U.S. ECONOMY IMPLODES: Bond Markets Panic as Yields Surge and China Ditches US Treasuries

U.S. ECONOMY IMPLODES: Bond Markets Panic as Yields Surge and China Ditches US Treasuries

[Music] On Monday, investors woke up to another gut punch from the markets. But this time, it is not tariffs, not inflation, and not interest rates. It is something even more fundamental. America’s creditworthiness is officially under review and not in a good way. Moody’s has downgraded the United States government’s credit rating and Wall Street is not happy. The news was announced on Friday night when markets closed. Moody’s ratings dropped the United States government’s credit score from the highest rating from its AAA rating. And Moody’s actually pointed the finger squarely at Washington at successive presidents at Congress, a ballooning federal deficit. While Treasury Secretary Scott Besson dismissed the credit downgrade, which was a quite predictable reaction given that his goal of course is to sell bad news to us, dressed up in a sugarcoated dressing. The United States is running a nearly two trillion dollar deficit this year alone. And frankly speaking, we don’t really need Scott Besson to tell us what it means. And according to the CBO, the Congressional Budget Office, we are on track to hit debt levels of 107% of GDP by 2029. This is the highest since World War II. If you’d like to know who owns US debt, by the way, several days ago, I uploaded an entire video with the details where I walk you through who owns US debt and how it all works. I will link that video below if you’re interested. The news hit before US markets even opened on Monday and in early Asia trading US equity futures dropped. The dollar slipped and treasury yields shot higher. This is very very bad sign. The 10-year yield jumped three basis points to 4.5% and the 30-year yield is trending upward toward 5% just shy of the 2023 high of 5.18% again the highest level in 16 years. This kind of movement suggests investors are very very nervous and the bond market is now quiet literally on edge. Max Goldman from Franklin Templeton calls it out. He said, “Well, we could be entering a dangerous cycle, what traders call a bare steepener. That’s when long-term yields rise faster than shortterm ones. And it means that the government’s borrowing costs actually begin to soar. And with a debt balance of nearly $ 37 trillion and interest costs now hovering just above $1 trillion per year, it is not a pretty picture. That trickles down very very fast. Think about mortgage rates, car loans, credit cards all get more expensive. And at the same time, the US has to borrow more because that borrowing cycle cannot stop now. So, the US has to borrow more just to pay interest on its debt on what it actually already owes. So, you may be asking, well, why isn’t the dollar bouncing back like it usually does when yields increase? European Central Bank President Christine Lagarde, whom I don’t really quote very often, but I will this time, she says it very, very plainly. She said, “There is a growing quote loss of confidence in US policies.” I’ve mentioned this before in multiple videos and it is true. While Christine Lagarde, the head of the European Central Bank, is typically not exactly a great point of reference by any stretch of imagination based on her reputation, I would say that she makes a very very good point here. And uh here’s another warring sign. China, one of the biggest foreign holders of US treasuries, trimmed its holdings in March of this year. Some experts say it is more about reducing duration than ditching the dollar outright. But the timing still raises eyebrows no matter how you look at it. And it indicates a clear trend of shifting away from the cause of global instability. So what’s Washington doing about all of this? That is a very very good question and we should be asking our senators and our US representatives, what are you doing to address these issues, these fundamental issues. As I just mentioned, instead of providing a complete uh competent assessment of these deteriorating market conditions which are quite visible and obvious to anybody who cares to really understand the trends, Treasury Secretary Scott Besson downplayed the Moody’s downgrades, calling the agency, quote, a lagging indicator. At the same time, lawmakers are debating a massive tax and spending bill expected to add nearly 4 trillion, 3.8 trillion to be exact, to the debt over the next decade, maybe even more. I will discuss this bill in greater detail over on my second YouTube channel where I focus on taxes. I will link that channel in the description below if you’re interested. The Congressional Budget Office is warning that net interest costs could hit 1.4 4 trillion per year by 2033. That is just the interest, not even the principle. Some on Wall Street aren’t really panicking just yet. Barclay’s analysts say that the political fallout will be limited. And according to Bloomberg, uh they point to 2011 when S&P downgraded the United States and treasuries actually rallied afterward. But let’s be honest, the world is very, very different now than it was a decade ago. The debt balance is much, much bigger. The economy is more fragile, and foreign buyers are actually more cautious than ever before. This Moody’s downgrade might not be a full-blown earthquake. Not yet. But it is definitely an alarming sign that we need to pay attention to. This is that emergency call. This is that emergency point where we really need to start paying attention to what this downgrade signals. Don’t let Bessant or anybody else convince you otherwise. Now looking ahead, investors will be watching yields like hawks, I’m sure, especially the 10-year and the 30-year benchmarks among the geopolitical uncertainty and uh every week bringing yet another twist to existing conflicts to existing shifts in power globally. Make no mistake, fiscal policy is now front and center and America’s credit downgrade just made the stakes a lot higher as the United States is no longer a safe economic haven. Let us know what you think about uh what is going on right now. I would love to see your uh opinions and I would love to see your comments below. Is the downgrade just noise? Or maybe this is the start of a bigger reckoning for America’s financial credibility? Share your thoughts in the comment section below. I would love to hear from you. As always, thank you very much for watching. Please remember to show your support, like, subscribe, and share. It means a lot to me personally. I put a lot of work in into this channel and into the content. So remember to show your support and become a subscriber at worldafairsandcontext.com. I would love to see you there as well. Enjoy the rest of your day and I will see you back here tomorrow. Bye for now. [Music]

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