In the past few days, the yield of US Treasury bonds has risen sharply, and the US dollar index has risen again, which is in line with the trend of the Fed's interest rate cut cycle. StarEx Exchange analysts believe that the problem of US debt is already very serious, it has distorted the market and made the market disorderly. At this moment, it is necessary to firmly hold gold and Bitcoin. The US debt problem can only be solved through inflation.
In September, the Federal Reserve slashed interest rates by 50 basis points. Experts and financial advisors recommended that everyone invest in U.S. Treasury bonds. According to financial common sense, when interest rates fall, bond prices will rise and yields will fall. However, the actual situation is completely different: the yield on 10-year U.S. Treasury bonds has soared from around 3.7% in September to around 4.2% today, causing bond investors to suffer heavy losses in just one month.
Normally, when the Fed cuts interest rates, long-term borrowing costs (such as the yield on 10-year Treasury bonds) should fall. But this time, Treasury yields have soared 50 basis points, and Fed Chairman Powell is facing such a challenge: although his goal is to reduce borrowing costs and boost the economy, the market believes that this rate cut policy is wrong in the current high inflation situation.
A similar situation occurred in the 1970s. At that time, in order to help Nixon win reelection, Arthur Burns, chairman of the Federal Reserve, lowered interest rates against the backdrop of high inflation. As a result, inflation got out of control and the U.S. economy fell into "stagflation" that lasted for 10 years. In order to finally control inflation, the Federal Reserve later had to raise interest rates to 20%. That period was called the "lost decade for investors" because the real returns on stocks and bonds turned negative.
StarEx Exchange analysts believe that the Fed is also facing this risk today. The bond market is highly sensitive to inflation, and now investors are worried that inflation will continue to rise and demand higher returns, thus pushing up long-term interest rates.
As prices rise, workers begin to demand higher wages. Recently, many workers in the United States have gone on strike, demanding significant pay increases. For example, Boeing and Eastern dock workers went on strike to demand higher wages, but wage increases have further exacerbated inflationary pressures, forming a wage-price spiral similar to the 1970s, with inflation more entrenched. Although officials and the media claim that inflation has been brought under control, ordinary Americans are still feeling the pressure of rising prices. Consumers' inflation expectations have soared, meaning they expect prices to continue to rise in the future, and thus demand higher wages. This situation makes the Fed's interest rate cut strategy even more ineffective.
Analysts at StarEx Exchange believe that today's US economy faces a more serious problem than in the 1970s: excessive debt. The US government's debt-to-GDP ratio is as high as 120%, while it was only 30% in the 1970s. This means that the Federal Reserve cannot control inflation by raising interest rates sharply as it did back then. Even if the interest rate is maintained at 5%, the US government's debt interest expenses may be close to 2 trillion US dollars, accounting for 40% of the government's annual tax revenue. If the interest rate rises to 10%, the US government will face the dilemma of not being able to pay social security, medical care and military expenses at the same time.
Higher interest rates will also make it difficult for American companies to survive, and the entire economy will face the risk of a serious recession. More and more investment tycoons believe that the United States will face long-term inflation in the future, and holding gold and Bitcoin is a better choice.
Analysts at StarEx Exchange believe that the United States’ huge debt problem can ultimately only be solved through inflation, and at this moment, firmly holding gold and Bitcoin has become the first choice.
