Month: June 2023

Authored by James Rickards via DailyReckoning.com,

The “coup” in Russia is over but there’s a very worrying development going on in Ukraine right now that should frighten everyone.

That’s the growing risk of a nuclear war. I’m not being hyperbolic.

Let’s break it all down…

President Biden is accusing Russian President Vladimir Putin of preparing to use tactical nuclear weapons in Ukraine.

The theory is that if Russia is in danger of military collapse in Ukraine, Putin will resort to the use of tactical nuclear weapons out of desperation.

But you can basically rule that out because Russia isn’t losing the war in Ukraine. In fact, it’s winning the war and continues to gain momentum.

Russia is crushing the much-anticipated Ukrainian offensive and is either advancing or holding the line in other sectors.

Meanwhile, Russian arms factories are churning out massive amounts of weapons and ammunition while the West is scraping the bottom of the barrel to find enough weapons and ammo to send to Ukraine.

It’s a war of attrition and there’s no practical way that Ukraine can win that war.

So why would Putin need to use nuclear weapons?

The answer, of course, is that he wouldn’t. He’s winning the war.

Nuclear Swordsmanship

But such warnings about Putin using nuclear weapons are not new. Biden has been accusing Russia of threatening to use nuclear weapons since the start of the war last February.

Some perspective is needed to assess this claim. For the record, the United States is the first and only country to conduct a nuclear war, which it did between Aug. 6 and Aug. 9, 1945, killing about a quarter-million civilians.

Putin has made it clear that Russia will not use nuclear weapons unless the U.S. or NATO allies do so first.

The U.S. has not made a similar pledge.

Biden based his threat assessment on the fact that Putin recently moved tactical nuclear weapons to its ally, Belarus, which is closer to Kyiv.

That’s true, but it conveniently ignores the facts that the U.S. has placed nuclear weapons in Germany, that the U.K. and France are nuclear powers in their own rights and that U.S. Navy submarines and destroyers with nuclear missiles are deployed around Russia.

Belarus also had nuclear weapons when it was part of the Soviet Union prior to 1991. In short, there was nothing particularly provocative about Putin’s move relative to prior positioning and the U.S. deployment of nukes.

MADness!

What is provocative is a recent article by Michael Rubin, a former Pentagon official and now a resident scholar at the American Enterprise Institute, a Washington, D.C.-based think tank.

Rubin recommended that the U.S. should provide tactical nuclear weapons to the Ukrainians themselves.

The rationale is a version of the doctrine of mutually assured destruction, MAD, that maintained stability between the U.S. and the former Soviet Union (really Russia) during the Cold War.

The idea is if each side has enough nuclear weapons to survive a first strike by the other and launch a second strike of its own, then neither side will start a nuclear war because it would be destroyed in turn.

There’s merit to the MAD doctrine subject to a long list of conditions including large arsenals, secure command-and-control procedures, good communication between the protagonists (such as the “hot line”) and rational leadership on both sides.

None of those conditions applies to Ukraine. It would have a modest arsenal (not enough to survive a first strike), has weak command-and-control, has almost no communication with Russia and has desperate and insecure leadership.

It’s almost as if Rubin’s proposal is designed to force Putin to attack any Ukrainian nuclear capacity as a way to justify escalation by the U.S. and get U.S. and NATO boots on the ground in Ukraine.

That’s a short path to World War III. Any talk of giving Ukraine nuclear weapons is reckless.

Rubin’s idea could be behind Putin’s plan to move nuclear weapons to Belarus as a way to dissuade the U.S. from going further.

Of course, Putin’s actions in Belarus are an example of escalation, which may be exactly what Rubin and the other warmongers in the U.S. wanted.

Simply put, Rubin’s idea is reckless and moves the world closer to nuclear war.

When you hear Biden talk about Putin’s threat to use nuclear weapons, it’s critical to bear in mind that the U.S. is the real threat and is acting with a view to escalating the war and dragging NATO into a direct war with Russia.

