Entering text into the input field will update the search result below

The $40 Trillion Problem

Apr. 06, 2020 6:48 AM ETEEM, TLT, ZROZ, SPY, EFA, UUP, EWJ, GLD842 Comments


  • Most of the Fed's liquidity operations, ultimately, are to support the U.S. treasury security market.
  • The U.S. debtor nation status plays an important role in why the Fed is on the hook to provide foreigners with dollar liquidity.
  • Keep an eye on international markets with positive net international investment positions; they could do well post-virus.
  • Looking for a helping hand in the market? Members of Stock Waves get exclusive ideas and guidance to navigate any climate. Get started today »

Over the past several weeks in response to the COVID-19-induced global economic shutdown, the U.S. Federal Reserve has announced an unprecedented number of operations to relieve or bail out various markets, as the lender of last resort.

Eric Basmajian provided a solid breakdown of the operations in place as of a couple of weeks ago, and that article is certainly worth a read. The Fed has expanded the monetary base to buy Treasuries and other securities at a record pace, has put in place various lending facilities, and has opened a record number of currency swap lines with other countries.

This article takes a look specifically at some of the Fed’s international operations to help readers understand why the rest of the world is currently the Fed’s problem. The short version is that most of what they are doing is ultimately to protect the U.S. Treasury market.

It’s The Debt, Not Just The Virus

Many analysts are focused on the impact of the virus itself, which is indeed very large. Nearly 10 million jobless claims were filed in the United States in the past two weeks due to the shutdown of restaurants, travel businesses, casinos, physical retail, and parts of several other industries, and that can’t be understated. Job losses are likely to continue as well.

However, the sheer speed of the market’s crash, and the unprecedented actions by the Federal Reserve and other central banks around the world to support the credit market, point to an even larger issue: we’re likely in the later stages of a global debt supercycle. The sheer amount of debt in the world makes temporary income disruptions a lot more financially impactful than they would be in a system with less leverage.

As of 2019, global debt surpassed $250 trillion, which is more than

I share model portfolios and exclusive analysis on Stock Waves. Members receive exclusive ideas, technical charts, and commentary from four analysts. The goal is to find opportunities where the fundamentals are solid and the technicals suggest a timing signal. We're looking for the best of both worlds, high-probability investing where fundamentals and technicals align, and we identified a ton of bearish setups in the past couple months leading up to this crash in our "Where Fundamentals Meet Technicals" series.

Start a free trial here.

This article was written by

Lyn Alden Schwartzer profile picture
Leader of Stock Waves
High-probability investing where fundamentals and technicals align
With a background that blends engineering and finance, I cover value investing with a global macro overlay. My focus is on long-term fundamental investing, primarily in equities but also in precious metals and other asset classes when appropriate.


My work can be found at LynAlden.com, ElliotWaveTrader.net, and within the Seeking Alpha marketplace where I work with the Stock Waves team to blend their technical analysis with my fundamental analysis for high-probability long-term setups.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I have a diversified portfolio of global equities, precious metals, treasury securities, and other assets.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.