What is the biggest issue with the U.S. debt crisis? In fact, it's not the staggering long-term debt of $34.6 trillion; more importantly, it's the enormous interest that comes with the debt. Coupled with the high interest rates set by the Federal Reserve, the U.S. Treasury is likely to be caught in a massive fiscal deficit whirlpool.

The United States Mired in Debt Crisis

According to the latest data from the United States, if the Federal Reserve chooses to cut interest rates by 150 basis points, the Treasury could save $400 billion in interest per year, which, at the current exchange rate, is equivalent to 2.89 trillion yuan.

The current U.S. Treasury is already in a crisis of massive fiscal deficits, and even the fiscal budget for the year 2024 is stuck in Congress, making it difficult to pass, let alone the fiscal budget for 2025.

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So, what is the current situation of the U.S. debt crisis? When will the U.S. financial nuclear bomb be detonated? Today, let's discuss these topics.

The Gray Rhino Crisis Continues, When Will the U.S. Financial Nuclear Bomb Be Detonated?

The U.S. debt issue has a long history, but its impact on the financial market and American society has become increasingly profound in recent years. Ultimately, this is because the U.S. economy has faced serious problems in recent years, leading to more borrowing and higher interest on the debt.

A few years ago, the U.S. debt was around $20 trillion, and at that time, the U.S. implemented long-term zero-interest measures to stimulate the economy. The U.S. federal funds rate was maintained at around 0%-0.25%, so the interest paid on the debt by the U.S. each year was minimal and almost negligible.

However, after 2020, in order to save the U.S. economy, the Federal Reserve continuously expanded its balance sheet and issued a large amount of debt to borrow money for quantitative easing, the CHIPS Act, and economic stimulus plans, leading to an exponential increase in U.S. debt. Last year it was $32 trillion, and now it has soared to $34.7 trillion!

More importantly, due to the Federal Reserve's interest rate hikes in the past two years, the U.S. now has to pay a huge amount of interest annually for this massive debt. According to data from Bank of America, the total interest paid by the U.S. government over the past 12 months has reached $1.1 trillion. This figure exceeds the U.S. military expenditure for a year, is equivalent to 30 aircraft carrier battle groups, and could even have money left over.Not only that, but due to the U.S. government's dire need for funds, since the middle of last year, the U.S. Department of the Treasury has also issued a large amount of U.S. debt at an interest rate as high as 5.5%. This means that if the Federal Reserve continues to issue debt, the interest expenditure on U.S. debt will exceed the U.S. social security expenditure, and the U.S. Treasury will have to pay more than $1.3 trillion in interest.

This figure is just too enormous for the U.S. Treasury to pay, which will lead to an ever-expanding fiscal deficit, and even a deficit. So, what is the solution? Neither Biden nor Yellen, nor Powell has a way out; the only solution is to "continue borrowing."

Therefore, the U.S. debt crisis itself is not terrible. After all, the United States can grit its teeth and pay back the $34.7 trillion debt. However, the problem lies in the continuously increasing interest and the U.S. government's unrestrained spending. The scale of U.S. debt continues to grow, which is the biggest problem with U.S. debt.

So, when we talk about the U.S. debt issue, we generally use the term "gray rhino" to describe it because it is an almost inevitable "financial nuclear bomb" that is about to explode. It is not a black swan event but a crisis caused by the U.S. government's deliberate ignorance.

The Treasury Department can't bear it anymore; will the Federal Reserve cut interest rates ahead of schedule?

Of course, there is another way to temporarily solve the interest problem, and that is to lower interest rates. According to data from U.S. banks, as long as the Federal Reserve lowers interest rates by 150 basis points, the Treasury Department can reduce interest expenditures by $400 billion, which can effectively alleviate the U.S. fiscal deficit.

But is this possible? The Federal Reserve is still very hesitant to cut interest rates now because the U.S. inflation data has not yet met the target. Although the Federal Reserve's most concerned PCE price index is in line with expectations, the month-on-month increase of 0.3% is not good news.

The PCE price for February was announced, still showing a month-on-month increase.

