How Long Until US Govt Debt Is Unsustainable? Is It Wise to buy Treasury Bonds?
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- Опубліковано 22 тра 2024
- The US government debt ratio has been this high only after WWII. Just how high can US debt go before it becomes unsustainable. A recent brief by the Penn Wharton Budget Model provides an estimate and it is closer than you might think. In that light, is it wise to buy long term US treasury Notes and Bonds at current yields?
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-All of the content found in this video is for ENTERTAINMENT purposes only. We are NOT financial advisors and are not responsible for any losses in your personal investing experience.
The current market/economy is unnecessarily tougher for boomers/senior citizens, I’m used to just buying and holding assets which doesn’t seem applicable to the current rollercoaster market plus inflation is catching up with my portfolio. I’m really worried about survival after retirement.
buy gold, the govt has failed us.
Yes, gold is a great investment and a good bet against the devaluating dollar, been holding some for awhile now, I’m grateful my fin-planner momentous changes in the market are lightening quick, cos who know how much losses I would’ve had by now.
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@@xavier_lucas the government has failed in every aspect i am so dissapointed right now
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Thanks for sharing your thoughts. It's alarming. Even more annoying is nobody is Washington wants to even acknowledge that there's a problem.
The cartoon guy spitting out his coffee 🤣 good video. Thanks
All I have to say is AMEN brother! I just recently found this channel, but I am definitely going to turn on alarms for your posts. Thank you for all the hard work and effort that goes into your research!
Awesome! Thank you!
Wah! very informative. excellent information. Thanks you very much. Are there other models like Penn-Wharton model?
I appreciate the video. Even though I don't invest in T-bills or bonds, it's important to know what's going on in the macro.
Thank you fornot saying drunken sailors. RETIRED USN here. I have a monthly 17 week ladder thorough treasury direct. I have 20 percent withheld for taxes. I renew my 17 week monthly with an increase of $100 when that gets bought I take my CI account and buy another 17 week the next week. I am also building a 2 year ladder I do this with a 13 week bond evert 91 days i renew the 13 week less the amount for a new 2 year. So far I haven't needed my "emergency fund" when I do need it I'll decide between my roth ira or bond ladder depending on the return of each. Not bad for a drunken sailor :)
Wow, what a thorough video that puts things into clear perspective, that I have not heard, explained and referenced like this anywhere else (you have done it again!). I am so grateful for your hard work breaking it all down. I will not be investing in any Treasury beyond t-bills and notes. May I ask what your background is? You are awesome!
Thanks for the kind words. I am a physician and a retired Air Force Officer who spends way to much time listening to and reading financial info 🙃
@@FatherNSonInvesting Thank you for your background (impressive), and yet you are so humble. Lucky us you have a passion about finances and investing and are willing to share it. I wonder if you would get more views if you used your photo? I sometimes would have missed your video because I did not know it was you! My apologies in advance for the unsolicited advice. :)
@@claricehirata3303 Thanks for the feedback. I wonder if that would make a difference? Maybe we will give it a try!
Great video. I know it's asking a lot because the auction is Thursday morning but I wonder what you think of the 5 year TIPS rate about to be auctioned?
I see 3 possible outcomes.
1) Treasury defaults on some of its debt. (Probably unlikely, would cause financial crisis directly. Very sharp market crash, but would probably be resolved in a year or two as they restructure their agreements with borrowers.)
2) Gov massively reduces entitlements which amount to 70% of our current spending (social security, medicaire, etc.) Best possible option, and privatizing social security would be best, in my opinion.
3) Fed abandons 2% target, buys up all the treasuries, possibly enacts yield curve control. (This would entirely change things for decades possibly. Inflation would take back off, interest rates would probably rise even higher as the bond market crashes further. Worst possible outcome.)
Keep in mind that the more war that continues to break out, the faster all of this will hit and be decided.
If the government defaults then the huge financial institutions with billions in treasuries are screwed leading to meltdowns along with people’s savings. Will FDIC mean anything if that happens? Whether or not I buy that 20 year TBond isn’t going to mean diddly if there’s a default.
All the more reason that we need a congress who will start making changes sooner than later or before it is too late. Thanks for the comment. This has been a very thought provoking topic
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Excellent presentation and confirms my decision to stay with T-Bills
Was going to comment the same. T-Bills of 4-6 weeks on the secondary market just can't be beat. First time in a VERY long time this has been the case, so enjoy it while it lasts, right?
When you create a balance sheet for the United States of America, the asset side will have to include 27 percent of US land, because that's how much the US government directly owns. (Most of this is from the Louisiana Purchase and the Alaska Purchase.) This land is difficult to monetize because of the politician's inclination to give things away for free to campaign contributors, but it is undeniably an asset and makes insolvency extremely unlikely. As for cash flow, the Constitution pretty much limits the tax power of the US government to income taxes and import-export taxes, so cash flow can be a problem. This is partly because the income tax system is opaque and appears to contain a lot of unreasonable loopholes, while the US abrogated it's ability to collect meaningful import-export taxes by joining the WTO system. One fix for income would be to move from taxing net income (as we currently do) to taxing gross income.
