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U.S. debt and the U.S. dollar are like an invisible pipe inserted into the world economy, allowing wealth to flow to the United States.
The United States was once called “the country on wheels”, describing how popular and indispensable cars are in the United States. Today, with the U.S. government debt exceeding 130% of GDP, the total U.S. debt (government, enterprise and household debt) has reached more than 340% of GDP. The high dependence on debt has become a significant feature of the U.S. economy. It seems that the United States can be called a “country on the debt platform”.
From the perspective of the high debt of the United States, we can see the mystery of the American economy. Under the debt, the magic code of “creating wealth” in the United States is hidden.
Since 2008, the U.S. government debt has increased rapidly, and the debt scale exceeded GDP in 2013. In the past two years, with the government repeatedly launching huge economic stimulus plans, the scale of US Treasury bonds has surged, reaching an all-time high of $28.7 trillion. According to the relative ratio of debt to GDP, the U.S. government debt ratio is second only to Japan among the world’s major countries, much higher than that of major European countries, almost twice that of China, and much higher than that of the four European pig countries in 2011.
Will there be a debt crisis in the United States? Such an idea ignores the particularity of the United States and the “arrogant privilege” of the dollar. US bonds are denominated in US dollars, which are issued independently by the United States. Relying on the Fed’s super ATM, the United States can “produce” the required dollars at no cost. The quantitative easing implemented by the United States since 2008 has been doing such things. In March last year, the Federal Reserve issued about $3 trillion in additional shares in a few weeks.
As the world’s reserve currency, the US dollar has unparalleled magic. Dalio said: “the reserve currency gives a country incredible power. With the world reserve currency status of the US dollar, the United States has the right to hand over the required us dollars to the Americans.”. The secret of U.S. economic “growth” is that the left hand issues bonds (Treasury) and the right hand prints money (Federal Reserve). Through debt monetization, the government transfers a large amount of wealth to its own enterprises and people in the form of financial subsidies; At the same time, ultra loose monetary policy and sky high liquidity have supported the overvaluation of the U.S. stock market and increased the wealth of the American people. This is the secret of America’s “debt wealth creation”.
The Fed supports the U.S. government’s generous money distribution by buying additional currency issued by treasury bonds. Since March last year, the trump and Biden governments have launched several rounds of epidemic relief bills, and the vast majority of Americans have received a cash subsidy of $2400 per person; The unemployed receive an additional $600 a week in unemployment benefits, enabling millions of Americans to lie down and earn money. Therefore, despite the high unemployment rate under the epidemic, the savings of American residents have increased significantly. By the first quarter of 2021, American personal savings had surged to $4.1 trillion from $1.6 trillion a year ago.
At the same time, the ultra loose monetary environment has provided a rolling capital inflow for the US stock market. Since last year, against the background of the epidemic out of control and the economy hit hard, the U.S. stock market has risen steadily, staging a magical wealth feast. Benefiting from the rise in the stock market, the net assets of U.S. households reached a record high. According to the Fed report, the net assets of U.S. households in the first quarter of 2021 increased by about $5 trillion compared with the end of 2020, of which $3.2 trillion came from the soaring earnings of the stock market. Monetary easing gave birth to the stock market boom, which created “wealth” growth.
Debt may be a trap for other countries, but it has become a tool for the United States to “create wealth”. Economics professor Vladislav inozemtsev pointed out: “the secret of the contemporary financial system is not the ability to repay debt, but the ability to reduce the cost of debt to an infinitely low level.” with the combination of debt expansion and quantitative easing, the United States has reduced the interest rate of treasury bonds and borrowing rates to close to zero, which has led to the explosive growth of U.S. debt since last year, But the interest that the federal government needs to spend is decreasing, which encourages the U.S. government to expand its debt without fear.
U.S. debt and the U.S. dollar are like an invisible pipe inserted into the world economy, allowing wealth to flow to the United States. The United States issues bonds and prints money, creating a huge amount of dollars like magic. When they flow to the world, they can exchange physical goods and services; The expansion of the US dollar has also diluted the value of other countries’ claims on the United States and other US dollar assets, which is equivalent to looting the wealth of other countries. The indiscriminate issuance of the US dollar has also led to the global inflation, causing heavy damage to the economies and people’s lives of all countries. This is the truth of US debt.
Reprint indicated source：Shine Trader Limited Live information