Because although the 2.8% inflation rate is the lowest in three years, the Federal Reserve's target is for inflation to be below 2%. This means that there is still a certain gap for the Federal Reserve to cut interest rates. After all, Powell has emphasized many times that as long as inflation is not below 2%, the U.S. Federal Reserve will not cut interest rates.

So, although lowering interest rates can alleviate the interest crisis of U.S. debt, the Federal Reserve does not care about the Treasury Department's difficulties. Powell's most important concern is not the U.S. debt issue but the U.S. inflation issue.After all, while the debt issue is akin to a financial nuclear bomb, isn't the "stagflation crisis" in the United States also a financial nuclear bomb? Indeed, it is, for the U.S. economy decades ago was left in disarray by stagflation, with a significant decline in national strength.

Powell is focused on inflation, not the issue of U.S. debt.

Moreover, given that the Federal Reserve should ostensibly maintain its independence, Powell has even less reason to specifically lower interest rates to alleviate the debt burden of the U.S. Treasury.

Therefore, it is impossible for the Federal Reserve to preemptively cut interest rates to reduce the debt burden. Yellen should not even entertain the thought.

Is the financial nuclear bomb ready to explode at any moment? China begins to guard against the crisis.

As the world's three major rating agencies downgrade the U.S. credit rating due to the U.S. debt issue, more and more countries realize that the dollar is not gold, and the U.S. debt will ultimately collapse completely. It is time to start taking action to deal with the dollar credit crisis.

According to data from the World Gold Council, since last year, China has purchased at least 2,438 tons of gold from countries around the world, which have been transported to China and stored in the central bank's vaults. Not only that, but countries around the world are also following China's lead in buying gold and selling U.S. debt, as U.S. debt may experience significant devaluation in the future, while gold will continue to appreciate due to interest rate cuts by the Federal Reserve.

So, why is the gold market so booming recently? In fact, it is because the credit of the dollar is being weakened, and central banks around the world, especially China, are continuously buying gold, leading to a surge in international gold prices.

There is an old Chinese saying, "When the wall falls, everyone pushes." In the past, when the dollar hegemony was stable, countries around the world dared not provoke the United States, and the money earned would generally be obediently used to buy U.S. debt. China has also experienced this stage. When our relationship with the United States was good, the total amount of U.S. debt held reached 1.3 trillion U.S. dollars.

However, now, with the deterioration of Sino-American relations, coupled with the precedent of Russia's frozen dollar assets by the United States, we have significantly sold off U.S. debt, and to date, we have sold off 500 billion U.S. dollars in U.S. debt, equivalent to 3.61 trillion yuan; the current amount of U.S. debt held has also fallen below 800 billion U.S. dollars.Our approach of selling U.S. Treasury bonds and buying gold has also raised concerns in the United States. U.S. Treasury Secretary Janet Yellen stated that the issue of U.S. Treasury bonds is the most significant contradiction in the U.S. economy. At a congressional meeting last year, Yellen also indicated that she was considering giving China a commitment that if there were problems with U.S. Treasury bonds, China's debt would be repaid first.

What does this commitment mean? In essence, it is an attempt to reassure China, to prevent us from selling U.S. Treasury bonds, so that the United States can continue to exploit the U.S. Treasury bonds and the dollar hegemony to reap benefits from China and the rest of the world.

De-dollarization is accelerating

As the scale of U.S. debt continues to escalate, along with the swelling of debt interest, the global process of de-dollarization is accelerating. Many Middle Eastern countries have already begun to eliminate U.S. Treasury bonds, with their foreign exchange reserves consisting of the renminbi and the euro, as well as gold. They have expressed their concerns about the dollar through their actual actions.

For China, given the continuous targeting and sanctions imposed by the United States, we should remain vigilant at all times, possess a mindset for extreme scenarios, and be prepared to deal with the collapse of U.S. Treasury bonds and financial sanctions against China.

Therefore, de-dollarization is a strategic imperative that must be pursued. Selling U.S. Treasury bonds to a safe threshold is our long-term goal. This is an important matter concerning the foundation of China's financial and economic stability, and we must maintain a high level of vigilance!