By Graham Summers, MBA
The US is heading towards a debt crisis.
It’s been heading towards one for years… but the massive rise in Treasury yields may finally be the match that lights the fuse.
I’ve written extensively about the rise in Treasury yields over the last few weeks. I’ve primarily done this from the perspective of rising yields due to inflation… which triggered the bear market in stocks.
However, it’s worth noting that this rise in yields has another far more systemic consequence. That is: the US is now paying a WHOLE LOT more on its debt.
Consider the following…
On Monday, the US issued $48 billion worth of six-month T-Bills.
This time last year, based on where yields were, the US would pay just ~$180 million in interest on these bonds.
Today, it’s going to end up paying ~$1.3 BILLION.
This is just one example. But this issue will apply to ALL new debts the US issues going forward: higher rates will mean greater debt payments.
And bear in mind, the US has over $31 trillion in debt outstanding… and is adding to this mountain via its $1+ TRILLION deficit this year.
So we’re talking about larger debt payments on a mountain of debt that will need to be rolled over or paid back sometime in the near future.
Meanwhile, investors are piling into stocks as if a new bull market has just begun. Despite the 20% drop last year, stocks continue to trade at a market cap to GDP of 150%+. To put this into perspective, it is roughly the same level that the markets hit relative to GDP at the PEAK OF THE TECH BUBBLE!
Oh… and by the way… our proprietary Bear Market Trigger… the one that predicted the Tech Crash as well as the Great Financial Crisis… is on a confirmed SELL signal for the first time since 2008.