The 10-Year Treasury Yield Is Climbing For The Wrong Reason
The 10-year Treasury yield ought to be climbing because the United States is technically bankrupt. New Treasury securities are issued by a country that runs multi-trillion Dollar annual deficits. Does that not warrant a 10-year Treasury yield north of 10%? The current fiscal spending model is unsustainable. Deficit spending will continue to erode the value of the Dollar which means that there will be increasingly less appetite for sovereign nations, private investors and individuals to hold Dollars. At some point it won’t matter that the Fed can print money out of thin air as the paper currency will be worthless. Between now and then the Dollar will continue to lose purchasing power, meaning the cost of goods and services will continue to increase over time.
If the United States was a corporate entity issuing debt, that debt would not qualify as Investment Grade, it would not qualify as High Yield, it would be in Default status were it not for the United States’ ability to print fiat currency out of thin air.
The fact that the United States must issue debt to cover multi-trillion Dollar fiscal deficits is sufficient for the 10-year Treasury to warrant a yield in double-digit percentage territory.
The Federal Reserve prints money largely to subsidize the Treasury debt that is issued to support fiscal spending over and above tax receipts. This expansion of the money supply erodes the value of the Dollar. Each new printed Dollar reduces the purchasing power of money in circulation. This is why the cost of goods and services has grown exponentially over the past 60 years and especially since Nixon took the United States off of the Gold standard in August 1971.
None of the mainstream Presidential candidates will ever talk about reducing fiscal spend on an absolute basis and tightly managing the money supply. None will ever move to return the United States to the Gold standard until the U.S. Dollar is worthless. At that point the United States will not have a choice but to return to the Gold standard. Between now and then, the cost of goods and services will become significantly more expensive.
Where does the money go? Fiscal expenditures are largely allocated to what I define as the “welfare” bucket (62%) and general Public bloat. The “Welfare” bucket includes:
Social Security: allow citizens to keep the money they earn rather than tax earnings for the purpose of throwing good money after bad. Not only is Social Security a Socialist program, it is bankrupt. 22%
Health: why is the Government involved in Healthcare? Want to get healthcare-related costs down? Way down? Get Government out of the system. Without Government subsidies, healthcare providers, insurers and Pharma companies will have no choice but to greatly reduce prices. 14%
Medicare: See “Health” comments. 10%
Income Security: 9%
Commerce and Housing Credit. 4%
Education, Training, Employment and Social Services. 3%
