Although I try to write only crypto-focused on Square, it is not possible to make predictions about a financial asset and evaluate investments without understanding the big picture. That's why I've been sharing, albeit in short summaries, about the parts of macroeconomics that concern this side recently. That's why I hope it will be useful for the users of this place 🙏
First of all, I need to explain a few basic things:
👉 GDP (Gross Domestic Product)
GDP is the total monetary value of all goods and services produced within a country’s borders over a specific period, usually a quarter or a year. It is the most widely used measure of a nation’s economic performance.
There are different types of GDP and all of them have different calculation methods, but I won't bore you with the details. It's just important to know that; GDP is crucial for economists, policymakers, and investors as it helps assess economic trends, living standards, and market conditions. GDP reflects the overall health and size of an economy.
👉 Debt-to-GDP Ratio
Debt-to-GDP Ratio represents the proportion of a country's total public debt (government debt) relative to its GDP. It is used to assess how sustainable a nation's debt is compared to the size of its economy.
Comparing a country’s debt to its GDP reveals the country’s ability to pay down its debt. This ratio is considered a better indicator of a country’s fiscal situation than just the national debt number because it shows the burden of debt relative to the country’s total economic output and therefore its ability to repay it.
Low ratios (typically below 60%) → Indicate a stronger financial position and the ability to manage debt effectively.
High ratios (e.g., 100% or more) → Raise concerns about debt sustainability. A country with excessive debt may struggle to pay interest, leading to financial instability.
Higher ratios can signal potential debt crises or even default risks. Investors may perceive higher debt ratios as riskier, affecting government bond yields and credit ratings. Central banks and governments consider debt levels when setting interest rates and fiscal policies.
For example, Japan’s debt-to-GDP is estimated to be approx. 8.84 Trillion USD (1.35 quadrillion yen), or 263% of GDP, and is one of the highest among developed nations. 43.3% of this debt is held by the Bank of Japan. But it remained manageable due to low interest rates and domestic borrowing (until a while ago, but that's another story). In contrast, countries like Argentina have faced economic crises due to unsustainable debt levels.
👀 The U.S. Government Debt
Government Debt in the U.S. is currently approx. 36.22 Trillion USD.
U.S. Debt-to-GDP Ratio surpassed 100% in 2013 when both debt and GDP were approximately 16.7 trillion and with the latest updated data we see that it is 122.3%.
With the information I provided under the previous title, you can already guess that this current situation is far from sustainable.
💥 U.S. Debts Due in 2025
Nearly $3 trillion of U.S. debt is expected to hit maturity in 2025, much of it of a short-term nature.
Part of the monetary tightening implemented to curb inflation that increased with the money printed after the pandemic was to increase interest rates. Although high interest rates have begun to be reduced along with the "announced inflation" that has begun to be brought under control, they are still well above historical averages.
Since signing new debts at these rates will make things even more inextricable for many years, it is imperative that they are renewed with the lowest possible interest rates.
✨ Early signals that not everyone sees
I think many analysts and people have gone wrong, especially with the idea that Trump wants a strong USD (there are still those who defend this). It would be a mistake for a country that imports value added products from abroad and exports cheaper and less value added products abroad to have such an idea.
Strong USD simply means USD that pays high interest rates. Now, in light of what I have explained, you should understand how absurd, impossible and unsustainable this idea is.
Months ago, before Trump was elected, I had already expressed that these expectations were wrong and that I thought differently in the post I shared below.
https://x.com/TimechainCoder/status/1857895729739502023
At that time, analysts and people made some predictions by misinterpreting the results of Trump's policies, and I made the following post, especially regarding U.S. indicators and gold prices. I do not remember anyone else defending these views at that time.
They thought that the price of gold would reach 2K USD and below, based on memorized assumptions such as if there was geopolitical tension, the price of gold would increase, and if tensions and wars were stopped, the price of gold would decrease. You can see all of them with a simple search on the internet.
Another big misconception stems from people seeing every word spoken by individuals and institutions as something that will be implemented with certainty and is unchangeable, and making predictions and plans based solely on these words without trying to read market realities. I have often voiced my criticism in my X posts that I acted outside expectations in many matters like this, and that when I was proven right, these were actually part of a planned program.
✨ What is Trump trying to do and why have things suddenly come to this?
In light of all the information I have explained above, you should understand that these events are not things that happened all at once, but are part of plans that have been going on for a long time. All of these are just the results of things that were put into practice step by step.
In order to achieve this, first of all, individuals, institutions and other states need to be directed to U.S. government bonds. In this way, bond interest rates can fall. Of course, as a side effect of this, the money that goes into bonds should largely go out of risky assets. What are they? First of all, crypto, stocks and others...
Therefore, these events are not unexpected. What is important is whether the positive effects of this process will be seen and how long it will take to see them.
I will not go into the political aspects of the matter because the scope would increase incredibly and I do not want to extend it, but let me summarize; I do not find 90% of the policies implemented to realize these things right. Trade wars, threats, etc. should not be the right approach of a country whose currency is an international reserve currency because it turns things into gambling to some extent. The uncertainty and fears experienced are actually due to this.
⭐ Conclusion
If Trump succeeds:
U.S. debt is more under control
Inflation continues at sustainable levels
Markets are reset and more credit is provided to the private sector through banks, along with other factors that are under control
Quantitative easing begins and risky markets start a new rally, and all assets priced in USD experience major increases in value
If Trump fails:
Recession is no longer our only concern, it is worse: Stagflation.
What does this mean? Both high inflation and U.S. an economic recession that will be reflected in all global markets, especially the markets
A major financial collapse and risky asset prices that have sunk to the ground
A global depression, increasing unemployment and poverty that will be experienced throughout this process, medium and low-net-worth people going through much more difficult times, the collapse of many companies that could not properly hedge their assets
Throughout this process, the assets of these two asset groups will continue to shift towards the big ones in the classical order we know and make them even richer
In fact, all of these I have listed express a cycle that we experience in much longer periods of time in the current financial order. Although it may sound like a disaster scenario, it is actually a cycle that most people do not realize while living in it and that has spread over a long period of time.
America is not outside of this cycle either and they are actually a victim of this global slavery system (even though the majority perceives it differently) and what is being tried to be done right now is to try to break the chains of this slavery system. Otherwise, all the assets of the countries will continue to flow into the hands of the circles that are the founders and enforcers of this system I mentioned (I occasionally give veiled messages about these on social media but for some reason I don't want to go too deep, but if you understand my style, you know that I only act in light of science and data and that I am not someone who deals with baseless conspiracy theories).
👀 What should we do as individual investors?
In an environment where even the world's largest central banks, especially the Fed, say "we have not planned our steps for X period of time, we will shape our implementation according to the incoming data", we should of course act as they do, not as they direct us, and try to read the market correctly, shape our investments according to the course, data and real outcomes shown by the markets, not behave emotionally, not fight with the data and trends...
I hope it was a useful and thought-provoking read. 🙏
Peace out!
Attention: All of these writings are my personal opinions and comments and do not contain any investment advice/financial advice etc..
You should do your own research and develop your own personal comments when shaping your investment/financial decisions.
Sources
(1) FiscalData Treasury Gov
(2) U.S. Department of the Treasury
(3) Trading Economics
(4) Wikipedia (😳)
