Recently, the entire domestic media has been filled with voices about U.S. Treasury defaults.
In fact, if one doesn't have some basic knowledge of economics,
they could really be misled by their own people.
Even many influencers say there's a high probability of a black swan in June, and the market may crash.
It's truly ridiculous and absurd! To help everyone clarify the real situation, I specially created this chart, covering a lot of data verification.

First, U.S. Treasury bond defaults can be divided into two types:

1. The first type of technical default.
In simple terms, it's because the debt ceiling hasn't been approved, or the fiscal budget has hit a snag, causing the U.S. Treasury to temporarily be unable to pay.

But this isn't about the government lacking money to pay; it's rather that there's a huge internal conflict in Washington, leading to a political deadlock. It's like your mobile banking is frozen, and you can only apply for a credit card extension, even though you have money in your account.

The debt ceiling is like family financial management rules: three brothers take turns managing the accounts, but the power to print money and use credit cards is separate.
The one in charge can use the credit card to buy things, but to increase the limit, the other two must agree. If someone spends recklessly, the other two will block the approval.
For example, in 2011, Obama and the Republicans had a fierce argument over healthcare reform and fiscal stimulus, almost dragging the debt ceiling to default, but they eventually reached a compromise.

This kind of default is essentially political infighting, not an inability to repay money. Historically, democratic countries like the U.S., Japan, and Germany rarely truly default; rather, countries with concentrated power are more prone to uncontrolled inflation.

2. The second type of substantive default.
This is the real 'unable to pay,' similar to situations in Argentina and Sri Lanka. But it is almost impossible for the U.S. to experience such a thing!
The reason is simple: the U.S. dollar is printed by the U.S. itself. If a default occurs, it can simply ramp up the printing press.
Countries like Greece and Argentina default because they owe euro and dollar-denominated debt and cannot print their own currency.
However, printing money recklessly also has consequences — inflation. For example, during the pandemic, massive monetary easing led to a 'devaluation default' of the dollar.
In fact, since the collapse of the Bretton Woods system in 1973, the dollar has been depreciating against gold. But all global currencies are in a race to devalue; those who devalue less and have stronger economies will emerge as the 'world currency.'
Therefore, rather than stubbornly defending the exchange rate, it is better to follow the depreciation and earn trade price differences. This is the underlying logic of dollar hegemony.

Q&A on the risks of U.S. Treasury bonds
Recently, the claim that 'in June, $6 trillion of U.S. Treasury bonds will mature, posing a huge risk of rolling refinancing' has been rampant. Some even believe this is a 'trap' set by Biden for the Trump administration.

There are also concerns that once the debt ceiling issue is resolved, a large increase in U.S. Treasury bonds will trigger a 'liquidity crisis' black swan event, causing the market to plummet or U.S. Treasury rates to rise. Are these claims credible?

1. Focus on U.S. Treasury bonds; don't miss the key points.
Many people focus on the monthly maturity volume of U.S. Treasury bonds. However, this is not the key. What really deserves attention is the issuance volume of U.S. Treasury bonds with maturities longer than one year (notes and bonds).
U.S. Treasury issuance follows the principle of 'long-term bonds as planned, short-term bonds for emergencies.' In January, April, July, and November each year, the Treasury will plan the issuance volume of long-term bonds for the upcoming quarter in advance and will not easily change it.

If there is a sudden surge in deficits, short-term Treasury bills (Tbills) will be issued to fill the gap. Because Tbills have short maturities and flexible demand, even if cash management bonds with a maturity of just 1 day are issued, as long as the interest rate is slightly higher than the market, a massive influx of funds will occur. It's like printing an additional 50 yuan banknote; its face value won't drop to 49.5 yuan.

For this reason, when a large amount of U.S. Treasury bonds are maturing, the Treasury can issue more Tbills to respond, which has a relatively small impact on the market. However, this short-term measure also has risks: if the deficit continues to increase, the proportion of Tbills will become higher and higher, and future interest expenses will heavily depend on the Federal Reserve's policy interest rate, unable to lock in rates in advance like long-term bonds. Once a large amount of long-term bonds is issued, it will push up U.S. Treasury rates; for example, in October 2023, the 10-year U.S. Treasury rate broke 5% due to the increase in long-term bond issuance.

2. June's maturity peak? It's not that exaggerated.
The U.S. Treasury's monthly report shows that maturing U.S. Treasury bonds from April to June are 2.36 trillion, 1.64 trillion, and 1.20 trillion, far from reaching 6 trillion.
Since some short-term Treasury bonds have not yet been issued, and there is no fixed plan for their issuance, it is impossible to accurately predict, but the actual maturity volume will not be too outrageous.
Even if all newly issued U.S. Treasury bonds from April to May are counted, the theoretical maximum maturity in June is about 5.3 trillion, with the actual figure possibly around 2 trillion.

3. After the debt ceiling issue is resolved, will it trigger a liquidity crisis?
The likelihood is low, with three main reasons:
Sufficient reserves: The balance of reserves in the U.S. banking system is still several hundred billion dollars away from triggering a 'cash crunch.' Based on the 'effective excess reserve' indicator, it is currently about 700 billion, and the Treasury can at least replenish 700 billion in funds without causing a crisis.
Flexible adjustments: If market demand for short-term debt decreases, the Treasury can slow down the pace of bond issuance to gently replenish funds.

Federal Reserve safety net: The Federal Reserve has slowed down the balance sheet reduction and introduced the Standing Repo Facility (SRF), allowing primary dealers to easily obtain financing from the Fed when they lack funds.

4. Some personal thoughts.
In fact, U.S. dollar bonds still have the lowest global default rate, not even a close second.
Although the U.S. debt level is approaching historical highs, a new high is normal because debt equals currency, and economic growth inevitably accompanies debt and currency growth.

As long as the debt is denominated in U.S. dollars and the market maintains confidence, the U.S. can completely self-circulate through methods like Fed bond purchases and overseas capital inflows.

Under what circumstances would the U.S. dollar continue to depreciate or even lose credibility?

The essence of the exchange rate is a country's economic performance. The reason the U.S. can maintain strength is primarily due to its global leadership in technology and a stable political system.

If any event occurs in the future that disrupts this stability, leading to a collapse of the U.S. economy, then the U.S. dollar would be forced to ease, resulting in depreciation.

The simplest example is the 2008 subprime mortgage crisis, which caused the euro to appreciate by 25% against the dollar due to massive money printing.

Secondly, there is the decline in credit ratings. Although the U.S. has maintained a long-term S&P credit rating of AAA, issues like the debt ceiling in 2011 and recent tariff problems have led to a downgrade to AA+.

However, a skinny camel is still bigger than a horse. Although it is lower than Germany's AAA, it is higher than Japan's A+ and Tokyo University's A+ rating.

The recent decline in the U.S. dollar index is due to Trump increasing the risks of political and economic uncertainty in the U.S. over the years, which has led to the drop in the dollar index.

But saying that this means the U.S. government debt will default is a bit far-fetched.

Indeed, Trump wants to reduce debt repayment pressure and is pressuring Powell, which is a characteristic of the separation of powers. However, as long as the mechanism remains stable and no unilateral action occurs, the U.S. is unlikely to see substantial debt defaults in the visible future.

Therefore, fluctuations are normal, but a super bull market cycle still exists.