Will Ukraine Conduct a “False Flag” Attack on a Nuclear Power Plant?

But that’s not all.

There’s the possibility that an increasingly desperate Ukraine could try to stage a “false flag” attack on the Zaporizhzhia nuclear power plant (ZNPP) in the Kherson region and blame it on Russia.

Both Ukrainian President Zelenskyy and the head of Ukrainian intelligence services have warned recently about a possible Russian attack on the plant.

In other words, they could be putting the conditions in place for a false flag attack.

“See, we warned you this would happen!”

Such an attack could potentially spread nuclear radiation throughout the region and possibly beyond.

It wouldn’t be on the level of Chernobyl because the plant is operating at a much smaller capacity than Chernobyl.

But still, it would be seen as an unacceptable war crime by Russia, which would spark international outrage and set the stage for direct NATO intervention.

Incidentally, ZNPP is currently under Russian control, but much of the surrounding territory is still held by the Ukrainians.

How might an attack on the plant go down? Here’s some more detail:

• Ukraine (under direction of the U.S. and with U.S. help) could send a commando team to the facility, plant heavy explosives and then detonate them in a way intended to cause a partial meltdown and release of radiation.

• Prevailing winds would carry the radiation in the direction of Romania, Poland and Slovakia, all of whom are members of NATO.

• Once the radiation reaches those countries it will be regarded as an “attack” on NATO members.

• This will trigger Article 5 of the NATO treaty, which says that an attack on one is an attack on all.

Sens. Lindsey Graham and Richard Blumenthal, in fact, just proposed legislation stating that Russian nuclear weapons use in Ukraine would be considered a direct attack on NATO.

Bombing a nuclear power plant isn’t the same as employing tactical nuclear weapons, but do you really think they’d draw that distinction?

The Article 5 trigger would provide legal cover to the U.S., the U.K., France, Germany and the rest of the coalition to send troops to Ukraine to prop up the failing offensive.

The next step would be direct combat between U.S. and Russian troops. And that’s a direct gateway to World War III.

Is This Really Just Conspiratorial Nonsense?

You might dismiss all this talk as conspiratorial nonsense. After all, why would Ukraine want to create a serious nuclear incident on its own soil?

I’d just remind you that there’s credible evidence (according to German intelligence) that Ukrainian security agencies were responsible for the destruction of the Nord Stream 2 pipeline, the largest act of eco-terrrorism ever conducted.

In fairness, there’s also credible evidence that the U.S. carried out the attack, so it might not have been Ukraine. But it remains a legitimate possibility.

It’s also probable that Ukraine destroyed the Nova Kakhovka Hydroelectric Dam earlier this month in an effort to undermine Russia’s position in the area.

The result was an environmental disaster.

As with Nord Stream 2, there’s no definitive proof that Ukraine was responsible. Of course, as with the pipeline, Ukraine blamed Russia.

While it’s possible Russia did it, Russia stood to lose much more than Ukraine from the dam’s destruction and the subsequent flooding.

If you were a detective, Ukraine would be your prime suspect.

Assuming Ukraine was responsible for both the pipeline and dam incidents, would it be out of the question for it to stage a nuclear incident if that meant bringing NATO directly into the war?

I don’t think it would be.

Again, I have no proof that Ukraine was actually responsible for the destruction of the pipeline or the dam. But it is a reasonable possibility.

That’s why you shouldn’t rule out the possibility of a false flag attack on the nuclear power plant.

Again, Ukraine is getting desperate and desperate times call for desperate measures.

So if there is an attack on the Zaporizhzhia nuclear plant in the days to come, you’ll know who was responsible.

You’ll also know that the world is one step closer to nuclear war.

A quiet day for macro but all eyes were glued to The ECB’s panel with the ‘Big Four’ Central Bankers.

The persistence of inflation was a major theme for Bailey, Lagarde and Powell, who all pointed to the strength of underlying prices so far, and how they are adapting policy to that.

