Will China Stop Buying US Debt?
While the rest of the world is in a tizzy over Trump’s latest tweet, there is a potentially devastating downtrend in foreign purchases of U.S. Treasuries. The media thrives on outrage and negativity, but is surprisingly quiet about this phenomenon, which every American should be watching closely.
If the endgame of this reversal of Chinese policy had the ultimate effect of you paying $20 for a gallon of milk at the grocery store, wouldn’t you pay more attention? We believe it could be THAT serious and you absolutely need to know about global rumblings that will erode your purchasing power in a life-as-we-know-it kind of way.
We all know that our government prints money like mad and the national debt is unimaginably out of control now that we’ve crossed the $20 TRILLION threshold. What allows that to continue? In part, China’s (and other countries’) seeming unending willingness to buy U.S. Treasury bonds.
Our country prints up (or issues) debt and other countries absorb it.
Is it fair? Fair or not, it maintains our ability to buy their goods, which keeps their people employed and the global wheels of commerce turning.
It is either win-win or lose-lose depending on whether you are inside or outside the political class.
China owns some $1.2 TRILLION of our debt and it has been occurring to them that they may want to extricate themselves from this dynamic, especially if they want their own currency to strengthen. But can they?
China has been gradually reducing its purchases of US treasuries. Their total holdings in 2013 were $1.3 trillion, vs $1.2 trillion today. Not a huge difference, but definitely going down. Since 2016, their holdings have sunk below levels held by Japan. Why? This interdependent relationship is likely becoming far too uncomfortable to maintain. And yet, if they stopped buying abruptly, or sold it all at once in a publicly perceptible manner, the remainder of their holdings would crash and possibly cause a global crisis the likes of which we’ve never seen. Anything they do to inch away from U.S. debt HAS to be extremely subtle and cautious, to preserve the value of what they still hold.
No wonder they deny, deny, deny any rumors that they are doing what they seem to be doing! However it happens, if this rug is pulled out from under the dollar, it is going to have drastic implications for your purchasing power. Every dollar in your pocket will lose that support and you could be stuck spending unimaginable amounts of money just to survive.
Under this kind of inflation, precious metals could be an invaluable backstop towards your real wealth sliding down the drain. Make no mistake. Our debt is growing to unimaginable, unsustainable levels. The last thing we can afford is to have our foreign investors cut back on the amount of money they lend us through Treasury buying. It’s like lighting the fuse to the biggest debt bomb in the history of our country.