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US Treasury Issuance Is At 2020 Levels

US Treasury Issuance Is At 2020 Levels

Mar 25, 2024
Marty's Ƀent

US Treasury Issuance Is At 2020 Levels

Don't look now, but US Treasury issuance is back at Q1 2020 levels with little fanfare. This shouldn't be shocking considering the pace at which the US National debt is increasing, but to be honest, freaks, I was caught a bit off guard this morning when I saw Larry Lepard tweet this chart out.

The beginning of the COVID lockdowns were absolutely traumatizing. The entire planet was in panic mode and governments and central banks were in pure scramble mode to inject trillions of dollars of liquidity into the markets as they all coordinated to prevent billions of people from moving throughout the global economy. That was what was deemed necessary to keep the system afloat during one of the most uncertain times in human history. Drastic times called for drastic measures.

This is why the current pace of Treasury debt issuance is so alarming. The state of the economy is certainly a bit shaky right now, but it doesn't seem to be anywhere close to as uncertain as it was in the Spring of 2020. The American public is being led to believe that the economy is stronger than it has been in years by the current administration. The skyrocketing debt issuance tells a very different story. A story of desperation. We need to issue as much debt as we did in March and April of 2020 to keep the music going.

This skyrocketing debt issuance leads me to believe that there is a liquidity crisis unfolding that is reaching unsustainable levels. Inflation is putting the American consumer in the hurt locker and the lagging effect of decreased tax revenue is beginning to materially affect the government's ability to fund itself. This fact coupled with the reality that the US government suspended the debt ceiling until the beginning of next year has driven the Treasury to hit the pedal to the metal on debt issuance. The most disconcerting part is they have to do this. As the debt rises, the government rolls over and issues new debt at higher interest rates, and tax revenues decline the Treasury has no other option but to issue more debt to cover the government's liabilities.

Last month the US government brought in $271 billion in tax receipts, yet the government's expenditures soared to $567 billion, with two-thirds of the tax revenue going straight to the interest expense on the $34.5+ TRILLION in debt the country has racked up.

US Tax Revenue Swallowed by Debt Interest
Debt interest payments have begun to consume a vast portion of income tax revenue, revealing a concerning imbalance in federal spending and income.

The liquidity crisis is here and it is currently being felt the hardest on the fiscal side of things. But make no mistake, everything is interconnected and this pain is not siloed in the world of government spending. As the Treasury issues more debt, the treasuries held by banks as liquid reserves are being materially impacted. If you look at $TLT, the iShares 20+ Year Treasury Bond ETF, you'll see this very clearly.

It's not shocking that the government changed Basel III requirements earlier this year to take treasuries out of the leverage ratio for the banks. The Treasury is desperate to push their debt on the market and the banks were able to play hardball to get their way. However, this does not solve the fundamental problem; there is too much debt and not enough dollars. The banks may have gotten some concessions from the government to change how treasuries are accounted for on their balance sheets, but the chickens will come home to roost one way or another. The pace of government debt issuance will outpace demand for that debt, which will drive down prices and create another banking liquidity crisis that will necessitate monetary base expansion or the debt will continue to run unabated, which will lead people to seek better assets to store their value.

Damned if you do. Damned if you don't.

I would not be surprised if the magnitude of US government debt issuance over the last couple of quarters is helping to drive the bitcoin price higher. The ETFs are a nice "in your face" narrative, which is something convenient to point at and say, "This is why the bitcoin price is going up!" However, I find it hard to believe that there aren't people who manage massive portfolios who are looking at the chart above and thinking to themselves that they need to hedge this run away debt issuance and the monetary base expansion that is inevitably going to follow.

In the increasingly polarized world US debt is looking worse by the day while bitcoin is becoming more obvious. Anyone who actually cares about preserving and increasing capital would be absolutely idiotic not to allocate to bitcoin with these hard facts laid bare.

The global economy may seem to be in a better place than it was in 2020 on the surface, but if you pick at the facade you'll find the treasury issuance chart and come to the realization that all is not well.

You best start believing in runaway debt spirals, freaks, because you're living through one.

Final thought...

It's been exactly a year since my father passed away. I honestly can't believe it's been a year. Feels weird not having him here. I'll leave you all with his eternal words of wisdom, which I repeat to myself every day.

"You gotta earn it."

Miss you, dad.

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