It may sound like hyperbole, but the looming global debt crisis cannot be taken lightly. After years of insanely low interest rates around the world, companies and governments issued debt like it was going out of style. And it just may.
In the last 15 years, worldwide debt has more than doubled, up by nearly $150 trillion. And the Institute of International Finance warned this past July that global debt rose the most in two years, by $8 trillion in the first quarter of this year, reaching an astounding $247 trillion.
That number represents a staggering 318% of global GDP.
Let that sink in.
What would happen if your family borrowings ballooned to more than triple your paycheck in a given year? Your banker would soon be knocking on your door.
The Clock Is Ticking: Millions of American retirement plans hang in the balance – and if you’re not doing this, you’re in for a nasty shock in a few weeks. Click here now…
And like an individual drowning in that much debt, the world is unlikely to repay all of that cash.
Guess who gets left holding the bag? You do! And it won’t be just a little loss.
Money Morning Resource Specialist Peter Krauth thinks it will be an absolute bloodbath for bond holders.
However, Krauth has found a way from to not only survive this “global debt bomb,” but to bank massive profits from it as well…
The Global Debt Problem Is Only Getting Worse
In the United States, the country’s debt has grown so large that people cannot wrap their heads around it. As it stands this week, the country is on the hook for a staggering $21.79 trillion – with a “t.” And even if nothing else happens in the economy, it will grow $310 billion per year just on the interest owed alone.
But things do happen in the economy, and in fiscal 2018, the budget deficit of $779 billion added that much to the total bill. If interest rates keep inching higher, the amount owed on the debt will get larger and larger until it crowds out other necessary spending.
Unfortunately, the U.S. is not alone with massive debt. Since the 2008 financial crisis, China has printed more money than the United States. And much of the borrowing is done in U.S. dollars, through dollar-denominated bonds.
That makes it harder for the debt to be repaid when the Chinese yuan weakens versus the greenback.
The International Monetary Fund (IMF) recently released its latest World Economic Outlook, along with some stark warnings. Exploding public debt resulting from mega bailouts and printing trillions to stimulate economies have limited the policy tools central banks have to deal with future crises.
In other words, central banks are already handcuffed with what they can do to combat future economic problems. They will be unable to handle the global debt bomb when it finally arrives.
The bond market is not helping, either. While the Fed grapples with its short-term interest rate policies, the bond market, which controls long-term interest rates, is already in a bear market. In other words, interest rates on Treasury notes, mortgages, and long corporate bonds are already rising significantly.
For example, the rate on the benchmark 10-year Treasury rallied from 2.06% in September of last year to its current 3.06%. That does not look like much, but it is a 50% increase in just 14 months.
Don’t forget, as interest rates rise, the dollar value of bonds and notes goes down. In fact, in just the three weeks from late September to mid-October, $1trillion in bond value was wiped out, according to the Bloomberg Barclays Multiverse Index.
That’s why we’re bringing you the following investment to own when interest rates climb. It’s an excellent way to profit from this global debt bomb, while others start panicking…
Here’s How You Can Profit from Higher Interest Rates
In the markets, there is more than one way to play. Investors who bought bonds lost money. However, investors who sold bonds short made money.
Selling short is not for everybody, but there are ways that individual investors can accomplish the same objective using exchange-traded notes (ETNs). Krauth recommends following the bearish trend in the price of bonds by owning an ETN that goes up when bond prices go down.
Yes, it takes a bit of financial engineering to do this. ETNs are not like ETFs, which actually own the assets they track. ETNs are much more complex.
To be sure, this is just for a small portion of your portfolio because it is a bit riskier than buying a regular bond. Krauth suggests buying the iPath US Treasury 10-year Bear ETN (NASDAQ: DTYS), which moves in the opposite direction from the 10-year Treasury price.
The ETN has done a pretty good job of tracking the 10-year yield, having doubled in the past 27 months. And it has a lot higher to go yet.
Remember, global debt has gotten completely out of hand, and interest rates have clearly begun rising.
With so much debt outstanding, the likelihood of it all being repaid is not so good. That means the value of those bonds will go down – which is good news for the Bear ETN. It could be a great hedge against the financial disaster that could erupt in the near future.
To get full access to all Money Morning content, click here
About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.
Disclaimer: © 2018 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.
The post We’re Racing Toward a “Global Debt Bomb” – Here’s How to Survive It appeared first on Money Morning – We Make Investing Profitable.
Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.
You must log in to post a comment.