U.S. Treasury Debt is Starting to Makes Folks Nervous

We have been preaching about this huge elephant since before the financial crisis of 2007-2009.  And today we learn the elephant has gotten 6 TIMES LARGER than it was then!  Please understand that when the government wants to spend more money than it has, it has the Treasury sell government bonds.  Those are basically IOU’s that pay interest dependent on how long the investor is willing to carry that loan.  The reason that we have had such an incredible lifestyle these last 15 years is because we were putting everything on a credit card.  One day, probably soon, the USA will have reached its credit limit.  For whatever reason (we hope it’s the rapture) investors will lose “faith and confidence” in the US Government and will refuse to buy any additional US paper.  If you want to see chaos and mayhem break out in America just wait and see what happens when the politicians don’t have access to a credit card called Treasury Bonds, Bills and Notes.

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The world’s largest, most-important financial market is growing by leaps and bounds. On Wall Street, that is making people nervous.

Annual issuance of U.S. Treasurys has exploded, nearly doubling since the pandemic began. The government sold a record $23 trillion worth in 2023. And few think the spree is going to slow soon, given the widespread expectation that government spending will continue to rise regardless of who wins November’s elections. 

Rapid growth in markets from tech stocks to mortgage bonds has ended badly in the past. Treasurys are considered the safest and easiest-to-trade securities on Wall Street, and many worry that any instability there could rapidly spread. 

The market’s growth isn’t the only thing troubling investors: Some are also concerned about new rules that are changing the way the trading works. That could help alleviate strains but also create unforeseen consequences, such as the cash shortages in 2019 and 2020 that snarled trading and boosted interest rates.  

“None of these regulations solves the mounting pile of Treasury debt,” said Steven Kelly, associate director of research at the Yale Program on Financial Stability.

When the government doesn’t take in enough from taxes to fund its spending, the Treasury Department issues bonds to fill the gap. The agency raised a net $2.4 trillion last year to finance the deficit, taking into account what it had to sell to repay holders of maturing debt.

The Treasury market has grown more than 60% to $27 trillion since the end of 2019. It is roughly sixfold larger than before the 2008-09 financial crisis.

“Running a nearly $2 trillion deficit during a peacetime economic expansion—that’s a lot of bonds for the market to absorb,” said Stephen Miran, an adjunct fellow at the conservative Manhattan Institute and a former Treasury Department senior adviser who assisted with the Covid-19 response.

The Congressional Budget Office anticipates government spending that continues to climb in the coming years, with an aging population raising the cost of programs such as Social Security and Medicare. Rising interest costs could also boost issuance.

 https://www.wsj.com/finance/the-27-trillion-treasury-market-is-only-getting-bigger-a9a9d170?mod=hp_trending_now_article_pos5