The 2 Signs of an Impending Debt Crisis
- The US budget and current account deficits raise the risk of a debt crisis, Deutsche Bank said in a recent note.
- The Treasury Department is expected next week to announce a second increase this year in the size of its note and bond auctions to fund government spending.
- Foreign demand for Treasuries has recently weakened, Deutsche Bank observed, although the US still enjoys the advantage of owning the world's reserve currency of choice.
There are two warning signs that you want to keep your eye on. The first is money lending. Individuals, countries, institutions, etc loan the country money by buying treasury bonds. As long as there is demand for our treasury bonds, the government has money to spend. As the article points out, the demand for our treasuries is weakening. Think of it like this - say you are using credit cards to fund some of your living expenses. Then let's say that your credit card company starts to lower your credit limit which restricts what you can borrow. This is what is happening to the US.
Second, is the increased need for borrowed money. We increased our debt this year by a trillion dollars in 6 short months. It looks like we are on pace to do the same thing over the next 6 months. Incidentally, that is record time for an increase in a trillion dollars. Even this business insider article states that the government is increasing their need for borrowed money.
There is no slowing down of this borrowing money by the government. In fact, it is not even on the radar and we have a President that has accomplished business deals all of this life with other people's money.
These are the signs. They are here. Remember a debt problem becomes is not a problem until it becomes one. Then when it becomes one it becomes one overnight.