By Graham Summers, MBA
The market has rallied aggressively in the belief that a debt ceiling agreement will be made.
Entering into a debt ceiling agreement is like polishing the bronze on the Titanic.
The United States has a debt of 28.8 trillion dollars. Two years ago, it was only $ 22.7 trillion.
The Trump administration, despite being technically Republican, spent like socialists, running a $ 1 trillion deficit even as the US economy was GROWING.
That deficit then skyrocketed to $ 3 trillion when the pandemic hit. And now, the Biden administration is now looking to top even President Trump’s spending spree.
By virtually all measures, the US economy is recovering as it reopens. And yet the Biden administration is looking to run at least a $ 3 trillion deficit this year … an amount that could grow to $ 5 trillion or even $ 6 trillion if President Biden succeeds in passing his infrastructure deal and others. stimulus programs.
Meanwhile, inflation has flared.
The “inflation is transitory” argument has been completely discredited to the point that even clueless Fed officials are admitting it. The official inflation measure (the consumer price index or CPI) states that inflation is 5.3%.
However, the CPI has been aggressively adjusted to underestimate inflation over the past 30 years. If we were to measure the CPI today the same way it was measured in 1970, REAL inflation would be 14%.
And the bond market knows it.
Even the Fed’s $ 960 BILLION QE program, which is designed to SUPPRESS bond yields, is failing. Bonds know that inflation is rising, which is why yields are rising rapidly once again.
When they break that downtrend line, the United States will be only a few weeks away from a crisis.
The last time the line was broken in 2018, It was because the Fed was raising rates at a rate of FOUR per year while also cutting its balance sheet to buy $ 500 billion.
This time around, the Fed has rates at ZERO and is running $ 120 billion in QE per month (a record). Even if the Fed cuts QE by $ 15 billion soon, it will still be executing more than $ 100 billion or $ 1.2 + TRILLION in QE per year.
In simple terms, this time when bond yields start to skyrocket, it will be when the Fed is already pumping their brains out.
And that’s when the Endgame for America’s debt situation begins.
The ONLY way the US can continue to service its mountain of debt is if interest rates stay low. So if interest rates are rising when the Fed is already engaged in EMERGENCY intervention levels, it’s GAME. PLACE. MATCH.
When will this happen?
In other words, when does the next crash happen?
To solve this, I rely on certain key signals that flash before each market crash.
I detail them, along with what they currently say about the current market in a Special Investment Report. How to predict an accident.
To pick up a free copy, stop by