The Federal Reserve has now lost a combined $192 Billion over the last 2 years
Source: Barchart, Wolfstreet.com
With the clock ticking on America’s $36 trillion debt ceiling (which could be breached as soon as August), the national debt continues to climb, as it has for decades.
According to the Congressional Budget Office, the US public debt stood at 98% of GDP last year, and is set to surpass the WWII peak by 2029, hitting 119% by 2035. 🔴 What might be of particular concern to the number crunchers at Moody’s is not just the current level of federal debt, but how quickly it’s growing. Last year, the deficit was $1.8 trillion, more than 6% of GDP. The interest payments on debt alone were some $882 billion, greater than the defense and Medicare budgets. 😨 The latest tax cuts and spending push — or, as President Trump calls it, “the big, beautiful bill” — could add another ~$4 trillion to the federal deficit over the next decade, with Moody’s now projecting that the debt-to-GDP ratio could surge to 134% by 2035. In an interview with NBC yesterday, Treasury Secretary Scott Bessent shrugged off the downgrade, calling Moody’s a “lagging indicator.” But the markets took note, with the 30-year Treasury yield topping 5% this morning, a level last seen in late 2023.
Is it the end game for US Treasuries?
The Bank of Japan owns a whopping 52% of its domestic government bond market. Since July, the BoJ has been gradually reducing the size of its holdings. The estimated value of Japan's government debt market is $7.8 TRILLION, world's 3rd largest. Source: Global Markets Investor, Bloomberg
Moody’s downgrade does NOT change much; they just aligned with S&P and Fitch.
What DOES matter is the fiscal and debt situation which remain major worries Source cartoon: Hedgeye
After a record 25 consecutive months of negative real wage growth, wages have now outpaced reported inflation on a YoY basis for 24 straight months.
This is a great sign for the American worker that hopefully continues. Source: Charlie Bilello
Thoughts on the Moody's Downgrade of the US sovereign credit rating (inspired by a tweet by Jim Bianco):
➡️ In August 2011, S&P first downgraded the US from AAA to AA+. Back then, many derivative contracts, loan agreements, investment directives, and similar documents prohibited the use of non-AAA securities. The fear was that a downgrade meant Treasuries were no longer eligible under these rules and would mean forced selling was to follow. ➡️ The 2011 downgrade left the US Split-Rated AAA (Moody's Aaa, Fitch AAA, S&P AA+). So, the US was still an AAA country and NOT in violation of these contracts. But everyone knew it was only a matter of time before the US lost its AAA status. So, in the years after 2011, those contracts were rewritten from "AAA securities" to "government securities," thereby excluding the credit rating qualification.
On May 15, the GDPNow model nowcast of real GDP growth in Q2 2025 is 2.5%
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April PPI plunged largely due to collapse in company margins as a result of absorbing tariff increases
What does it mean for corporate margins going forward? Moreover, Fed chairman Powell told us companies would pass through tariffs. Is it going to be the case? Source: zerohedge
