We are living through a period of historic change right now. And if you don’t know where things are heading… your financial plan is in serious jeopardy.
That’s because the rules of money are changing. The conventional wisdom of the last forty years has hit a dead-end.
Because for the first time in its history…
The Fed No Longer Has A Free Hand
It all comes down to the inner workings of the US credit market.
Treasury bonds are the bedrock of the US financial system. The yield paid by Treasury bonds is considered the “risk-free” rate of return.
As such, Treasury bond yields often serves as a benchmark for other fixed income investments. Thus, Treasury bonds influence interest rates across the entire economy.
This is why Treasury bonds are seen as a reliable reserve asset across the world of global finance. In fact, American banks, financial institutions, and insurance companies own roughly $12 trillion worth of US Treasuries right now.
But here’s the thing – the US government is now running annual deficits greater than $1 trillion a year. The only way to finance those deficits is to sell more Treasury bonds.
Treasuries are a simply a loan to the US government. And in return, the government pays bondholders the stated rate of return.
Thus, US Treasuries have to provide a reasonable yield to attract buyers. And financing over $1 trillion a year requires a lot of buyers.
Continue reading “Why there will be no big Fed pivot in 2024… (Part 2)”