In February of this year, the balance of U.S. debt reached 30 trillion, and by October of this year, the debt balance exceeded 31 trillion. By early December, the debt balance has approached the statutory limit granted by the U.S. Congress.
The growth rate of U.S. debt far exceeds the growth rate of GDP.
U.S. national debt is issued as bonds collateralized by future tax revenues, which should theoretically have a very high credit rating.
However, the actual situation is that over the past 20 years, the fiscal revenue of the United States has been insufficient to cover expenditures in most years, which is why more debt has had to be issued.
Under these circumstances, it seems like a pipe dream to hope that U.S. tax revenues can be used to repay U.S. debt.
Not to mention how to repay the principal, but now for the United States, even how to repay the interest may gradually become a problem.
Last year, the United States paid interest of as high as 350 billion, but this year it has increased to 470 billion, and next year it will further increase to 740 billion.
The continuous increase in interest is related to the growing total amount of debt and is also related to the continuous rise in the yield of U.S. national debt.The United States has now exhausted its debt limit, with the previous cap set by Congress at $31.4 trillion, and the current total U.S. debt has reached this level.
However, since there is not enough money and more borrowing is necessary, it is highly likely that the U.S. Congress will have to continue raising this cap.
Over the past few decades, the United States has been playing this numerical game.
First, Treasury bonds are issued through the Department of the Treasury, then the Federal Reserve purchases most of these bonds by printing more U.S. dollars, and then the remaining bonds are pushed into the market, including selling to Asian countries.
But to curb the continuous issuance of debt by the Department of the Treasury and excessive overdraft of the future, the U.S. Congress has stipulated the total amount of debt through legislation.
However, over the years, especially after the 2008 subprime mortgage crisis, the U.S. government has become accustomed to continuously issuing bonds, so there have been many instances in the past of approaching the legal limit, and the U.S. government has also had to shut down.
But in the end, without exception, it was all due to Congress raising the debt limit again, and the U.S. Treasury Department began a new round of debt issuance.
Of course, the U.S. Congress has also suspended the debt limit, and in August 2019, Congress announced a suspension of the debt limit.
As a result, this two-year suspension gave the Treasury Department the opportunity to issue bonds on a large scale. By August 1, 2021, in just two years, the scale of U.S. Treasury bonds had increased from $22 trillion to $28.4 trillion.
Therefore, the United States only raised the limit in December last year, but it has already been used up in just one year.For now, the possibility of the United States defaulting on its debt is not significant.
Under current circumstances, U.S. debt has been sold off by investors one after another. If the U.S. were to default, it could further trigger a global sell-off, leading to a complete collapse of the U.S. economy.
Therefore, for the U.S., default is something that is not even considered.
However, the U.S. may use another cunning method to achieve a de facto default, which is to continuously issue new bonds to repay old ones.
This will cause the total amount of U.S. debt in the market to keep increasing, and the value of the held U.S. debt to keep depreciating. For the U.S., it is very easy to repay U.S. debt by printing a large amount of dollars.
It is precisely because of seeing this trick of the U.S. that central banks of various countries have started to sell off their U.S. debt.
China once held U.S. debt up to 1.3 trillion, now only 930 billion, not because China's foreign exchange reserves have decreased, but because China is also continuously reducing the U.S. debt it holds.
On the other hand, we are trying to diversify our foreign exchange reserves as much as possible, holding more different currency assets in addition to U.S. dollar assets.
At the same time, we are continuously improving the international status of the renminbi.An increasing number of countries and institutions now hold bonds denominated in Chinese Yuan. By offering a new investment option for overseas investors, we are also laying a more solid foundation for our own process of de-dollarization.