is 10 years away. It affects the markets currently…It is possible that the bond market will become worried about the sustainability [of deficits over $1 trillion] and we may find ourselves facing higher interest rates even today.”

Separately, Bloomberg reports that the “Maestro” himself, Alan Greenspan is so concerned about a sudden sharp increase in interest rates that every day he checks the rate of the 10 year note and 30 year bond calling them, “the critical Achilles heel of the economy.”

And what does China think of the fiscal state of the country and the precarious state of our bond market? Deputy Governor of the People’s Bank of China Zhu Min said in December that; “the world does not have so much money to buy more U.S. Treasuries.”

The United States is the largest debtor nation in history. Our continued solvency depends upon low interest rates. But low rates are engendered either naturally from increased savings or artificially from money printing. Without having the adequate savings to bring down rates the Fed has supplanted savings with monetization of debt. However, money printing eventually leads to intractable inflation and will send bond yields much higher, especially on the long end of the curve.

To make matters worse, we currently see the difference between revenue and spending headed further in the wrong direction.  The budget deficit for the month of April was reported to be $82.7 billion. That figure was nearly 4 times last year’s reported deficit in April which was $20.9 billion. The April shortfall was the second for that month since 1983. The deficit for fiscal 2010 to date, which ends in October, is $799.7 billion.

Revenue fell 7.9% YOY while spending increased 14.2%. According to the CBO, the nation’s publicly traded debt will reach 90% of GDP in 2020 and, most importantly, interest payments are projected to quadruple to more than $900 billion annually by that year. Of course, as daunting as that trillion dollar annual interest rate expense will become, it could be much greater if rates do in fact rise.

Indeed, if rates rise significantly the country will face a liquidity and solvency crisis the likes of which the planet has never before witnessed. There is a significant amount of pent-up selling pressure in our bond market. Nearly fifty percent of our publicly traded debt is held by foreigners and 63% of foreign central bank reserves are held in dollars.

The Fed must quickly move away from its zero percent interest rate policy, otherwise inflation will ravage the country just as it has done every other time the Fed has taken rates below inflation and left them there for a protracted period. If they delay too long, they will be forced to bring the yield curve much higher to fight that insidious inflation.

It seems to me the sooner they move the less they will have to raise rates. Therefore, it’s imperative for the Fed to act now before they are forced to aggressively raise rates to fight inflation or the market forces interest rates higher on its own; which, given our extreme level of debt will render the U.S. insolvent.

Be sure to listen in on my Mid-Week Reality Check and to follow my blog Pentonomics
Follow me on Twitter: http://twitter.com/michaelpento

Michael Pento
Senior Market Strategist
Delta Global Advisors
800-485-1220
mpento@deltaga.com
www.deltaga.com

With more than 16 years of industry experience, Michael Pento acts as senior market strategist for Delta Global Advisors and is a contributing writer for GreenFaucet.com . He is a well-established specialist in the Austrian School of economic theory and a regular guest on CNBC and other national media outlets. Mr. Pento has worked on the floor of the N.Y.S.E. as well as serving as vice president of investments for GunnAllen Financial immediately prior to joining Delta Global.

© 2010 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules