What It Means to Spend Over $3 Trillion

At a Glance

  • The U.S. has witnessed its fastest national debt increase in history in 2020
  • Despite record spending, the dollar has only decreased 7-8% as measured against the basket of currencies in the dollar index.

During the last five months, the U.S. national debt has increased from 23.5 trillion dollars to 26.5 trillion dollars. This represents the fastest increase in net dollar amount and on a percentage basis in history. During the same time period the Federal Reserve has embarked on an aggressive bond buying program with the goal of pushing rates as close to zero as possible throughout the yield curve.

Warning Signals

Despite what some economists believe could be a bold currency policy, the U.S. dollar has only decreased 7-8% as measured against the basket of currencies in the dollar index. Several other traditional fiat currency proxies, however, are flashing warning signals. Since putting in their March lows, gold has rallied 35%, silver 100% and bitcoin 200%.  Is the government’s higher spending going to have far reaching repercussions?

“Inflation is hard to get going, the Fed has proven that as other central banks have,” according to CME Group Chief Economist Blu Putnam who also noted that the world’s central banks have tried long and hard to achieve normal price inflation but have only succeeded in risk asset inflation. Veteran trader Jack Bouroudjian expressed a belief that the government is doing the right thing; “These are extraordinary times… if there was ever a time to go out there and do some serious borrowing, it’s when rates are low, not when they are high.”

 Measures of Fiscal Responsibility

Historically, there have been two ways that the market expresses its opinion regarding the government’s fiscal responsibility: the strength of the dollar or the demand for U.S. Treasuries.

Unfortunately both of these traditional measures have lost efficacy of late. The dollar index measures the dollar’s value against a basket of currencies with the euro and the yen disproportionately represented. Both of those countries’ central banks and governments are presently involved in currency depreciating policies as well, rendering comparisons less informative.

U.S. treasuries have been buoyed by the purchases of the Federal Reserve, making the current price useless in trying to ascertain organic demand. Sadly, we are left with few markets that we can use to gauge reaction to macroeconomic policies. The message from gold and silver probably is not that there is an impending currency crisis. Most probably fiat proxies are signaling an uneasiness related to the lack of normal market signals.  Either way it’s probably prudent to keep a close eye on market moves for clues as to how this all plays out.

Watch the full discussion on U.S. debt above. 

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Jim Iuorio is managing director of TJM Institutional Services and a veteran futures and options trader. Jim has spent his career brokering futures and options trades for large institutional clients in equity indexes, interest rate products, commodities and foreign exchange. His recommendations to clients blend macro-economic themes with technical analysis.

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