Powell reiterated that more tightening is what the Fed expects, saying that he didn’t see US core inflation getting to 2% this year or next.

Lagarde’s view on current fiscal policy suggested don’t expect any dovish help there:

“A man’s got to do what a man’s got to do.”

…but now it’s time to roll back the measures that have been decided to deal with Covid and the energy crisis.

All-in-all, hawkish without a drop of dovish (despite the ‘data-dependent’ bullshit), which sent Fed rate-trajectory higher...

Source: Bloomberg

Stocks were very choppy on the day with The Dow lagging and Small Caps leading. Nasdaq and S&P toyed with unch all day. We note there was an odd panic bid in futs right as the cash market closed and after likely thanks to Micron.

Banks were lower ahead of tonight’s stress test results…

Tech was weighed down by some selling in chip stocks (AI) after NVDA was hit on headlines about increased crackdowns by Biden admin on chip exports to China. But the machines battled to keep NVDA above the critical $400 level…

0-DTE traders were actively supporting NVDA on the day…

Source: SpotGamma

It was another short-squeeze day with ‘most shorted’ stocks closing at their highs – up 6.5% from yesterdays’ open…

Source: Bloomberg

A strong 7Y auction helped support bonds further but yields were lower across the curve by 4-6bps (belly outperformed). This dragged all yields lower on the week…

Source: Bloomberg

The dollar ramped higher today again to 3-week highs…

Source: Bloomberg

Bitcoin was pressured back below $30,000…

Source: Bloomberg

Another lower high and lower low today in gold…

Oil rebounded off the recent rang lows

Finally, Apple inches ever closer to the $3 trillion market cap level…

Source: Bloomberg

Will that be the top… again?

Source: Bloomberg

Is a new more aggressive crackdown on chip exports to China the end of this boom?

A couple months back the leftist media including Rolling Stone attempted to “debunk” the mantra of “get woke, go broke” with a series of articles and reports suggesting that corporations that embrace social justice ideology and ESG related policies are actually more profitable than ever.  At the time, the momentum for conservative boycotts of companies like Anheuser-Busch and eventually Target had just started to roll forward, and as is often the case with the media, they jumped the gun and made assumptions before the dust had settled on the issue. 

They said the boycott against Bud Light wouldn’t last long, but it has been three months now and Bud Light just suffered its worst weekly loss so far, with sales down 30% at the end of June.  Stock losses for A-B were also in the $27 billion range.  The company is now preparing for the possibility that these losses are permanent and that customers are not coming back.

 

In response, A-B fired the marketing department responsible for the branding campaign using trans activist Dylan Mulvaney as a spokesman.  Take note that the corporate media including the Associated Press tried to “fact check” this claim, arguing that A-B didn’t actually fire the marketing team and that the assertion was “satire” mistaken as reality.  According to text messages made by executive staff and obtained by the Daily Caller, the team was actually let go by A-B. 

The Bud Light texts note that the people involved are not allowed to use the word “fired” when discussing the marketing incident.  This fits with a common theme we are seeing lately with woke companies, which is that when they have to cut activist employees loose they try to hide the fact from the public.  Why?  Probably because this would be an admission that going woke is a disastrous prospect.  ESG driven organizations care more about optics than they do about admitting the problem and taking action to fix it.  

Target suffered at least $15 billion in share losses after their their line of trans clothing for kids sparked a mass boycott of the retailer.  Overall profit losses will not be known until next year and the company was already dealing with flat sales, but the effects of the boycott will likely be felt by Target for many months to come.     

Generally, establishment journalists will use base gross profit numbers as their “smoking gun evidence” that woke companies are doing great while ignoring the various factors that add up to those profits.  Using Disney as an example, we can see that if we only go by gross profits, the company appears to be doing well with $28 billion in 2022.  What the media doesn’t take into account is the fact that Disney gross profits today compared to pre-covid profits are actually flat.

