If you're an American, our way of life is made possible by cheap financing of countries with surplus reserves.
As you may know, the US runs a deficit every year. Meaning we spend more than we take in with taxes every year without fail.
The balance is made up by other entities loaning us money.
China is the largest buyer of U.S. Debt.
But that may be about to change..
CNBC, Reuters and others ran stories this morning that:
"China is reportedly thinking of halting US Treasury purchases and that's worrying markets."
This is the LAST thing America needs
In particular, with the Debt Ceiling debate due to rear it's ugly head again, and the Trump administration trying to push through campaign promises, such as infrastructure spending, not to mention the Great Wall of Mexico.
With China considering cutting off the US, combined with the much publicized TAX cuts enacted by the Trump administration, the question has to be asked...
Where is all this extra money going to come from?
"If China stops buying Treasuries, the market could suffer," strategists at Jefferies said. "Treasury financing needs are going to rise significantly in 2018 and beyond relative to recent history, so Treasury is going to be looking for as many sources of demand as they can find."
This is what we know so far:
- Trade tensions between the two countries could provide a reason to slow down or halt Chinese purchases, according to the report.
- Chinese officials think US debt is becoming less attractive compared with other assets.
- China a long with her allies has been steadily moving away from using the US dollar as a reserve currency.
- Treasurys and the dollar fell on the report. Equities fell.
- GOLD rose.
Four months ago I wrote about one of the biggest stories getting ZERO media attention in the west: Death of the Petrodollar Imminent as China Moves to Undercut U.S. Hegemony
And if this type of rhetoric continues, things can only get worse from here.
When no ones buying your DEBT, countries have only TWO options when it comes to paying the bills:
- Cut spending (politically untenable)
- Inflate the currency (get ready for the return of inflation)
Which do you think they will choose?
Until next time.
It's your move.
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