Brother can you spare 410Bn dimes?
That's what we need to sell in today's 10-Year Note Auction and, if you have $41Bn to spare for 10-years, our Government will be happy to pay you almost (but not quite) 1% interest for holding your money. Needless to say, these auctions have been attracting less and less interest and, if it is perceived that the US has trouble borrowing money, that could put upward pressure on rates and we certainly can't afford that since we are $27Tn in debt – soon to be $30Tn in debt when Biden passes his $1.9Tn Stimulus Bill.
That's why Fed Chair, Jerome Powell is jumping in to make a speech at 2pm – we may need him to spin those auction results to calm the markets if the auction doesn't go well. We are only in the early stages of the debt crisis that began in 2008 and has essentially kept going since – the pandemic is only the latest excuse to prop up our economy by printing more money and it won't be the last as our debt burden is projected to grow another 100% over the next 20 years:
After World War II, our Government initiated higher, progressive taxes to pay down our debt. This Government doesn't have the stomach to ask the people to make sacrifices, so we force the sacrifices on our children and our grandchildren – who will one day have to deal with the mess we are making.
Here's the real kille, even at 1%, the interest on our debt is $400Bn a year yet, NORMALLY, the government pays around 4.5%, which would be $1.8Tn so, if rates ever do normalize, we would have to find $1.8Tn (1/2 the entire budget and double the entire discretionary budget) just to pay the interest on the debt we already have and, since we would have to borrow that too, we'll quickly be in a cycle of ever-escalting debt until we finally have to default.
So how long can we keep this up? Well, Japan is 250% of their GDP in debt already and they still have a functioning country, so we'll see when the wheels finally come off that bus and that will be our 2-minute warning to get the Hell out of this country before it all hits the fan. The difference between Japan being 250% of their GDP in debt and the US being 250% of their GDP in debt is Japan's GDP is "only" 5Tn and the Yean is still considered a reserve currency – especially in Asia – so there are always plenty of people willing to buy $12.5Tn worth of Japan Bonds.
The US, however, is already $27Tn in debt and if we climb up to match Japan at $54Tn in debt – who would have the money to lend us? There simply isn't that much money in the World which you would think would put a limit on our spending but we just keep making it up and now we can make up digital money because it's too much work making paper money with all those 00's on them, isn't it?
So, from nothing, we have 11M $50,000 BitCoins that are "worth" $550Bn. Was $550Bn actually spent on BitCoin? Of course not. The daily transaction volume of BitCoin is 400,000 coins and, for every buyer, there is a seller, so the net inflows are actually very very small – even if they were 10% it would be $2Bn and it's more like 0.1%. Even at $2Bn/day, BitCoin hasn't been over $40,000 for more than a week and was below $20,000 in December so it would be very generous to say there have been $60Bn in inflows since BitCoin's total value was $200Bn yet we are now saying they are "worth" $350Bn more based on (again, generous) $60Bn of inflows.
So the price of BitCoin (just like most stocks) is what we who still believe in science call an untested hypothesis – and it remains to be seen whether or not these prices can be sustained under real-world conditions, like a market sell-off. As we learned in 2008, just because you want to sell your stock for $100 during a crisis, doesn't mean you'll be able to find someone who wants to buy your stock for $100. Unfortunately, many people then refuse to sell for $90, thinking it will bounce back but then it's $80 and you ask for $80 but then no one actually buys it for $80 and suddenly it's $70 and finally you sell it for $65 – a week after your stock was at $100. Same company – new sentiment….
At the moment, market sentiment remains very strong and the money is, indeed, flowing in and $1.9Tn in additional stimulus should help, as it's over 1/3 of our quarterly GDP – it will be very scary if it doesn't give us a big bump – just like the first stimulus did.