Furthermore, gross profits are meaningless unless we also take into account project cuts, overhead cuts and employee layoffs.  Disney has lost almost $1 billion on multiple woke box office failures in 2023 alone, and its stock performance has been crippled, not to mention they still have a $48 billion debt balance.  This spring, Disney cut over $5.5 billion (so far) in overhead and operating costs along with 7000 employees.  Meaning, even if Disney’s gross profits maintain at around $28 billion for 2023, they still had to chop $5 billion in spending and fire 7000 workers just to hit that number.  They wouldn’t have to do any of this if going woke was profitable.

We also have to ask why, if going woke is such a sure bet, has Disney’s “chief diversity officer” (head of Diversity, Equity and Inclusion) suddenly left the company after six years?  The diversity officer is a pointless job that represents the pinnacle of corporate wokeness.  Could it be that she was fired, and Disney is desperately trying to salvage the rest of 2023 into 2024 by finding a DEI chief that is a little less woke?  It’s hard to say.  As mentioned, activist employees never seem to get officially “fired,” they are simply given a leave of absence or a vacation that they never return from, or they “resign.”

A common argument among leftists and the media is that conservatives and moderates will have to boycott so many companies due to widespread woke policies they will end up making all their own clothes and growing all their own food.  In other words, they think there’s no way Americans can boycott them all.  But Americans don’t need to – They just need to boycott enough companies to force the rest to accept the reality that they can’t survive on ESG alone.  

This is, in an interesting way, also an admission by activists that the corporate world completely backs the political left.  Far from being socialist rebels fighting the evil capitalist empire, leftists are actually useful shills and defenders for the corporate cabal.

Beyond that, their attitude reveals an elitism that is corporate-centric.  They seem to forget that small businesses are half the US economy and that Americans don’t have to pander to left-leaning companies to get what they want.  Not to mention, if said companies continue on their current path of self destruction through ESG devotion they might just implode, leaving localized businesses behind to pick up the pieces.  

The social justice crowd might want to seriously consider learning to grow their own food and produce their own necessities.  The frail left is at a distinct disadvantage when it comes to living in a world that doesn’t cater to their every convenience.        

ViaGreg Hunter’s USAWatchdog.com,

Legendary financial and geopolitical cycle analyst Martin Armstrong was forecasting “chaos” in 2023, and that’s exactly what we got. 

His cycle work says don’t look for it to get better anytime soon. 

Armstrong explains, “We are in the midst of a coup…”

“We have all these people who have been neocons for 30 years.  Even Ron Paul said recently that the neocons have been waging war for 30 years and have not won a one single one.  This is what they live for.  Look at the clip of Lindsey Graham saying this is the best money we ever spent killing Russians.  How can you take pleasure in that statement that this is the best money we ever spent killing Russians.  This is not defense.  These are the words of a psychopath in my mind…

They are not about to accept anybody who is going to be against war.  The neocons are in full control of the government—period.  We are living in the time of a coup.  The United States is not the free country you thought it was…”

Armstrong also predicts that the neocons will rig the 2024 election so Biden (or some other neocon) gets a second term. 

Is there any way to stop this election rigging and fraud in 2024?  Armstrong says,

“I don’t believe so.  Our computers show that holy hell breaks loose starting in 2025.  I think the problem will be the cheating will be in everybody’s face this time.”

Armstrong also says the neocons will try to start a war before the 2024 election so Biden will win because a wartime president has never lost an election.  Armstrong says the cheating will be necessary because the real poll numbers for Biden are in the single digits and not the 40% approval ratings the Lying Legacy Media tells you.  Armstrong contends Biden’s approval number is still stuck at 9.5% with his deadly accurate Socrates computer program, but the big reason for Biden and his crew to worry is the real inflation number. 

Armstrong says, “Inflation is subsiding a little bit, but it is basically still over 26%.”

Armstrong says Biden’s approval numbers are so low and inflation is so high that they have to have war with Russia. 

War is the reason they had to remove Trump out of the White House because Trump was against constant war.  Armstrong adds,

“No way they are going to allow a free election.  It you think the CIA cannot rig the vote, I don’t know what planet you live on.”

