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MASSIVE: Election Spending, Government Debt, No Buyers.

Blog May 23, 2024

A Bloomberg article suggests a potential Fed rate hike in 2025 due to election-related spending. However, the real issue might be the massive U.S. debt and declining demand for U.S. treasuries, highlighted by China’s significant sell-off. This shift away from the dollar is driven by geopolitical factors and countries seeking economic independence. Understanding this debt issue is crucial to anticipating its economic impact.

TRANSCRIPT:

Welcome back. I’m glad you’re here. A fed hike in 2025. That’s the latest from Bloomberg yesterday with an article proposing that because of the election, we might actually see a rate increase next year, not a decrease. Now I’m going to get into why they think that’s going to happen and why I actually disagree with their reasoning, but agree with the fact that rate cuts might not be coming the way everyone’s thinking.

The article goes on to say that the reason why we might actually see a rate hike next year is because of inflationary fiscal policies kicking off 2025. The idea here being that whatever president we have is going to end up spending a lot once they get into office, whether that’s campaign promises or trying to put their mark on things.

We know that historically, there’s a lot of spending going on. And of course, if there’s more spending, we would have more inflation, which would mean that the fed would have to keep rates not only higher for longer, but maybe even increase them. And while I don’t disagree necessarily that this could be a contributing factor, I think it’s missing the mark on the big picture.

I’ve been saying for the better part of a year that I didn’t think that any rate cuts were coming. I definitely didn’t think we were going to see six this year. But it really has nothing to do with the election. It has everything to do with the United States debt. Now, of course, I’m talking about the whopping tens of trillions of dollars that we have and growing every single day.

But it’s not just the volume that’s so important. The reason why the debt is so crucial right now is because we’re at a point in time where we have this massive amount of debt to debt maturing that’s either going to have to be paid off, which we know isn’t happening, or it’s going to have to be rolled over, which means that someone is going to have to buy that debt.

And we’re at an interesting point right now where demand for U.S. treasuries, demand for U.S. debt is much lower than we’ve ever seen. Now, historically, people have said there will always be demand for dollar. Dollar will always be king because it’s the global reserve currency. But what we’re continuing to see is a trend away from the dollar. In fact, just this week, China dumps the largest U.S. treasuries in history to the tune of $53.3 billion.

And that’s just a one-time dump. We’ve seen them continue to get rid of their U.S. treasuries in record numbers over the better part of the last year. And it’s not just China either. Many countries, even our allies, are deciding to move away from the U.S. dollar for a variety of reasons. Of course, for China, we know that sanctions are in discussion right now, but many countries already saw what happened with sanctions on Russia and whether you agree with them or not.

The bottom line is that the United States has proven that if you disagree with the US on any kind of policy, we have the authority to actually freeze your assets, take your assets and make life really difficult for you. And many countries are realizing that they don’t want to be in that position. They don’t want to have to be beholden to whatever the United States thinks is right or wrong, or whatever the United States believes.

They want to have their own power back. And of course, countries like China, Russia, India, they are all in the BRICs coalition of countries which feel that historically the West has dominated unfairly, and that it’s time for them to come and create more power and a more even playing field on an economic stage. And again, no matter how you feel about all of this, whether you think it’s great or whether you think it’s terrible, the bottom line is people are not interested in the U.S. dollar in the way they were these countries, these central banks.

They’re diversifying and they’re moving away from the dollar. And as a result, what’s going to happen is that when it comes time for this debt to be rolled over and there aren’t as many buyers, they have to come up with a way to make that debt more favorable. And the way to do that is higher rates. Higher rates means higher rates for all.

So I do think that we have a situation where cuts might not be coming, or if a cut comes, it’s going to be reverse or we might even see rates increase. Do I think it’s because of a presidential election? No. I mean, maybe it plays a small part. I think that the big picture here that everyone really needs to be thinking about and talking about is the debt and the debt that’s maturing.

That’s going to be the big thing this year and in the coming years. That’s just my prediction. I think that a lot of people are in for a rude awakening when it comes to just how much debt is maturing and just how little demand there is for it. But only time will tell. I mean, I think there are going to be ramifications of this that we don’t even know.

But of course, it’s important that we make sure that we’re educated and we know as much as we can what’s coming before it does. That way, we can protect ourselves. Thank you so much for being here with me today. If you haven’t already, please like and subscribe. It really helps us get the word out.

As always, I’m Taylor Kenney with ITM Trading. Your trusted source for all things gold and silver and lifelong wealth protection. Until next time.

SOURCES:

https://www.bloomberg.com/news/newsletters/2024-05-22/wall-street-risks-a-2025-fed-hike-on-post-election-spending-posen-says?srnd=economics-v2

https://www.bloomberg.com/news/articles/2024-05-16/china-sells-record-sum-of-us-debt-amid-signs-of-diversification

Sources & References In This Article

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