The Fiat Currency Debt System is Heading Towards a Global Credit Market Freeze

As if out of the script of a Hollywood disaster movie, the US Treasury has increased the national debt by over $850 billion in just one month. I am growing more convinced by the day that the Global Elitists and Banksters are deliberately accelerating the collapse of the Fiat Currency Debt System.

This staggering amount comes after Congress suspended the federal government’s borrowing limit for two years, leading to an alarming rise in debt. As of June 30, the national debt stood at a mind-boggling $32.33 trillion, crossing the $32 trillion mark within a week of the debt ceiling suspension. These numbers are a clear indication that the Fiat Currency Debt System is hurtling towards a total freeze of the global credit markets, creating a crisis of monumental proportions.

Unprecedented Borrowing Rates and Unforeseen Consequences

The pace at which the US Treasury is borrowing money is astonishing. It is far beyond what analysts had projected, even surpassing Goldman Sachs’ estimate of up to $700 billion in T-bills to be sold within six to eight weeks of a debt ceiling deal. Shockingly, this figure was blown through in just four weeks. The Treasury’s reliance on marketable securities, including bonds and notes, has skyrocketed, with a staggering $728 billion increase in marketable debt since June 3, reaching a total outstanding debt of $25.43 trillion. The non-marketable debt also rose by $123 billion, though it constitutes a smaller portion of the overall debt.

Partial Refilling of Treasury General Account and Plummeting Tax Receipts

Despite the massive borrowing spree, the Treasury Department has only managed to partially refill the Treasury General Account (TGA), which essentially functions as the federal government’s checking account. The cash balance in the TGA increased from $23 billion to $465 billion as of June 30. However, this falls short of the Treasury’s $550 billion goal and remains significantly below the desired balance of nearly $600 trillion “consistent with Treasury’s cash balance policy.” Compounding the problem is the drop in government tax receipts, forcing the Treasury to borrow even more to bridge the gap.

The Illusion of Spending Cuts and Soaring Deficits

The concept of spending cuts in the so-called Fiscal Responsibility Act is misleading. In reality, these cuts do not make a dent in actual total spending, leading to the continuation of massive deficits month after month. It is only a matter of time before Congress and the Biden administration abandon the facade of spending cuts to address the next crisis. This pattern paints a grim picture for the future, with ever-increasing deficits and a mounting debt burden.

The Daunting Challenge of Selling Bonds

As the Treasury seeks to cover its current spending and replenish the TGA, it estimates the need to sell $733 billion in marketable securities during the third quarter. However, a pressing concern arises—who will buy all these bonds? With the Federal Reserve preoccupied with the battle against inflation, it cannot artificially stimulate demand through quantitative easing, at least for the time being. Consequently, the Treasury will be compelled to sell bonds at lower prices and higher yields to entice enough demand to absorb the supply. However, this approach will result in higher interest rates, an unfavorable scenario for a government attempting to borrow trillions of dollars. The national debt looms as a ticking time bomb, with its consequences poised to wreak havoc.

Liquidity Drain and Rising Interest Rates

The Treasury’s borrowing spree will significantly drain liquidity from the markets, the inverse of what occurred during the drawdown phases. As liquidity is absorbed, it exerts upward pressure on interest rates across various debt instruments, such as corporate bonds, mortgages, and auto loans. The implications of this liquidity drain and rising interest rates are yet to fully manifest, but it is certain that they will have a profound impact on the global credit markets.

The Looming Crisis: Ignoring the National Debt’s Implications

The national debt has grown to such an extent that it has become a topic of indifference for many. People often shrug off discussions about the debt, considering it a concern for the distant future. However, this complacency is misguided, as the road ahead is shorter than anticipated. Eventually, the consequences of the debt will catch up, leading to an economic catastrophe with far-reaching implications.

The Bottom Line

The Fiat Currency Debt System is hurtling towards a freeze in the global credit markets. The astronomical increase in the US national debt, coupled with the government’s insatiable borrowing spree, presents a clear and present danger. The Treasury’s reliance on selling bonds to cover its spending obligations poses a significant challenge, especially in the absence of artificial demand created by the Federal Reserve. The liquidity drain and rising interest rates further exacerbate the situation, adding to the fragility of the credit markets. It is imperative that immediate action is taken to address this impending crisis, as ignoring the national debt’s implications will only serve to amplify the magnitude of the disaster awaiting us.

Helpful Information: Why Excessive National Debt Poses a Risk to Global Credit Markets in a Fiat Currency System

1. Burden on Government Finances: Excessive national debt puts a tremendous burden on government finances. As the debt increases, the government needs to borrow more to cover its obligations, leading to a higher debt-to-GDP ratio. This raises concerns among investors and creditors about the government’s ability to repay its debts, potentially eroding confidence in the fiat currency system.
2. Crowding Out Effect: When a government has a high level of debt, it needs to allocate a significant portion of its budget towards interest payments. This leaves fewer funds available for essential public services, infrastructure development, and social programs. The crowding out effect occurs when government borrowing diverts funds away from the private sector, reducing the availability of credit for businesses and individuals. This can result in a credit squeeze and hinder economic growth.
3. Reduced Investor Confidence: Excessive national debt can undermine investor confidence in the stability and soundness of a country’s economy. Investors become concerned about the risk of default or currency devaluation, leading to a decline in demand for government bonds and other debt instruments. As a result, the government may struggle to find buyers for its bonds, leading to higher borrowing costs and potentially freezing up the global credit markets.
4. Rising Interest Rates: As the national debt increases, the government becomes more dependent on borrowing from domestic and foreign investors. If there is a perception of increased risk associated with the debt, investors may demand higher interest rates to compensate for the added risk. This can lead to a vicious cycle where higher borrowing costs further strain government finances, making it even more challenging to service the debt. Rising interest rates can also have a ripple effect, affecting consumer borrowing costs, mortgage rates, and business investments, further dampening economic activity.
5. Systemic Risk: Excessive national debt can create systemic risks within the financial system. When governments heavily rely on borrowing to finance their operations, any shock or disruption in the credit markets can have severe repercussions. A freeze in the global credit markets can lead to liquidity shortages, hinder business operations, restrict access to credit for individuals and businesses, and potentially trigger a financial crisis.
6. Undermining Public Trust: In a fiat currency system, where the value of money is not backed by a physical commodity but rather by the trust and confidence of the people, excessive national debt undermines that trust and confidence. The risk of freezing up global credit markets arises from the interdependence of economies and financial systems worldwide. Therefore, it is crucial for governments to address and manage their national debt levels responsibly to maintain stability in the global credit markets and protect the overall health of the fiat currency system.