Don’t expect Fed Head Jay Powell to lower interest rates.  It will be just the opposite.  Armstrong explains,

“What is Powell looking at?  War is the number one cause of inflation.  He can’t say because you people are dumping all this money into Ukraine, inflation is only going to go higher because then he is criticizing the government.  So, he just says he’s looking at ‘international considerations.’ 

Look what the Vietnam war did.  It broke the back of Bretton Woods.  War is always the number one problem.  The neocons only care about winning, and they do not care about the country.  The do not care about your 401-k or your retirement.  They could care less.”

In closing, Armstrong warns, “Russia is like a wild animal, and if it is cornered, it will attack.” 

This means the whole thing in Ukraine could go nuclear if Russia is pushed into a corner.  And what about all that debt the western world has built up?  Armstrong says,

“They intend to default on all the sovereign debt. . . .I don’t see this succeeding.  I think it’s all going to collapse.  The reason why they are doing this is they realize they are losing power.  They feel it slipping out of their fingers.  The more that happens, the more they become aggressive.  That’s what this is all about.”

There is much more in the 53-minute interview.

Join Greg Hunter of USAWatchdog.com as he goes One-on-One with Martin Armstrong, cycle expert and author of the new book “The Plot to Seize Russia” for 6.27.23.

To Donate to USAWatchdog.com, Click Here

There is lots of free information, analysis and articles on ArmstrongEconomics.com.

Some Wall Street interns are absolutely crushing it this summer, in some cases making as much as $120 per hour while the senior staff head out to the Hamptons to booze and schmooze in the sun, Bloomberg reported this week. 

The pay comes as firms look to lure in younger talent, with Bloomberg noting that U.S. median intern pay was up 19% at 16 firms where compensation data was analyzed. Prop firms and hedge funds saw even larger increases, with hourly pay up 29% year over year to $111/hour, or $4,400 gross for a 40 hour work week.

Nowhere is the change more evident than at Citadel and Citadel Securities, where intern pay rose 25% to $120 per hour this year, amounting to about $19,200 per month before taxes. As a result, Ken Griffin’s juggernaut received more than 69,000 applications for their 2023 internship program. 

This marked a 65% increase, year over year, in intern applications. 

For comparison, interns at Citi make $50 per hour and, at Barclay’s, they make $110,000 per year. Bank of America pays its interns $41 per hour and summer interns get $46 per hour. Investment banking interns at B of A also make $110,000. 

Mei Zhou, global head of programmatic recruiting at Barclay’s, told Bloomberg that demand remains robust: “Despite recent market conditions, appetite for banking opportunities at Barclays remains strong. This is a sign, in our view, that students are prioritizing long-term opportunities and stability.”

Citadel head of campus recruiting, Matt Mitro, said: “As students have become more informed about career choices in general – and the unique opportunities our internships provide for learning, growth, and impact – they have determined that Citadel and Citadel Securities are the best places to start a career at the intersection of tech and finance.”

The pay boost not only lures in new talent, but also helps cushion the blow of new return-to-office policies that are becoming the standard in the industry once again.

The bump in intern pay comes at the same time larger banks are cutting staff and bonuses, as we have been reporting over the last 12-18 months. 

Authored by Steve Watson via Summit News,

During a speech in New Hampshire Tuesday, President Trump read out text messages that were allegedly sent by Hunter Biden to a Chinese Communist Party business leader, and asserted that Joe Biden is “compromised” and completely “owned by China.”

Trump is focusing on the scandal that broke last week, calling it “100 times bigger than Watergate.”

Newsmax’s @JamesRosenTV reads the entire text Hunter Biden sent to a Chinese businessman which stated Joe Biden was “in the room” in an effort to get him to pay them.

