Here is the translation of the provided text into English: Recently, someone asked, with the US dollar likely to cut interest rates, will US Treasuries recover?
This question is actually quite complex.
Setting aside the sensationalist rhetoric often used in discussions, there are three methods the Americans are trying to solve the US debt problem.
Can they revive the troubled US Treasuries?
The issue with the US dollar is no longer complicated; even if there is no rate cut in September, it will happen within this year.
The problem with US Treasuries is much more complex, as everyone is closely watching the scale and interest cost of US debt, which indeed looks quite daunting.
On July 26th, the US national debt reached $35.001 trillion, officially breaking through the $35 trillion mark.
Based on the scale of the US federal deficit and the speed of debt rollover, it is expected that before the election in early November, the scale of US debt will exceed $36 trillion.
The trouble with US debt lies here, with most of the expenditure being inescapable passive payments, such as military spending and social welfare costs, and the high interest cost is also a significant issue.
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Therefore, many people believe that if the US dollar cuts interest rates and the scale of US debt interest payments comes down, it may not solve the problem, but it could greatly alleviate it.
Is it really that simple?
In fact, the scale of US debt and the interest cost are not the biggest crises; there are hidden crises deeper within the US debt.
The scale of US debt is not a major problem, and the interest cost is not an immediate life-or-death matter.
What truly threatens the life of US debt is the structural transformation of US debt and the liquidity crisis.
Let's first look at the structural transformation of US debt.
What does this mean?
In the past two years, to cope with the fiscal crisis, under Yellen's leadership, the US Treasury has replaced medium and long-term US debt with a large amount of short-term US debt.
This process is both passive and active.
There is a growing lack of confidence in medium and long-term US debt, which is not selling well, leading to an inversion of interest rates between short-term and medium to long-term US debt.
Originally, medium and long-term US debt has a lower credit rating, so the interest rates are higher; short-term US debt has a higher credit rating because it has to be cashed in soon, and the US Treasury dares not easily default, so the interest rates should be lower.
However, medium and long-term US debt is becoming increasingly difficult to sell, and this year there have even been several terrible situations where they failed to sell at auction, so the US Treasury has had to sell a large amount of short-term US debt.
People like Buffett have taken the opportunity to accumulate a large amount of Treasury bills, which are short-term US debt.
Some people think that the US selling short-term US debt is not a problem, as long as it can be sold, it can continue the game of borrowing new to repay old.
However, the high proportion of short-term US debt has led to two bad results.
First, the scale of maturing US debt is getting bigger and bigger, like a mountain pressing down, making it hard for the US federal government to breathe.
Some time ago, someone said that the US debt maturing within a year is as high as $9.7 trillion.
Second, the burden on domestic capitalists to digest US debt is getting heavier and heavier, and many people are starting to refuse to buy.
This problem is huge.
Currently, the proportion of US debt held overseas is about 21%, and about 79%, or $28 trillion, needs to be digested domestically.
In the past, the US government's approach was to sell medium and long-term US debt with longer repayment cycles and higher risks mainly to foreign central banks, and short-term US debt with lower risks and faster returns mainly to domestic capitalists.
In the past two years, foreign central banks have been selling US debt and buying less, forcing the US Treasury to shift medium and long-term US debt to domestic digestion as well.
American capitalists are not fools, and it is obvious that they are having indigestion.
Therefore, there is an unwritten rule for the proportion of short-term US debt, which is generally not more than 20%.
This ratio has long been greatly exceeded by the Biden administration.
The second crisis of US debt is the liquidity crisis.
This is easy to understand.
US debt is not only difficult to sell, but its liquidity has also become poor, with low turnover rates, making it increasingly difficult for those holding US debt to sell.
Faced with such a big problem, how do Americans solve it?
As we mentioned earlier, solving it by fighting is a sensationalist argument.
Small fights do not solve the problem, and big fights are too risky.
Therefore, Americans are unlikely to choose such major surgery as fighting and can only choose conservative therapy.
The so-called conservative therapy is essentially to continue borrowing new to repay old and delay time.
Americans have been immersed in this mode for decades and are very experienced, mainly having three methods.
The first method is to force global central banks to continue buying medium and long-term US debt.
In the past, Americans were adept at this, but currently, only a few countries such as Japan and the UK are still persisting, and most countries are a bit out of touch.
For two reasons: first, the US is stuck in two local wars, especially the deep involvement in the Middle East that has lasted for such a long time.
It is estimated that the Americans did not expect this, which is like a blunt knife cutting meat.
Second, some countries have resisted.
The second method is what the US Treasury is currently operating, using short-term US debt to replace medium and long-term US debt.
This is essentially a desperate remedy, similar to the historical model of the British royal family borrowing money from capitalists to fight wars, and eventually the British royal family owed too much money and had to cede most of its power.
If this model cannot be sustained, Americans can only negotiate with capitalists like the British, and the federal government reaches a new model.
The third method is what everyone often talks about, directly printing US dollars to repay US debt, but the result of printing a large amount of money is also very terrible.
In addition, if this is to be done, more US dollars must be decoupled from US debt, and US debt cannot be used as collateral, otherwise, the more US dollars are printed, the more US debt there will be, right?
So, if the US dollar cuts interest rates, for example, cutting 100 basis points within this year, it only reduces the scale of US debt interest payments by 1/4, and it cannot solve so many complex problems.
In the final analysis, the first method is the most effective and has been used for many years.
It depends on how much the current United States can achieve.