suggest that at least some investors are bracing for tumultuous times ahead – particularly as the United States government has now hit its $US31.4 trillion borrowing limit.over lifting the US debt ceiling, which is the legal limit on how much the US government can borrow.
A situation where the US government was unable to continuing to honour its payments – even temporarily – would roil the global financial system, causing a massive blowout in lending margins, and huge sell-offs in global share markets.In 2011, House Republican tried to force the then US president Barack Obama to agree to deep spending cuts as part of an agreement to raise the debt ceiling.
But in 2011, US bond prices rose in the weeks following the ratings downgrade as investors dumped shares and corporate bonds and used the proceeds to buy US government bonds, which were seen as a relative haven at a time when a US debt crisis threatened to unleash turmoil in global financial markets.
As a result of this massive bond-buying program, the Fed’s balance sheet more than doubled from $US4.1 trillion in February 2020 to nearly $US9 trillion.Last year, the Fed responded to surging inflation both by raising short-term interest rates, and by progressively reducing the size of its balance sheet. Since it began its QT program last May, the Fed’s balance sheet has shrunk by more than $US400 billion.
In addition, because the US government has already reached the legal limit on how much it can borrow, the US Treasury can’t issue new bonds until the debt ceiling is lifted.The shortage of US government bonds will likely push yields down even further , resulting in a further easing in financial conditions.
We are in a death loop theres no chance of us coming out of unscathed. The USA only has one tool and that is War to resolve its issues. China is next.