Kirby refuses to answer and then walks away from the podium pic.twitter.com/MsstdH4dWH

— Greg Price (@greg_price11) June 23, 2023

Labelling Biden “the most corrupt president we’ve ever had,” Trump further noted “Five days ago, the IRS whistleblowers revealed that Crooked Joe sat in the room while his son Hunter messaged a Chinese Communist Party official, a leader, a top person, and said: ‘I am sitting here with my father and we would like to understand why the commitment made has not been fulfilled.‘”

“In other words, where the hell is the cash?” Trump added.

He continued to read out more alleged texts, including threats such as “Tell the Director that I would like to resolve this right now, before it gets out of hand, and now means tonight.”

“I never knew [Hunter Biden] was that tough,” Trump quipped.

“If we get a call or text from anyone involved in this other than you, Zhang, or the Chairman–“That’s pretty high up! “I will make certain that between the man sitting next to me–“ His father. “- and every person he knows, you will regret not following my direction. I’m sitting here waiting for the call with my father.”

“What the hell is going on?” Trump asked the crowd, adding that “Within ten days, the Bidens got $5.1 million from China for doing absolutely nothing.”

“Joe Biden is a compromised president. And that’s why nothing happens with China because China knows how compromised he is. They have full control over our president,” Trump asserted, adding “He’s owned by China. Biden is owned by China. Think of it, we have a president — and that’s just one of them, that’s $5.1 million, but there’s more from other different countries.”

“You can’t drain the swamp if you’re part of the swamp, and Biden and other opponents, many of them are owned. They’re bought, controlled, and paid for 100%. Our country is controlled by other countries,” Trump further emphasised.

“On November 5, 2024, we’re going to stand up to the Marxists, communists, fascists, and globalists. We’re going to evict Crooked Joe Biden, he is crooked as hell,” Trump urged.

Full speech below:

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Shares of Cheerios maker General Mills plunged the most in a year after new annual guidance indicated price hikes on ready-to-eat cereals and meal kits would no longer offset slowing sales as consumers pull back on spending. 

General Mills expects fiscal year adjusted profit growth at the mid-single-digits percentage for the fiscal year 2023, which ended on May 28 and totaled $4.30 per share, up about 10% in constant currency. 

Even though price hikes fueled top-line growth, volumes have sunk in recent quarters, a clear indication soaring prices have hit a wall of resistance among inflation-weary customers. 

“We’ll see some (more hikes in) pricing this year because we still see inflation in the marketplace,” General Mills CEO Jeffrey Harmening said.

Volumes have dropped 6%, with the most significant decline in its international and North American retail markets. General Mills said inventory reductions by North American retailers were also a headwind in the fiscal fourth quarter.

Harmening noted that mounting financial pressure affects consumer spending habits and warned it could hit sales in the year ahead. 

“This caution could have an impact on their at-home versus away-from-home choices, the channels they shop, and the brands they choose, making it even more important for us to continue to invest in remarkable products, innovation and marketing that keep our brands relevant for consumers,” the CEO said in prepared remarks.

Bloomberg said sales missed its average estimates while adjusted profit exceeded expectations. As a result, shares of the food producer slid nearly 5.5% around 1100 ET, the largest decline since May 18, 2022. For the month, shares have tumbled 9%, the most since early 2018. 

Add General Mills to the growing list of retailers who have voiced concerns about a weakening consumer.

On Tuesday, Walgreens Boots Alliance Inc. shares plunged to the lowest in a decade after it reported “a more cautious and value-driven consumer.”

Goldman’s Rich Privorosky told clients, “Something is not quite adding up on the consumer” and asked, “Have we just run out of excess savings and are we returning to replenishing savings?”

In a note to clients earlier this month, Privorosky pointed to three excerpts from recent corporate transcripts (from Target, Walmart, and Costco) revealing consumers buckling under financial stress. So add General Mills and Walgreens to the ever-expanding list. 

The consumer’s health is cracking after more than two years of negative real wage growth, soaring credit card debt, depleted personal savings, and the highest interest rates in a generation. 

