The Biggest Currency Reset in US History JUST Started

In the next 12 months, nearly $10 trillion worth of U.S. government debt is coming due. That's approximately $830 billion that must be paid back every single month. This represents 34% of all outstanding U.S. government debt. In fact, over 50% of the entire U.S. government debt will come to maturity by 2028. Put that in perspective, that's almost the entire size of China's GDP that needs to be paid back. Now, obviously, the government won't actually be paying back this debt. They'll be doing what's called a refinancing. This is when they borrow new debt in order to pay back the old one. Now, debt refinancing is usually a pretty routine activity for the U.S. government. But there is something different this time. One of the world's most important U.S. treasury buyers has simply stopped buying. Since the 1950s, global central banks have been the most reliable customer for U.S. debt, consistently adding to their holdings. But as we can see more recently, their net treasury holdings have been stagnant. And just in the past few years, they've even been declining. So there is a flood of new treasuries that is about to hit the market with one of the world's biggest treasury buyers essentially on strike. Now, there is another source of foreign demand for U.S. treasuries that's called the unofficial sector. This is a category that includes foreign wealth funds, pension plans, and private institutional funds. These buyers represent another significant chunk of U.S. treasury demand. And luckily for the U.S. government, they have continued to ramp up their holdings in recent years. There is a very important nuance to this, however. Although this chart tells us that foreign holders have been buying treasuries, it does not tell us whether they've been buying enough. You see, with the government's debt continually expanding and a record amount of new treasuries hitting the market, there's a significant increase in the supply of treasuries. So this is not a problem about just finding buyers for the debt. There needs to be enough buyers to actually counterbalance all of the supply that's hitting the market. And we can take a look at that by seeing what these foreign holdings represent as a percentage of total U.S. treasuries. And this is what it looks like. It shows us what's actually happening underneath the surface. Between the 1980s and roughly 2016, foreign holders of U.S. treasury debt were generally accumulating bonds at a faster pace than the U.S. government was issuing them. Starting in 2016, however, that reversed. Foreign demand of treasuries no longer kept up with the U.S. government's issuance. So on the one hand, we have central banks that have completely disappeared as a buyer of treasuries. And on the other, foreign private investors have not been buying nearly enough treasuries to keep up with the government's debt issuance. Now, there are three massive investment opportunities that are going to come from this in the coming months. We already took advantage of gold and silver between 2023 and 2025. And now the tide is shifting. We highlight what these opportunities are in the video linked below. But all of this is related to the same story, and that is the supply and demand imbalance of the U.S. treasury market. Both private investors and foreign central banks understand that the U.S. treasury has this problem, which makes it riskier to be a holder of U.S. debt. In exchange for this risk, they demand what we call a safety tax. In financial jargon, this is what's known as the term premium. It is the extra yield that investors demand for the uncertainty and risk of tying up their capital with long-term debt. A higher term premium will make yields on treasury bonds higher as investors demand to get paid more. For example, U.S. bond yields are currently hovering at 4.5 percent. The Federal Reserve's short-term rate sits at 3.75 percent. So this 0.75 percent gap is essentially the safety tax. Now, this is a slight oversimplification, but this is pretty much how it works. And this is what this safety tax looks like throughout history when plotted on a single line. Again, the higher the term premium is, the more investors are concerned about the treasury market and so demanding extra yield. Between the 1980s and roughly 2016, the term premium steadily declined. This corresponds to the same period where foreign buyers and central banks were accumulating more treasuries. But since then, the term premium has begun to curl up, and it's started to move up more aggressively since 2020. This also happens to be the moment where both central banks and private foreign holders of U.S. treasuries began to reduce their holdings. Just in the past few years, the term premium has gone from negative 1.2 percent to almost 0.75 percent. Now, one could assume that there is a great risk that the term premium continues to rise from here with the record supply of new treasuries that is about to hit the market and the biggest buyers of that debt that are disappearing. If it were to simply revert to its 60-year average of around 2 percent, it would push long-term bond yields that are currently at 4.5 percent, all the way up to potentially 6 percent. If this were to actually happen, it would completely squeeze the U.S. government's budget. Just the interest payments on the U.S. government debt currently represent 3 percent of GDP. That's double what it was a few years ago. This has overtaken the defense budget of the United States. So this is a good chunk of the government's budget that is diverted away from what could otherwise be useful spending towards just servicing the cost of past spending. And any rise in the term premium from today's levels would make the interest payments rise even further. Now, you might be thinking that the U.S. government is not just going to sit idly by and watch this happen. And you would be right. The government has two options to actually prevent this from happening. The first is to simply cut back on spending. Part of the reason foreign buyers have pulled back from investing in treasuries is Washington's excessive spending. Pulling back on it would ease the concerns and prevent the term premium from rising. But we think this is unlikely to happen. The reality is that two-thirds of all federal spending is mandatory. This includes Social Security, Medicare, and other entitlements where the government can't just flip a switch to stop the payments. The rest is what's known as discretionary spending. And this section is primarily made up of defense spending. And at a time when geopolitical tensions are rising, the government is certainly not going to be cutting back on that either. The government's second option is to effectively cap the safety tax. In other words, to stop letting the private market set the cost of borrowing. The Federal Reserve steps in and anchors long-term interest rates around a fixed level. They do this by printing money to buy U.S. treasuries, essentially replacing any missing demand from private investors. This essentially forces the market to accept lower yields regardless of the risk. And believe it or not, we're already seeing this scenario take place. The Fed recently began what they call reserve management purchases. They have begun buying U.S. treasury bonds again. So suddenly it doesn't matter what foreign holders are doing because the Federal Reserve has an unlimited capacity to print money and buy treasury bonds in order to cap bond yields. The most recent round of purchases that just began will be the equivalent of $40 billion worth of U.S. treasuries being bought per month. According to the Federal Reserve's own projections, they expect their balance sheet to expand consistently until at least 2033. This is essentially the Federal Reserve saying, don't worry government, we'll be buying all the U.S. treasuries you need to stop yields from rising. Now to understand the actual consequences of this, we can look at the UK in the 1940s. It had a huge debt burden following World War II that it struggled to pay back. In response to this, the Bank of England, their own central bank, artificially pegged interest rates at 3%, which effectively eliminated the safety tax by printing the difference. Now while the British government stayed solvent as a result of this, the British pound weakened considerably. It went from being worth around $5 per pound to less than $3 per pound. And this created an exodus out of the British pound and into assets. The British stock market actually rose by 100% during that period. Most investors expect a debt crisis to result in a market collapse. But the truth is, government debt crises result in the exact opposite phenomenon. Capital has no choice but to flee the currency into other assets. We think there are three key investments that are about to see massive flows of capital towards that are not yet being recognized by Wall Street. We highlight what these are in the video linked in the description below. Thank you for watching.