US Debt Crisis Explained: How to Profit from the Great Melt-Up
The US government’s national debt has skyrocketed over the past few decades, especially after major events like the 2008 Great Financial Crisis (GFC) and the recent pandemic. According to official data from the US Treasury, debt levels began accelerating rapidly post-2008 as the government borrowed heavily to stabilize the economy. The pandemic pushed this even further, forcing the government to borrow at unprecedented rates.
Why does this matter? When a government borrows money, it has to pay interest on that debt. The more debt you have, the more interest you owe, and if interest rates rise, the cost of servicing that debt can become overwhelming.
Before the 2008 crisis, the US government had less debt and could afford higher interest rates. But after piling on massive debt during and after the GFC, the Federal Reserve stepped in and lowered interest rates close to zero to keep borrowing costs manageable.
During the pandemic, the Fed again dropped rates to near zero, allowing the government to borrow heavily without immediately facing crushing interest payments. However, with inflation surging recently, the Fed has had to raise interest rates to cool the economy, which has made borrowing more expensive.
For a country with around $35 trillion in national debt, rising interest rates mean the government could soon be spending over $1 trillion a year just on interest payments — more than the entire defense budget or Medicare spending. This is clearly unsustainable.
Here’s the confusing part: despite solid economic indicators like 3% GDP growth and a low 4.1% unemployment rate, the Federal Reserve has started cutting interest rates from 5.5% to 5.0%. Typically, these numbers would suggest the Fed should keep rates high or even raise them to prevent overheating.
But the real reason is that the government simply cannot afford the high interest rates on its skyrocketing debt. The Fed is essentially forced to lower rates to prevent a debt servicing crisis, even if the economy looks strong on paper.
Just like you might get a 3-year or 5-year car loan or a 15 or 30-year mortgage, governments issue debt with varying maturities. Some loans mature quickly (in under a year), while others last decades.
Right now, many recently issued Treasury notes are maturing at a time when interest rates are higher, meaning the government must refinance that debt at more expensive rates — a costly problem.
The government has learned from past crises. After 2008, they issued longer-term debt (like 20 or 30-year bonds) at low interest rates to “lock in” cheap borrowing costs for the long run.
When rates rose recently, they reduced the average maturity of debt to avoid locking in high rates. But the next time a crisis hits — and the Fed cuts rates dramatically — the government will likely issue a lot more long-term debt again, possibly even 50-year bonds, to lock in ultra-low rates for decades.
This means that when a crisis is manufactured (whether it’s a war, financial crash, or other “black swan” event), the Fed will cut rates back to near zero, and the government will refinance its massive debt load cheaply. However, this will come at the cost of severe inflation.
Over the past few years, we’ve seen a “melt-up” in asset prices and everyday costs. Housing prices, stock markets, gold and silver prices, healthcare costs, and groceries have all surged dramatically.
Why? Because the government is printing money to buy its own debt, flooding the economy with cash. This is highly inflationary and is setting the stage for what many call the “great melt-up” — a massive rise in asset and commodity prices fueled by cheap money and government spending.
The manufactured crisis and subsequent refinancing will likely lead to hyperinflation — where prices skyrocket uncontrollably, eroding the value of money.
Eventually, this hyperinflation could force a “great reset” of the financial system, fundamentally changing how money and debt work in the US and globally.
While no one knows exactly what the manufactured crisis will be, savvy investors can prepare now to protect and grow their wealth.
The situation is complex and rapidly evolving. Keeping a close eye on Federal Reserve moves, debt ceiling negotiations, and geopolitical events will help you anticipate changes and react quickly.
Data from the US Treasury shows the debt was manageable for decades but exploded after 2008 and again after 2020. These spikes correspond with massive government spending during crises.
Today, interest payments on the debt are projected to exceed $1 trillion annually — more than defense, Medicare, or healthcare budgets. If interest rates rise further, this burden could quickly spiral out of control.
The government has been running deficits (spending more than it earns) for over 20 years. This persistent overspending adds to the debt and increases the need for refinancing.
The Federal Reserve’s official plan is to reduce the fed funds rate to 3% by the end of 2026. But with debt growing faster than ever, this rate is still too high for the government’s debt load.
The Fed will likely have to push rates closer to zero again to prevent a debt crisis. This means the current plan is more of a placeholder than a realistic path forward.
When private investors shy away from buying US debt at higher interest rates, the Fed steps in and purchases these securities by effectively printing money. This action floods the economy with liquidity but also triggers inflation.
US Treasury securities are considered safe haven assets globally. Even if yields are low, the demand for these notes remains high because they’re backed by the US government. This allows the Fed to keep buying and holding massive amounts of debt.
The timing and nature of the crisis are uncertain. It could be:
Whatever it is, the crisis will be used as a pretext to cut interest rates drastically and refinance debt cheaply.
The US government’s debt situation is precarious, and the consequences of refinancing at ultra-low rates will ripple through the economy in the form of inflation and asset booms. Being aware of these dynamics and positioning yourself accordingly can mean the difference between losing wealth and thriving during the great melt-up.
Stay tuned for more insights on how to capitalize on these trends and protect your financial future.
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