The Name Is Bond: U.S. Treasury Bond
Worries about the trade wars and a global economy aside, there will only be more American debt flooding world markets.
What is it about who plays James Bond that makes for such big news on trading desks around the world? Late this summer, we all learned that it would not be Sandra Oh, Idris Elba, Henry Cavill or any of the other wannabe Bonds. It would be Daniel Craig who would play the famed British spy in the 25th installment of the famed Ian Fleming franchise.
Was it us, or didn’t the world seem relieved that it would stick with the Bond it knew? We sense the same relief in the market for government bonds.
After concerns over the decline in U.S. economic prestige and the hand wringing over the rise in Chinese monetary influence, if recent data is any indication, the financial world will stick with the actor it knows. It appears that there is only one fiscal performer with the chops to play the coin-of-the-realm for a growing world economy over the next 5 years: The U.S. dollar and its credit antipode, U.S. treasury bills.
From T Bill With Love
To get a feel for the once-and-future demand for U.S debt, let’s explore the government debt forecasts for 2018 through 2024, from one of our favorite research sources: Knoema. This public data aggregator, which prefers to keep its office location discreet, offers free yet accurate aggregations and visualizations for global economic data.
What we care about today is Knoema’s Government Debt Forecast, which essentially charts the round-number Gross Debt as a function of Gross Domestic Product through 2024. Data from the The International Monetary Fund, the European Commission, or the Organization for Economic Cooperation And Development, or OECD, is all charted for easy comparison.
The story these must-click visualizations tell is as obvious as James Bond getting the bad guy in the end: There will be nothing but more U.S. Treasury Debt flooding the global economy over the next half-decade. U.S. debt as a function of U.S. national product will rise from its recent “low” of 105% of GDP in 2018, to a numbing 113% of US GDP by 2024, if you choose to use use OECD data.
Compare that future of endless American leverage to the more frugal borrowing plans of the other major economies. Canada’s government debt will fall from 90% to just 72% by 2024. France’s debt will drop from 99% of GDP down to 96%. The UK will see its debt-ratio drop from 87% to 81%. Mexico will hold steady at 55%, as will many other South American economies. The eye popper for fiscal restraint will be Germany, that is on track to see its share of government debt fall from 70% down to 43%. The entire European area, will see its debt ratio fall from 95% to roughly 80% of GDP.
One of the few economies of any size that is on track to place more debt globally is China. It will grow from 40% of GDP to around 70%, which feels like a huge increase. But remember, both economies are about the same size, but the scale of American borrowing is so much larger.
The World is Not Enough
That all raises Casino Royale-scale questions: What happens when government issued debt surpasses private corporate borrowing? Remember, by 2025 the U.S. GDP will be in the $25 trillion range. 113% of that big of economy is a lot of debt for any private market to digest. In such a world, what role will central banks play? How will The Fed regulate growth, when its dominant partner is not Bank of America or Wells Fargo, but the U.S. Treasury?
No matter what, there will be nothing but more debt flowing through the world. And at some point, most of it will be U.S. debt. What happens to a so-called global economy when it’s powered by just one currency?
To quote the original James Bond, Sean Connery in From Russia With Love, the results could be “Shocking. Positively Shocking.”
