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Solution to the US Treasury Bond Crisis and Inflation

SanTi Li

2023-06-08 16:58

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Original title: "Solutions to the US Debt Crisis and Inflation"

Original author: SanTi Li & Naxida

Source: Future Brother

One, the harm of inflation:

The Hazards of Inflation:

Inflation: Inflation can lead to a rise in prices, which increases the cost of living and reduces people's purchasing power.

Economic instability: Inflation can lead to economic instability, increase investment risks, and may cause a decline in corporate profits.

The widening gap between rich and poor: Inflation may exacerbate the gap between rich and poor, leading to social injustice and unrest.

二、The dangers of deflation:

The dangers of deflation:

Price Decline: Deflation caused by tight monetary policy may lead to a decrease in prices, which could result in consumers delaying consumption and a decline in corporate profits.

Economic contraction: Deflation may lead to economic contraction, rising unemployment, and slowing economic growth.

Increased debt burden: Deflation may lead to an increased debt burden, making it difficult to repay debts and increasing the risk of bankruptcy.

If the debt ceiling continues to be raised and new debt continues to be issued, it will exacerbate the inflation crisis. Meanwhile, sustained interest rate hikes will cause interest rates to continue to rise, leading to deflation and debt defaults, especially as risks in bank and government debt emerge simultaneously.

Three, how to solve the vicious cycle of inflation and debt crisis at the same time?

Adjusting the debt ceiling: Due to the relatively small size of the debt ceiling set by the United States for itself, there is still room for gradual adjustment. If the debt ceiling is suddenly raised significantly, it may further increase international market concerns about the US fiscal situation and exacerbate inflation concerns. Therefore, the US may need to gradually and steadily increase the debt ceiling to avoid market panic.

Debt restructuring: Extending the term of debt, reducing the interest rate of debt, refinancing (although this method can temporarily alleviate the crisis, it cannot solve the crisis), partially forgiving debt, debt reset, debt-to-equity swap, and other means. Although debt restructuring can help quickly reduce debt, it often occurs during relatively crisis periods, especially when it involves national debt, it will also involve the country's reputation and market risks.

Therefore, this method often occurs before and after a crisis, such as: debt default/heavy debt burden/economic crisis/reform, when national income decreases, debt restructuring is used to alleviate economic pressure and release new space.

Moderate Monetary Policy: The central bank can control inflation by adjusting interest rates and money supply. The Federal Reserve needs to find a balance between controlling inflation and avoiding an economic downturn. This may mean moderate interest rate hikes, increasing borrowing costs, reducing money supply, and suppressing inflation. However, the speed and magnitude of interest rate hikes need to be carefully controlled at this moment to avoid triggering market panic and debt defaults. The current economic environment is vastly different from 2022, and it is not an exaggeration to describe it as walking on thin ice.

Fiscal Policy: The United States may need to undertake some fiscal policy reforms, including cutting unnecessary government spending, reforming the tax system, increasing taxes, and seeking new sources of revenue (whether this includes raising protection fees for gray industry-rich oil companies or certain small and medium-sized countries is uncertain).

Drive Economic Growth: By driving economic growth, the government can increase its tax revenue, thereby helping to alleviate the debt burden. This may require a series of policies, including investing in infrastructure, improving education and skills training, promoting technological innovation, and more.

Structural Reform: The government can improve the productivity and competitiveness of the economy by implementing structural reforms, thereby increasing the growth potential of the economy and helping to address debt problems.

International Cooperation: In today's globalization, inflation and debt problems often require international cooperation to solve. For example, countries can seek help through international financial institutions such as the International Monetary Fund (IMF) and the World Bank, or stimulate economic growth through international trade and investment. As a major power in the world economy, the United States can cooperate with other countries and international financial institutions to jointly address and share the burden of inflation and debt crises.

Social Security System: The government can protect the most vulnerable groups in society and alleviate the impact of inflation and debt problems on them by establishing and improving social security systems such as pensions and medical insurance.

Shift of focus: By promoting the gaming industry, virtual industry, entertainment industry, digital industry, and new reservoir industry, the harm caused by default risk and inflation risk can be relatively weakened, allowing people to shift their focus to relatively happy and prosperous spiritual fields.

Transfer of Contradiction: Transforming internal contradictions into international and external contradictions. Although the latter two methods cannot solve the fundamental problem, they can help to relieve pressure and negative emotions. This can lower the threshold for problem-solving and reduce negative emotions. (Note that transferring attention and contradiction points can only be effective in the short term and cannot solve long-term fundamental problems, so they can only be used as temporary tactical measures.)

The above solutions need to be adjusted and applied according to specific economic environments and market responses. It can be seen that not only the United States, but many countries around the world are facing similar problems, and many policies and strategies actually have different effects. However, the current economic environment has reached a stage where it requires a great wisdom of harmony and reconciliation, so this is a great test of wisdom and courage for policy makers, and it requires the understanding and support of the entire market and all people to complete this difficult task.

Four, Summary of Usage Strategy:

Change: Everything is constantly changing, and we need to adapt to these changes instead of resisting them. In the current economic situation, we need to adapt to the changes in the market and quickly adjust our economic policies and strategies to fit the new economic environment. These changes can occur in as little as six months, one month, one week, or even overnight. We need to be able to move with the changes.

Balance: Yin and Yang balance, everything and strategic tactics have two sides. We need to strive to pursue the direction that is favorable to us. In the issues of inflation and debt crisis, we need to find a balance point, which not only controls inflation but also solves the debt problem. Or find the harmony or root point of deflation in the inflation area, and find the stimulating area relative to inflation in deflation, gradually achieving balance. This may require us to find a balance between monetary policy and fiscal policy.

Deduction: If a crisis is inevitable but it is uncertain which type it will be, we need to analyze future economic trends and deduce adjustment strategies for different scenarios so that we can prepare in advance, take precautions, and avoid or mitigate the impact of economic problems.

Harmony: Harmony is the foundation of all things. When solving problems such as inflation and debt crises, we need to seek harmony among all parties, including the government, enterprises, and the public. And this point, the ancient Chinese wisdom of Zhouyi and Huaxia may be of great benefit to us in getting through this crisis. When the crisis comes, we may temporarily maintain the most important symbiotic relationship and weaken the antagonistic links in less important areas.

Five, trend prediction:

Mode 1:

(Note: This content contains HTML tags and English characters, which will not be translated. The Chinese characters will be translated as requested.)

Increase the debt ceiling, reduce expenses, search for new revenue channels (investigation/taxation/recovery/seizure/litigation/new business), and issue new bonds for financing.

暂缓加息，通膨回弹，持续加息，危机难耐，债务压力持续加大，较难维持。

Temporary suspension of interest rate hikes, rebound in inflation, continued interest rate hikes, crisis is difficult to sustain, continuous increase in debt pressure, difficult to maintain.

Partial default, damaged reputation, crisis strikes, thunderous debt, debt restructuring, burden relief.

Restart the economy, multiple stimuli, enter the virtual, new inflation period, new era.

Mode 2:

Directly release water, entering the era of inflation, relying on new reservoirs to absorb water (virtual assets, metaverse, VR, AI, etc.).

Due to Mode 2, people will only directly experience inflation without a painful comparison, so personally I feel that the probability is not high. I tend to speculate on the trend of Mode 1.

This is purely a personal and limited perspective, with no directional recommendations or guidance on investment implications. I hope that everyone can analyze the upcoming turbulence before the new era arrives and come to their own conclusions based on their own wisdom and insights.