With attention focused on the health of the United States economy, the data-driven research platform Game of Trade has warned of potentially dire consequences based on the performance of specific metrics.
In an X (formerly Twitter) post on May 3, the platform suggested that the economy is facing a grim outlook, primarily based on the trajectory of U.S. government debt markets, indicating it appears to be collapsing.
“The US government debt market collapse has begun. This has MASSIVE implications for the economy,” the platform noted.
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According to the analysis, U.S. government bonds have shattered a 40-year uptrend, with prices plummeting to levels not seen since 2013. This unprecedented decline, one of the most vicious bear markets since the 1980s, has inflicted significant losses on investors, particularly those heavily invested in Treasury bonds.
Gold’s performance
Adding fuel to the fire is the outperformance of gold, which has surged by a staggering 170% since March 2020, overshadowing the performance of Treasury bonds. The surge in gold prices comes amidst growing government spending, with expenditures skyrocketing from $3.4 trillion to nearly $4 trillion in just two years, as per the data provided by the Game of Trades.
Indeed, in recent months, government spending has been a primary concern for economists, noting that the situation could affect the dollar.
Additionally, the platform underscored the role of rising government spending, financed by increased issuance of Treasury bonds, as a significant contributing factor to the potential market turmoil.
Game of Trades noted that Treasury bond issuance is expected to reach $1.9 trillion in 2024, surpassing levels seen during the 2008 financial crisis. Notably, this element has led to concerns about the sustainability of government debt.
Implication of the labor force
Additionally, the researchers pointed to a confluence of factors driving the breakdown in Treasury bonds, including a decline in the labor force participation rate. According to data shared by the entity, the correlation between rising US government debt and decreasing labor force participation over the past two decades has become increasingly apparent, signaling economic strain as more individuals retire and fewer participate in the workforce.
Notably, this comes after the latest U.S. jobs report revealed a drop, with employers adding 175,000 jobs last month against expectations of a 243,000 increase.
“One of the key factors that’s driving this long-term breakdown in treasury bonds is the decline in labor force participation rate. It has correlated strongly with rising US government debt over the last 20 years,” Game of Trades added.
Elsewhere, Game of Trades noted that the aging U.S. population and the impending retirement of baby boomers further compound the economic challenges, necessitating increased government spending. However, the analysis raised doubts about the likelihood of meaningful changes to spending habits in the near future, exacerbating concerns about mounting government debt.
Safe haven for investors
In light of these developments, attention now turns to assets likely to cushion investors against a possible economic crash. The researchers pointed to gold’s recent meteoric rise in this regard.
The experts noted that while gold may encounter resistance in the near term, the persistent issues plaguing U.S. debt suggest that its breakout could have further upside potential.
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