Net national value of a country…I saw a presentation in 2005 and it was estimated then as $450 trillion for the USA…and governments access that value not though taxes, but through inflation(debt)
I think everyone with extra cash should just buy 4-8 week T-Bills. If this goes under it all goes under so might as well help the country a little anyway. It's like donating to a scam charity , and getting some back! :D Too dark?
Thank you for the red pill Mr. Anderson!
Short term treasuries are my choice. Eliminates a lot of long term risk and you can adjust easily as market changes.
Do you recommend 26, 52 week or 2 yr tbill or notes? Which would you choose now?
Personally, I am buying them in 4-6 week terms on the secondary market. Some folks call this the T-Bill ladder. Either way, returns this high on short term bills hasn't been this high in many decades. It's worth a look IMO.
Your question sounds simple, but the answer is not. It depends how soon one needs or wants the money and what yield is acceptable. I have purchased the short maturity T-Bills and 2 yr note. Short maturity T-Bills meet my need for the money that I have intended to use soon and the 2 yr note met more long term goals. I personally have set a 5% limit for the 2 yr note and won't buy it less than that. I think loaning my money to the government for that long deserves at least the much in return.
Yikes, we are doomed. The only safe haven will likely be gold and land.
The US average income tax form a google search shows me it is 14% and in Europe it is from 20% to over 40% so wellllll we can change our fiscal outcome by well raising taxes....
I do think that taxes need to be raised and will be at some point if we are ever to get the debt paid down. However, the more that I read, listen to and watch leads me to believe more and more that the US government has a spending problem. Thus my concern is that if taxes are raised, the government will just spend more and continue to borrow, regardless of which political party is "in control". Even though taxes in Europe are higher, they are still have significant debt. The world debt clock in an interesting peak into multiple countries debt to GDP ratio. Looks like the US is not the only place with a spending problem IMO. www.usdebtclock.org/world-debt-clock.html
We so appreciate you watching and commenting!
Sobering outlook. It's a shame our elected officials will do nothing to fix the problem.
Oh, they will… The will start a new war.
I am not sure they even recognize the problem.
They didn’t default at 1 trillion.Or 2 trillion and so on and so on.They won’t as long as the printing presses don’t break down.
You should watch the video again. What you are suggesting is physically NOT sustainable and this guy shows you why/how via the PWBM. I doubt your methods are more accurate; and it is exactly the indulgence type of invincible attitude that shows up right before every big crash or correction.
I love when people offer simple solution in comments like "buy gold" or "buy land". First question: how do you buy land? There is no such thing in US of A as "owning land". You are a subject for property tax and if God forbid you erect a structure which is not a homestead or farmstead you are on the hook for school tax too (with few exceptions being constantly renewed by localities and are totally at those localities discursion) and I am not even going to go into imminent domain territory. So your land is not really yours.
And gold.. well, gold was never before confiscated by US government right? And if you are naïve enough to believe they won't do it again, why are you required to provide SSN to buy gold?
So let's just face it, there is no "safe investment" in modern society.
I am in the Warren Buffet camp when it comes to gold. He calls it an unproductive asset. I know others like it, but I have steered clear of it.
The US government will never default. They can print unlimited amount of dollars. Even the constitution allows them to create money. The only issue is what is the value of the dollar after the government creates more dollars.
and thus the brief that I discussed uses the terms explicit vs implicit default. I agree that technically it won't happen but a vey devalued dollar is the implicit default that the brief discusses. Thanks for commenting. I have been surprised just how much conversation this topic has produced. I hope this same type of discussion will start reverberating around the walls of congress.
You have apparently bought into Mondern Monitary Theory. Which just like QE, bail outs, corporate tax cut, mark to model, derivatives, etc are absolute nonsense. The dollar has already lost 96% of its purchasing power ... at some point it becomes almost worthless... just like what happen to Germany after WW1. We are now in a doom loop. Meaning our debt is so high the Governemnt is going to have to pay a higher interest rate on say... the 10 year treasury bill. Just like someone who has a crappy credit score... which makes the debt go up even faster. At some point folks will not lend (in this case buy) debt. China and Japan our biggest buyers of debt and now have become net sellers. America is running out of time. The math does not work... especially if the 10 year goes to say 12, 18 or even over 20 percent.
" US government will never default."
You know Greece, the country defaulted on its debt in 2015.
Venezuela experienced hyperinflation from 2008 to 2019 of 17.4% up to 65,374% (2019).
