“Monetary Debasement” is Highly Likely

ZeroHedge, Oct 26, 2023 – Submitted by QTR’s Fringe Finance – Excerpts:

“….we strongly believe that given the system of Governments and Central Banks that we live under that “monetary debasement” is highly likely.  That is the good news.  The bad news is getting the timing right is tough, but when it does happen, we are not talking about small upside. The upside is very outsized.  

We think that it is important to understand how front end weighted the US Federal Debt has become.  This means that the Federal interest expense is very sensitive to the short term interest rate. The next two charts help us to understand this more clearly. 

First, see the chart below.   Note how half of the debt will need to be rolled over within the next 3 years.  

Most of this debt was issued with interest rates that are way below today’s level. 

Then consider the following chart which shows that presently the US Federal Government is paying 2.49% on average on its debt burden.  Consider that US Federal Interest expense is running at a $970B annual rate (see Parts 1 and 2 of this letter).

Further, consider that US Bond interest rates now range between 4.6% and 5.4%, or nearly twice the average that is being paid now.  As the bonds above mature they will need to be rolled over at higher rates.  Total US Federal Debt is $35.5T but it is growing at $2-3T per year (conservatively). 

Let’s say the average interest rate becomes 4.6% over the next few years and deficits run at $2.5T per year.  This means that in two years US Federal interest expense will be $1.9T, or more than double today’s run rate.  All else equal we would add another $1 Trillion to the deficit.  This helps to explain why we are in a debt doom loop.“

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