Via SchiffGold.com,

Since the end of the fake debt ceiling fight on June 2, the Treasury has borrowed an additional $700 billion pushing the national debt over $32 trillion. Looking at the interest rates on this new debt, it becomes clear that the US government has a big problem.

The surge in borrowing in the wake of the debt ceiling deal was expected. The Treasury is playing catch-up after nearly six months up against its borrowing limit. But even after the Treasury replenishes the federal government’s checking account (called the Treasury General Account or TGA at the New York Federal Reserve Bank), borrowing won’t suddenly stop.

The debt ceiling deal supposedly cut spending, but we know actual spending will continue to rise. Given that the Biden administration is blowing through an average of $500 billion each month and running massive deficits month after month, it’s clear the misnamed  “Fiscal Responsibility Act” did nothing to address the root problem.

The problem isn’t purely a function of more debt. The bigger issue is that this new debt comes with a much steeper price tag. Interest on the national debt is rising at an alarming clip.

The trailing 12-month (TTM) interest on the debt clocked in at just under $600 billion in May. This was up from $350 billion at the start of 2022, less than 18 months ago. The government has added an extra $250 billion in expenses per year on just debt service.

This is just the beginning of an upward trend. Based on the current interest payments, the Treasury is paying less than 2% interest on the total debt. But a lot of the debt currently on the books was financed at very low rates before the Federal Reserve started its hiking cycle. Every month, some of that super-low-yielding paper matures and has to be replaced by bills, notes and bonds yielding much higher rates. That means interest payments will quickly climb much higher unless rates fall.

Looking at the Treasury sale on June 26 reveals the extent of the problem. The Treasury sold $162 billion in securities, with $120 billion in short-term Treasury bills with high yields.

• $58 billion in six-month bills at an investment yield of 5.45%

• $62 billion in three-month bills at an investment yield of 5.34%.

• $42 billion in two-year notes at a high yield of 4.67%, amid very strong demand. Longer-term yields are still far below short-term yields.

With this flood of Treasury bills, the share of short-term paper underpinning the debt is approaching 20%. That’s considered the upper limit, meaning the Treasury will soon have to turn to issuing longer-term notes and bonds. That means the Treasury will be locking in higher interest rates for the long term.

An analyst cited by Bloomberg projects a $600 billion rise in notes and bonds beginning in August through the end of the year. Issuance will likely ramp up further in 2024 with a projected additional $1.7 trillion in notes and bonds.

WHO WILL BUY ALL THIS PAPER?

This raises another important question: who is going to buy all of these notes and bonds?

Some of the biggest buyers are in the process of reducing their holdings.

• According to the Treasury Department’s TIC data, foreign buyers shed $140 billion in holdings in April compared to 2022.

• US banks shed $210 billion in Treasury securities and $332 billion in mortgage-backed securities in May compared to a year ago, according to Federal Reserve data. This is continuing fallout from the financial crisis as banks struggle with unrealized losses from holdings they bought when yields were artificially low.

• As it tightens monetary policy to fight inflation, the Fed has been unloading Treasury securities at a rate of around $60 billion a month to shrink its balance sheet.

In effect, the US Treasury is increasing the supply of Treasury securities even as demand is falling.

As WolfStreet summed up:

It could result in a ‘demand vacuum’ that would be resolved by higher yields for longer maturity securities, according to Bank of America, cited by Bloomberg. Yield solves all demand problems, and long-term yields have been much lower than shorter-term yields, with the 10-year Treasury currently at 3.71%.

The only way demand will rise to absorb this supply is if yields on the upper end of the curve rise. And that means additional interest expenses for the federal government locked in over many years.

If interest rates continue to rise and remain elevated for an extended amount of time, interest expenses could climb rapidly into the top three federal expenses. (You can read a more in-depth analysis of the national debt HERE.)

This calls into question the Fed’s ability to stay in the inflation fight. Eventually, it could be forced to cut rates in order to keep the US government solvent. And it also may need to go back to quantitative easing in order to artificially boost demand for Treasury securities.