"Moody's on Friday lowered its outlook on the *U.S. credit rating to "negative" from* "stable" citing large fiscal deficits and a decline in debt affordability"
As of Q3 2023 the US gov't has to borrow $1 trillion dollars just in interest payments alone! The most recent Treasury auction was a disaster. very few foreign countries buying our US Treasuries. Who is buyer of last resort? the Fed.
Yes, borrowing money on top of money to make interest payments. See how long that cycle continues.
The FED could buy with "printed" money all 33+ trillion of US debt outstanding and then write it off to zero or renegotiate the interest to whatever interest rate they want. Sure it will cause hardship by way of some inflation. However, most of the debt are held by other countries or wealthy people who don't just spend the cash because they have more in their pockets (bank account) as usually done by lower income people.
Another options as done by Abraham Lincoln during the civil war, the government doesn't have to be beholden to a "central bank". The US government can create it's own money, US dollar, and they can be an exchange rate between US dollars and Federal Reserve Note dollars. The federal reserve note is debt that is why it is called note. It is not money or currency. It is a note obligation for payment between users. Used to be payment of gold at a fixed amount. The transition would be similar to what occured in the late 1990's / early 2000's when the Euro was created and each countries currency was exchanged for Euros. It would just be in reverse this time. This would give the US government an opportunity to redo social security, Medicare, and Federal pensions.
Sure, some people will lose some and some inflation will occur. That is going to happen anyway and there will probably be a lot more inflation if nothing different is done. One advantage the US has is self sustainablity at a little lower level of consumption. NA has more than enough energy for a decade or more and lots of great farm and animal raising land. The rest of the world will suffer in ways never experienced and war will probably occur everywhere around the world. That might happen anyway.
The Fed would simply buy the treasury’s bonds…dramatically increasing the money supply causing prices to skyrocket. We wouldn’t technically default, just debase the value of the Dollar. Watch the fed’s balance sheet.
correct. and that is why the Wharton model uses the "implicit" default as well in their model. The dollar gets so devalued that it is not worth much, Like post WW1 Germany (hopefully not that bad). Thanks for watching and commenting!
Hyperinflation is no fun.
Can you imagine $230 for a loaf of bread.
If your landlord raises your rent from $1700/month to $16,000/month. Off to the streets you go.
FJB!
After inflation and taxes, you end up losing money when you invest in any government security. Even an investment like TIPS are suspect when the the CPI used is a doctored number.
Or they can raise taxes.
There's just not enough to tax in comparison.We are short over 1.5 trillion this year can you imaging cutting or taxing that much it would collapse now rather than latter.
Do you own research total wealth of all billionaires millionaires compared to yearly shortfall or 29 owed or projected 100 trillion in promises SSN Pensi
ons federal medicare.
That does sound like a fix, but I think the government has a spending problem and I fear that more taxes just leads to more spending and still running a deficit.
This is all wrong. You're forgetting about derivatives. It is already unsustainable, if not for the FED buying up all the debit cancer...
If bond holders take your advice and spend their money sooner rather than later, the economy will boom.
I'm not sure I said that they should spend their money sooner. Just should consider how long they want to loan it to the government.
THEN WHAT
Well we need to not get to that point by changing our ways. If nothing happens to change it, then they do a big reset like Ray Dalio talks about and the dollar is no longer the standard for the world.
So far putting everything into stocks has been a winner. Why buy anything else?
The federal reserve is the biggest holder of US debt not China as we can no longer sell enough Treasury's.
Cutting off all foreign aid or confiscation of all the wealthys holdings are p nuts compared to over 1.5 trillion yearly shortfall.taking in just over 4 trillion and spending one trillion in interest more than on defence speaks for its self
I don't like being an alarmist, but it seems the alarm bells are little louder these days. Maybe we will decide not to burden all of our descendants with austerity. Thanks for watching and commenting!
I think treasury bond will go bust by 2024 think things are bad
BS, the model has rules that are very suspect, no better than the guy writing the code. Model verification of accuracy?
Every dollar in circulation is debt so it probably 5 times what you say it is the only reason the USA is still functioning is it is the reserve currency the dollar will fall in value and confidence in the dollar will fall the dollars will come home to roots and BOOOOOOOM this will happen sooner than later the hole the FED has created and comming off the gold standard lack of gold reserves rising credit card debt real estate collapse with increase the velocity of the decline
We are like at 125%. Japan is like 200%. We can keep printing. Should we? No.
We can, and probably will, but as the video lays out, it will be an implicit default since the dollar will lose so much value due to hyper-inflation.
Too much yammer you need to talk more about how the dollar gets the valued but it’s hard to consider the dollar being valued when the dollar is actually the most expensive currency in the world right now The dollar devaluation over 10 years there’s something very interesting to consider. Of course you know that the 20 year and 30 your bonds are in the very lowest prices that they are right now so the interest rate is going up on the 30 year bond.