This is a continuation of my first article: Preparing For the Coming US Debt Default Pt 1. As a brief recap, that article focused on the fact that the debt issue plaguing Greece and Europe have arrived at the US’s shores.
Once lenders figure out that there’s an increased risk of them not getting their money back, they:
1) Lend for a much shorter time period (hopefully insuring that you get your money back before the inevitable bust).
2) Demand a far greater yield (higher interest rates).
3) Stop lending.
Well, we’ve already got #1 in the US.
The Debt Spiral Has Begun
The US has entered a debt spiral: a situation in which more and more debt needs to be issued at the same time that lenders are unwilling to lend to the US for any lengthy period of time (greater than three years).
On top of this, the US must to roll over trillions in old debt at the same time that it needs to issue an additional $150 billion in debt per month to finance its current deficit.
Indeed, in the next 5 years alone the US will have 73 days in which it needs to roll over $20+ billion in debt and 46 days in which it needs to roll over $30+ billion.
Again, we are in a debt spiral. Investors are piling into short-term Treasuries hoping to have some kind of security based on stock market volatility. But eventually the long-end of the Treasury market will collapse due to lack of demand: the world will figure out that the US is unable to repay its debts and will not be willing to invest for 30 years anymore.
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