The soaring deficit has been steroids for the US economy, but the government must borrow that money before it can spend it. That means that a trillion dollars a year is now hitting, and will continue to hit the market in massive quarterly waves for years. And the money isn't there to absorb it without prices falling drastically. That means lower stock and bond prices and higher bond yields.


On October 15, the Trump Regime confirmed all of those warnings when it announced that the fiscal year 2018 budget deficit had blown out to $779 billion, with the tax cut and Budget Busting Agreement impacting only the last 8 months of that period. For the first 4 months of the fiscal year, tax revenues were higher, at the old higher rates, and spending was less than now.

For the first full calendar year after those two laws were went into effect, we can expect the deficit to exceed a trillion dollars. That means an average of $80-90 billion per month in new Treasury supply.

... this month the dam broke as Treasury supply returned to the market in a huge wave in the first two weeks of October. The markets were not able to smoothly absorb that onslaught of supply.  That onslaught will continue as tax collections will be seasonally weak until the next quarterly tax due date in mid-January. Until then, a gargantuan wave of supply is coming that will repeatedly buffet the markets.''

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