This article will analyze the financial capacity of the US government, which will help you have an interesting perspective on future cash flows.
On January 31, 2024, the FED announced to keep interest rates at 5.25 - 5.5 with the expectation that inflation must return to 2.0.
With this interest rate, let's look at the US government debt and see.
- By 2023, US government debt will be 33.17 trillion
(Link to view government debt https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/#the-growing-national-debt)
- Debt to GDP is 123%, meaning America is spending 123% more than it collects 100%.
- In 2024, 1/3 of the US Government's debt will mature, this is the important thing that we must pay attention to.
- And in about 36 months, that is, 3 years from now, up to 52% of this US government debt will mature again.
Note: We have 2 milestones: 2024 and the next 3 years, 1/3 of the debt (about 30%) + 52% of the debt the US Government will have to pay...
At maturity, the US Government will have to pay both capital and interest. If it cannot pay, then the old problem is to borrow new debt to pay off the old debt by issuing bonds.
At this time, the new debt will have the current interest rate (At that time the interest rate will be lower than now)
Previously, the US government borrowed from the FED at extremely low interest rates, even = 0%.
(Link to view US government loan interest rates at: https://fred.stlouisfed.org/series/FEDFUNDS)
But now interest rates are very high, this is extremely unfavorable for the US Government, but very beneficial for financial investors like us.
For example: The US government borrowed 1,000 billion at the current interest rate of 5.5%, equivalent to having to pay 55 billion dollars.
So if the FED maintains interest rates at 5.25 to 5.5%, then with the current total debt of $34 trillion, the US Government will have to pay $1,870 billion each year, this is an extremely terrible number..
The US government's annual income is less than $4,000 billion, so guess what the FED dares not to reduce interest rates?
Previously in 2009, the US Government borrowed at very low interest rates, so if it borrowed 20-30 trillion dollars, it would only pay 400 billion dollars/year.
Now we have to pay 1,870 billion USD in interest. If we can't pay, compound interest will arise
So what will happen, the FED will never let this giant debtor die, but will still choose to save it, by pumping money, helping it mature, creating a way for it to live and work and gradually pay off the debt. Future.
Currently, with an inflation rate of 4%, for example, banks will have to lend at interest rates above 5%, because if it is lower than inflation, no one will deposit money in the bank, so they want to reduce interest rates. I have to force inflation down, it goes round and round like that.
Interest rates must always be higher than inflation, so that the currency does not lose value and people deposit money in the Bank
The FED is actively hoping to bring down inflation, in order to reduce interest rates on US debt
To reduce inflation, the FED increases interest rates and the economy is affected, the government has to pay more debt, and borrow more to take out new debt, pay off old debt... the cycle.
It is that huge amount of debt that helps us determine that it is a huge source of money in the next 3 years, which will definitely have to be pumped out, otherwise the US government will default.
So if this source of money is released, think about what the market will be like in the next 3 years, guys....
This question will be left blank for everyone to discuss below!
