Special Report – Wall Street Underground

By Nick Guarino | August 9, 2016

U.S. Government debt is going to yield negative

I got a Letter to the Editor that deserves a lengthy response

Hi everybody, HK asked some questions that many of you have sent me. It’s not an easy subject, it deserved more than a paragraph. So here goes:


Dear Nick, Can you please explain the concept of QE, creating central bank reserve, and treasury bond printing by treasury. With negative rates central banks will lose money with the fed and would it not cause more speculation and higher stock prices? At what time will Treasury will stop printing and even at negative interest rates stocks will fall and depression starts. HK

Hi HK, Treasury Bonds debt issuance is negative on money supply. It sucks money out of the system. Which will be negative for the stock market and other investments. It’s not creating or printing money. Money is only created by BANKS (not to be confused with central banks) debt creation IE making loans. Because banks create money on leverage since they loan on leverage.

On the other hand, TREASURY debt creation sucks money out of the system since the debt is being bought and paid for. Central banks don’t print money. I repeat, money is created through BANKS debt creation, no other way. (Also, debt is destroyed when that debt they create goes bad as we are seeing in record levels approaching the 2007/8 wipe out levels) It’s supply and demand for Treasury debt that sets the yield in the Treasury Notes and Bond markets. The Fed is a creature of short term rates, NOT LONG TERM DEBT. Treasury debt is market neutral. See, what most people fail to understand because of blow and go created by fools is this: there is NO DEBT CRISES. Debt creation and debt sales by the US treasury has been cut in half… Yes, I know the politicians have got many people in a tissy fit about the “debt crises”. There is NO DEBT CRISES in America. The US national debt is not that large when viewed in light of the US GDP and the core wealth of Americans. It truly is NOT an issue. In fact, US debt issuance is falling. US budget deficits were running a trillion dollars a year or more. They are now half of that running under 500 billion. Let me quote the Wall Street Journal:

WASHINGTON—The U.S. budget deficit narrowed further in May as revenue continued to rise faster than expenses have in the past year, the Treasury Department said.

Here is a chart:

As you can see, US government budget deficits peaked in 2009 at 1.4 trillion a year. This is new debt creation. And now deficits are under 500 billion a year. A remarkable turnaround. No other country in the world has seen government deficits fall so far or so fast. It’s not that spending has fallen, it has not. It’s because Americans are among the most taxed people in the world and are paying so much more in taxes.

What debt crises… It’s all bullshit!

Every debt issue by Treasury is 3 times oversubscribed. That’s right, the demand for US government debt is so big that 2/3 of the people that want to buy US government debt go home empty handed… Funny how they try to shit you ain’t it? And get this, because demand is so great and Treasury debt issue has been sinking, rates are going lower… There is a growing supply shortage.

You’ve heard the hysterics about the 18 trillion dollar debt load. SO! It ain’t shit… That’s right, it is not a pimple on a dead broke bankers ass. And here is why. The cost to service US debt is the lowest it’s ever been. Average interest payments on US debt was over 7% for years. In 1985 is was over 15%. You know what it is now? The interest payment on the national debt is 2.5% and going lower by the day. And here is something else you need to understand. The debt is already sold. The US government has sold all its debt. And people the world over are clambering for more. Because no other debt in the world is more secured, more guaranteed than good old Uncle Sam Treasury debt. Through war, civil war, insertions, civil strife, depression and market crashes, the US has always honoured its debt obligations and always will.

Now I am sure you have heard the bullshit that China or Japan will dump US debt… They won’t but suppose they did! The US government does not buy back its debt early. In other words, when you buy a 30 year bond, you cannot cash it in to government whenever you want. You have to wait until maturity. If you want to sell it before maturity, you’ve got to go to the secondary market.

As far as government is concerned, dumping of US government debt before maturity is a non event. If China or Japan or foreign governments that hold over 40% of US government debt want to cash out early, they’ve got to go to the secondary market. And get this, the secondary market in US government debt is the biggest, most liquid market in the world. Here is another little tidbit. The most profitable investment the Chinese and Japanese have ever made is US government debt. With interest rates plunging they are making a killing.

And get this, as rates go negative in the US as they are in many countries around the world. The cost of servicing the US debt goes even lower. There is no debt crises. There is a stupid crises. That is an organized conspiracy to make you stupid about US government debt and shit you into believing US debt and the dollar will crash. Nothing could be further form the truth.

As negative government debt proliferates (25% of industrialized country debt issued in the past year is yielding negative) it is going further negative and further out in duration. So there is nothing to argue about, government debt is yielding more and more negative around the world. Now the only issue is how negative it will go. We are getting to negative interest rates in the US. In fact, I am sure you will see double digit negative yields on US Bonds within the next 2 years.

In fact, it’s started. Rates on US government debt in the when issued market are the LOWEST EVER.

Thank You,

Nick Guarino

PS – HK, I thank you for a great question.




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