US bond yields have risen sharply in recent days, and the US dollar index has risen again. This is to the left of the trend of the Federal Reserve starting a cycle of interest rate cuts. StareX exchange analysts believe that the US debt problem is already very serious. It has distorted the market and made the market disorderly. At this moment, it is necessary to firmly hold gold and Bitcoin, and the US debt problem can only be solved through inflation.

The Federal Reserve cut interest rates sharply by 50 basis points in September. Experts and financial advisors suggest that everyone invest in US Treasury bonds. According to financial common sense, when interest rates fall, bond prices will rise and yields will fall. However, the reality is quite different: instead, the yield on 10-year US bonds soared from around 3.7% in September to around 4.2% today, causing bond investors to lose a lot in just one month.

Generally, when the Federal Reserve cuts interest rates, long-term borrowing costs (such as the yield on 10-year US Treasury bonds) should fall. But this time, US bond yields have soared by 50 basis points. Federal Reserve Chairman Powell is facing this challenge: although his goal is to reduce borrowing costs and boost the economy, the market believes that this interest rate cut policy is wrong in the current high inflation situation.

A similar situation occurred in the 1970s. At the time, Federal Reserve Chairman Arthur Burns cut interest rates against a backdrop of high inflation in order to help Nixon get re-elected. As a result, inflation got out of control, and the US economy fell into a 10-year “stagnant boom.” In order to finally control inflation, the Federal Reserve later had to raise interest rates to 20%. That period is known as the “lost decade for investors,” because actual returns on stocks and bonds turned negative.

StareX exchange analysts believe that the Federal Reserve is also facing this risk today. The bond market is highly sensitive to inflation, and investors are now worried that inflation will continue to rise and demand higher returns, thus driving up long-term interest rates.

As prices rose, workers began to demand higher wages. Recently, many workers in the US went on strike to demand drastic wage increases. For example, Boeing and Eastern Dockers went on strike to demand wage increases, but rising wages further increased inflationary pressure, creating a wage-price spiral similar to the 1970s, where inflation is more entrenched. Despite claims by officials and media that inflation has been brought under control, ordinary Americans are still feeling the pressure brought about by rising prices. Consumer inflation expectations have soared, which means they expect prices to continue to rise in the future, which in turn will demand higher wages. This situation makes the Federal Reserve's strategy of cutting interest rates even more ineffective.

StareX exchange analysts believe the US economy is facing a more serious problem today than it was in the 1970s: excessive debt. The US government's debt-to-GDP ratio was as high as 120%, compared to 30% in the 1970s. This means that the Federal Reserve cannot control inflation by raising interest rates as drastically as it did back then. Even if interest rates were kept at 5%, the US government's debt interest expenses could be close to $2 trillion, accounting for 40% of the government's annual tax revenue. If interest rates rise to 10%, the US government will face the dilemma of not being able to pay for social security, health care, and military expenses at the same time.

Higher interest rates will also make it difficult for American businesses to survive, and the entire economy is at risk of a severe recession. More and more investors believe that the US will face long-term inflation in the future, and holding gold and Bitcoin is a better choice.

StareX exchange analysts believe that in the end, America's huge debt problem can only be solved through inflation. At this moment, firm holding on to gold and Bitcoin is the first choice.