Analyst Anticipates Unique Debt Crisis for US Similar to Bank of England Scenario Ahead of Elections
Otavio Costa, a Macro Strategist at Crescat Capital, an asset management firm with a multidisciplinary approach, has expressed his concerns regarding the liquidity index of U.S. government securities and its potential consequences for the country’s debt situation. He predicts that the United States is on the brink of experiencing its own unique version of the ‘Bank of England’ crisis prior to the upcoming elections, potentially leading to a significant surge in yields.
Warning signs of a Bank of England crisis in US debt, alarming yield increases anticipated
Otavio Costa, Macro Strategist at Crescat Capital, has issued a warning about forthcoming challenges for the U.S. economy in the run-up to the presidential elections. On social media, Costa has drawn attention to the declining liquidity of the U.S. government securities index, which has reached its lowest levels since the 2011 European debt crisis.
Costa also highlighted that the deteriorating liquidity of U.S. Treasuries is particularly troubling given that the U.S. currently boasts “one of the largest interest rate differentials compared to other developed economies in history” when compared to other advanced nations.
He believes that the stage is being set for the U.S. economy to experience its own version of the ‘Bank of England’ crisis. By this, Costa is referring to a significant increase in treasury yields due to the announcement of £45 billion (over $57 billion) in unfunded tax cuts, which raises concerns about the sustainability of UK debt by September 2022.
Costa emphasized:
“We are facing one of the most severe fiscal imbalances in history, amid an inflationary environment, with declining demand from foreign central banks relative to Treasury issuances.”
Furthermore, Costa highlighted that traditional investment portfolios, which typically allocate 60% of funds to equities and 40% to bonds, might consider reallocating a portion of their assets to safe-haven commodities like gold. This strategy aims to build defensive structures against forthcoming imbalances, taking advantage of the stability that precious metals offer.
Other analysts and experts have also been warning about an imminent debt crisis since earlier this year. In January, Robert Kiyosaki cautioned investors about the ballooning U.S. debt, recommending the purchase of gold, silver, and bitcoin. Similarly, in March, Mike Novogratz, CEO of Galaxy Digital, emphasized the necessity for the government to increase taxes and reduce spending in order to prevent a debt spiral crisis.