The following is a systematic analysis of the history of the U.S. debt crisis, the interaction mechanism between the Federal Reserve's balance sheet and government bonds, and the performance of non-sovereign assets such as gold and Bitcoin during the collapse of the debt bubble:
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📘 Module One: The History of the U.S. Debt Crisis and the Evolution of Government Credit
1. The 'Nixon Shock' of 1971
In 1971, U.S. President Nixon announced the termination of the direct convertibility of the dollar to gold, marking the end of the Bretton Woods system. This move made the dollar a fully fiat currency, allowing the government to issue currency without limits, leading to increased inflation and fiscal deficits.
2. The 'Reagan Deficit' of the 1980s
The Reagan administration implemented tax cuts and increased military spending, resulting in a significant rise in the federal budget deficit. Despite strong economic growth, the size of government debt expanded rapidly, and the ratio of government debt to GDP increased significantly.
3. The Debt Ceiling Crisis of 2011
Congress became deadlocked over the issue of raising the debt ceiling, leading to the first downgrade of the U.S. credit rating by Standard & Poor's. Although the (Budget Control Act) was eventually passed, this event exposed the fragility of U.S. fiscal policy.
4. Quantitative Easing and Deficit Surge After the 2020 Pandemic
In response to the COVID-19 pandemic, the Federal Reserve implemented large-scale quantitative easing policies, expanding its balance sheet to $9 trillion. Meanwhile, the government implemented multiple rounds of stimulus plans, leading to a sharp increase in fiscal deficits and the size of government debt.
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📊 Module Two: Interaction Mechanism Between the Federal Reserve's Balance Sheet and Government Bonds
1. Quantitative Easing (QE) Mechanism
The Federal Reserve injects liquidity into the market through the purchase of government bonds and mortgage-backed securities (MBS), lowering long-term interest rates to stimulate economic growth. This has led to a significant expansion of its balance sheet.
2. Balance Sheet Trends
As of 2024, the Federal Reserve's balance sheet has a size of approximately $6.7 trillion, a decrease from the peak in 2022. Among these, government bonds and MBS account for the main portion.
3. The Risks of Monetizing Fiscal Deficits
When the government relies on the Federal Reserve to purchase government bonds for financing, it may lead to increased inflation expectations, weakening the purchasing power and international status of the dollar. Additionally, excessive money supply may trigger asset bubbles and financial instability.
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🪙 Module Three: Debt Bubble Collapse and the Performance of Non-Sovereign Assets
1. The Safe-Haven Properties of Gold
Gold has long been viewed as a safe-haven asset against inflation and currency depreciation. When economic uncertainty increases, investors tend to buy gold, driving up its price.
2. The Rise of Bitcoin
Bitcoin, as a decentralized digital asset, is viewed by some investors as 'digital gold.' Its supply is limited and not influenced by central bank policies, thus being used as a hedge against inflation in certain scenarios.
3. Asset Allocation Recommendations
In the context of increasing global economic uncertainty, investors should consider diversifying their asset allocation, including gold and Bitcoin, to hedge against potential inflation and currency risks. However, it should be noted that Bitcoin prices are highly volatile, and investment risks are high, so allocations should be made based on individual risk tolerance.
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📈 Current Market Data (as of June 5, 2025)
• iShares 20+ Year Treasury Bond ETF (TLT): Current price is $86.85, up $0.46 (+0.53%) for the day.
• SPDR Gold ETF (GLD): Current price is $311.12, up $0.22 (+0.07%) for the day.
• Bitcoin (BTC): Current price is $104,366, down $288 (-0.28%) for the day.
