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The Bizarre Action in U.S. Treasuries Is Linked to the U.S. National Debt and the Repeal of the Glass-Steagall Act

Courtesy of Pam Martens

Growth of U.S. National Debt (Source: St. Louis Fed)

Growth of U.S. National Debt (Source: St. Louis Fed)

By Pam Martens and Russ Martens

Yesterday, the Dow Jones Industrial Average closed up 258 points but the yield on the 10-Year U.S. Treasury fell below 1.50 percent. In a normal market, if stocks are rallying that means there is confidence in the trajectory of economic growth in the U.S. When yields are collapsing on U.S. Treasuries, that means there is no confidence of sustained growth in the economy. So you can see why yesterday’s market activity is a serious contradiction of norms.

We believe the Treasury market is already discounting (looking ahead and factoring in) what the next recession is going to look like because of constraints on how much fiscal spending the Federal government can deploy.

To understand just how unprecedented the current amount of national debt is, one has to have some historical figures. At the beginning of the Bill Clinton Presidency in January 1993, the U.S. national debt stood at $4 trillion. At that point, the United States was more than two centuries old; it had financed the Revolutionary War, the Civil War, World Wars I and II and the Vietnam War. The country had also been through the greatest economic collapse in its history, the Great Depression, which required a multitude of  fiscal spending programs.

It took more than two centuries for the U.S. national debt to reach $4 trillion but in just the past 26 years, the national debt has grown by $18.5 trillion for a total of $22.5 trillion today. In just the past two and a half years since President Donald Trump took office, the national debt has grown by $2.5 trillion.


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