Something is eventually going to have to give. The United State’s debt which has shot up over $21 trillion dollars cannot be sustained by printing money forever, says a financial analyst.
According to TeleTradeBel analyst Mikhail Grachev, the US debt, supported by the printing of dollars could be coming to an end. “From 2009 to 2014. The Fed was actively buying Treasuries as part of a quantitative easing policy (QE). After the QE was scrapped, the Fed continued to purchase the securities, only in smaller quantities. American legal entities and individuals have always been the third major buyer of debt. The growth of debt and the volume of issuance of securities was possible due to the continuous flow of liquidity from the Fed at zero interest rate. It has also supported the unrestrained growth of the American stock market,” Grachev told RT.
But the tides have now turned and the Federal Reserve has begun hiking interest rates citing a “strong” market. In fact, interest rates are expected to increase to 3.75 percent by 2020, the analyst noted. The investors’ interest in treasuries began to decline and the yield automatically went up. This week, 10-year securities showed a yield of 3.018 percent. “This factor led to nervousness in the markets and raised a lot of questions,” Grachev says.
As other analysts have pointed out, rising interest rates and a $21 trillion debt present a problem. With the rising interest rate and Treasuries’ yields, the question of servicing the mounting debt could become a problem for the US economy, the analyst warns. “Although the economy of the US is great, even they don’t always have the extra money,” said Grachev. When the yields on the 10-Year US Treasury Note rise, it indicates that the demand for the American securities falls, Grachev explains.
“If the yield continues to grow, it can lead to a massive exodus of capital from Treasuries, and even result in the collapse of the world dollar financial system,” Grachev said. The analyst added that a dollar collapse seems far-fetched at the moment since the global economy is very dependent on the greenback. According to the expert, it is more likely that the dollar bubble will continue growing for the while, but a dollar collapse is all but imminent.