Analyst warns US debt crisis

Bitcoin fell 5.87% below the $19,000 region, while Ethereum lost 8.7%. The nominal US dollar value of gold per troy ounce slipped 0.50%, while silver fell 0.74% on September 6. Meanwhile, a recent rise in US Treasury yields has been worrying and one analyst believes the anomaly could trigger a US debt crisis.

Stocks go down, the crypto economy crashes, precious metals go down, traders wait for the next action from the Fed.

Tuesday was a tough day for traders on Wall Street, researchers gold and supporters of the cryptoeconomy, as the markets saw significant losses. Investors are starting to weigh in on the Federal Reserve’s next rate hike, and benchmark US Treasury yields have jumped to their highest level in two months. The Nasdaq, NYSE, S&P 500 and Dow Jones ended Tuesday below expectations after the Labor Day holiday weekend in the United States.

Precious metals such as gold, silver and palladium were all down on Tuesday as well. Platinum and rhodium, however, jumped 0.71% to 3.97% against the dollar in the past 24 hours. The global cryptocurrency market capitalization of all existing crypto tokens lost 4.2% in the past day. Currently the valuation of the crypto economy stands at $940.10 billion.

Bitcoin fell 5.87% to below $19,000. Analysts and traders are waiting for the next US Federal Reserve rate hike on September 21, which is estimated to be around 75 basis points. “You’ve got all this fear of more rate hikes happening at the central bank“said Tom di Galoma, managing director of Seaport Global Holdings in New York on Tuesday. “Inflation is not going to dissipate and then you have quantitative tightening which is coming quite quickly.”

A portfolio manager says US Treasury spreads and other market anomalies could trigger a “sovereign default crisis“.

In addition to the US central bank, Christine Lagarde, Luis de Guindos and the European Central Bank are expected to raise the benchmark lending rate aggressively this week. Michael Gayed, publisher and portfolio manager of the Lead-Lag Report, thinks the United States could experience a sovereign debt crisis.

Michael Gayed spoke with David Lin, presenter and producer of Kitco News, and explained that the anomaly of the unprecedented rise in US Treasury yields is concerning. Gayed thinks that if US Treasury yields get too high, it could make it harder for other countries to meet their debt obligations.

“When you have $170 trillion in unfunded debt and $30 trillion in visible debt. How could that not be inflationary? Gayed asked Lin during his interview. “The only way to solve this is to pay off this debt“.

The portfolio manager also noted that Wall Street has suffered some of the biggest monthly pullbacks this year since the 2008 financial crisis. Soaring Treasury yields, runaway inflation and a stock market rout could cause “multiple black swans“, underlined Mr. Gayed.

“The end result of all of this is either some kind of sovereign default crisis, which is a deflation event, or the exact opposite, which is hyperinflation, which results in conditions where something really bad happens.“, concluded the editor of the Lead-Lag Report.

Gayed also pointed out that the financial crisis he predicts could give rise to a much more authoritarian-style government than we have today. “Something bad could happen, in terms of a new leader you don’t want to see leading,” Gayed said.