The latest report released by the U.S. Department of the Treasury on December 12, Eastern Time, shows that the U.S. budget deficit in November soared by $57 billion, or 30%, compared to the same period last year, reaching a record $249 billion for the month. At the same time, the U.S. federal revenue in November decreased by 10%, or $29 billion, to $252 billion year-on-year, while spending increased by 6%, or $28 billion, to $501 billion, also setting a record for November.
The data also revealed that the interest cost of U.S. public debt in November increased by 53%, or $19 billion. In the first two months of the fiscal year 2023 (October and November of this year), the interest payments by the U.S. Treasury increased by $48 billion, or 87%. This is also a manifestation of the surge in U.S. debt interest during the Federal Reserve's interest rate hike cycle. It is worth noting that the U.S. Congress had previously sought to suspend the debt ceiling until December 16.
The latest development is that news on December 13 indicated that the U.S. Senate will work towards voting on a bill to allow the U.S. federal government to continue operating for an additional week after the debt ceiling deadline on December 16, as Democrats and Republicans dispute over a long-term measure that could cost more than $1.5 trillion. In addition, both chambers of Congress are discussing a bill in draft form, known as the "omnibus," to fund the U.S. federal finances until next September.
As of now, the House of Representatives and the Senate have not yet reached an agreement on a series of appropriations bills, which means that when the existing funds expire at midnight on December 16, the financial support for the U.S. federal government may face a tight situation. If the aforementioned strategy fails, the White House will face a shutdown crisis, and the domino effect of furloughs for related staff in Washington will become apparent. Four years ago, a similar situation occurred, with a record 35-day interruption of federal services that almost led to the closure of major airports on the East Coast.
All these phenomena confirm what Jim Rogers, the Wall Street commodities king and billionaire, who is known for his foresight, has warned more than once: the U.S. is the world's largest debtor nation, with debt everywhere, and this will eventually come at a cost. As of December 13, the total U.S. federal debt has reached a staggering $31.43 trillion, which is 121% of GDP. For many years, the U.S. economy has relied on a patchwork approach of borrowing new money to repay old debts to offset its huge deficits. This has led to the formation of a unique debt economic trap in the United States. Of course, this is inseparable from the background of the U.S. dollar as a reserve currency, with U.S. debt as the core asset of the dollar, becoming the support for the foreign exchange reserves of many countries' central banks.
Because the currencies of many countries continue to be pegged to their own dollar reserve ratios for issuance, U.S. debt has also become a core reserve asset for various monetary authorities in the form of investment products. Therefore, from this perspective, the core logic of U.S. economic growth is the boundary of debt scale growth. The U.S. economy is already insolvent, with only the overvalued dollar struggling to support it. This leads to a situation where U.S. Treasuries may face a lack of buyers or even a large-scale sell-off in the event of a cold reception or an increase in geo-economic risks. Consequently, some central banks switch to other anchoring objects for issuing their own currencies.
According to the U.S. Treasury's continuously published reports on international capital flows, as of the third quarter of this year, global central banks have generally continued to net sell U.S. debt. At least 26 countries, including China, Japan, Germany, France, Saudi Arabia, and Israel, have significantly sold U.S. Treasuries in different months of the first three quarters of this year. According to data from the International Monetary Fund (IMF), the share of dollars in global central bank foreign reserves has dropped from a peak of 85% to a historical low of 58%. Global central bank foreign reserve managers have begun to gradually increase the allocation of other non-dollar currencies, and this trend will continue.
Senior economist Jim Rickards stated that for more than a decade, currency analysts have been looking for signs of a global reserve currency reset that would weaken the role of the dollar. From the perspective of currency history and market data, this largest-ever dollar debt bubble may ultimately be pierced by gold.
For example, a report from the World Gold Council shows that in the first three quarters of this year, the total amount of gold purchased by global central banks increased to 673 tons, higher than the total amount for any full year since 1967. Especially in the third quarter, global central banks increased their gold holdings at the fastest pace in 55 years, purchasing a record 399.3 tons of gold.
It is worth mentioning that data released by the State Administration of Foreign Exchange on December 7 shows that in November, China increased its gold holdings by 1.03 million ounces, reaching 63.67 million ounces, or 1,980 tons. Prior to this, since September 2019, China's gold reserves had essentially remained flat at 1,948 tons. Clearly, the latest changes indicate that China has officially increased its gold reserves for the first time in three years.UBS analyst Giovanni Staunovo stated that China's increase in gold reserves may be part of its plan for diversifying its reserves, rather than solely relying on US dollar reserves. As a portion of total reserves, China's publicly disclosed gold holdings remain relatively low, suggesting there may be room for further increases in gold holdings in the future.
Analysts believe that amid the current US economic insolvency and the risk of a White House shutdown, an increasing number of monetary authorities may shift their foreign exchange reserve allocations from previously singular US Treasury and dollar-based assets to a comprehensive portfolio that includes physical gold and other non-US dollar currencies. In simple terms, one cannot put all eggs in one basket. This also serves as a footnote to the continuous loss of the dollar's reserve status. For the US, which is addicted to debt, this is akin to sounding the alarm for the US debt economy. This is because relying solely on the Federal Reserve's support for US Treasuries within the United States could lead to a loss of liquidity for US government bonds.
Furthermore, the Federal Reserve is also moving further away from US Treasuries. As shown in the figure below, as of the end of November, since peaking in early June, the Federal Reserve's holdings of US Treasury securities have decreased by $255 billion, to $5.516 trillion, the lowest level since October 27, 2021. Within the four weeks since the balance sheet on November 3, the Federal Reserve's holdings of US Treasury securities have decreased by $59 billion.
This indicates that the Federal Reserve is significantly selling off US Treasury securities. For the Federal Reserve, alleviating the US debt economy model is not their true mission. The Federal Reserve is a joint institution composed of several US banks, and in the eyes of some senior bankers, profit-seeking may be their only goal. It is worth mentioning that during the Federal Reserve's interest rate hike cycle this year to date, the total amount of US federal debt interest has increased by at least $1.5 trillion. This means that while the Federal Reserve is continuously harvesting global wealth interest differentials, it is also, in fact, harvesting the United States.
Coincidentally, US Treasury Secretary Janet Yellen has warned more than once since the third quarter of this year that US Treasury bonds may face collapse, and US debt funds will be exhausted, which would be catastrophic for the United States.