Imagine this…
You have a $6m mortgage on a house worth $3m and no other assets.
That’s the good news.
Here’s the bad news…
Your take home pay is minus $200,000!
(You owe your boss $200,000 at the end of the year because you spent so much money you almost sent the business broke.)
That’s what the US economy looks like right now. Buggered!
Here’s the problem…
Since the pandemic broke, US government debt has doubled to $32 trillion.
Worse, it has a deficit (expenses greater than income) of $2 trillion which means it can’t service its own ballooning debt repayments.
Consequently, this means the US Federal Reserve (central bank) will have to sell a heap of government bonds to service its debt.
The problem is, to make these bonds attractive they’ll have to offer them at higher interest rates.
And as they push their own rates higher, it will increase their debt repayments thus forcing them to sell more bonds at higher rates to service their increasing debt.
So even if inflation was under control, which is doubtful, their rates will almost certainly go higher just because of its own vicious cycle of debt.
Their current cash rate is 5.5% and could quite easily go to 6.5-7%.
18 months ago, it was 0.1%!
But there’s no ill wind that doesn’t blow some good.
As rates continue to go higher, the best investments short term will be 3-6 month term deposits and government bonds – low risk, high returns.
You don’t see that very often.
Have a great weekend!
Adam
Back paddock – there’s a wonderful movie on Netflix at the moment called Nyad.
At age 64 Diana Nyad was the first person to swim from Cuba to Florida (181 km) without a shark cage!
Her story reminds me of Sarah Thomas.
Sarah is an ultra-marathon swimmer who was diagnosed with an aggressive breast tumor in 2017.
One year after undergoing surgery, chemo, and radiotherapy she became the first person in history to cross the English Channel 4 times in one swim!
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