Many people are not consciously aware of how desperately the United States Treasury depends on foreign ownership and continuous purchases of American public debt in order to finance the country’s ever-expanding budget deficits.
Like it or not, foreign investors, governments, and financial institutions hold close to 50% of the massive nearly $13.9 trillion in U.S. Treasury bonds and T-bills that enable the United States to spend almost as much money as it wants on programs ranging from military defense to social security to medicare.
Unfortunately for the fiscal future of the U.S., this has started to change in the year that included the final tenure of former President Obama and the surprise election victory of now-President Donald Trump. For the first time in at least fifteen years, America’s all-important foreign creditors have begun dumping U.S. government debt in a bout of second thoughts on financing the American Federal government. This chart shows you how dramatically this trend has changed from only two years ago:
Japan is one of the most key countries to watch in this worrying trend that has largely gone unreported by the traditional media outlets. They are the biggest single holder of U.S. Treasuries. In December alone, the Japanese cut their positions in American debt instruments by the greatest amount in nearly four years, according to the Japanese Ministry of Finance.
The most shocking part of the development is that this selling is occurring at a moment in time when seeking better yields over in America has hardly been more appealing. The spread between Japanese bonds and American ones is simply enormous anymore. Yet despite this fact, consider how much U.S. debt the Japanese have already dumped:
It’s not only the Japanese who are changing their American debt appetites though. Number two Treasuries owner China has been selling its vast holdings since May, and their positions have reached a seven year low.
Throughout the globe, foreign investors are retreating from U.S. Treasuries as they never have before. This is the case in Beijing, London, Tokyo, and Berlin. The consensus view is painfully evident now. Practically no international investors, governments, or financial institutions have any wish to wade into the $13.9 trillion American government debt markets these days.
There are a variety of theories for what has caused this troubling trend. It could be the fear of higher inflation and deficits in the tenure of President Trump. It might also be a belief that higher interest rates from the Federal Reserve will mean greater yields on the bonds in the future. This would inversely drive down the future values of such bonds purchased now, creating losses for Treasury buyers. Some analysts think President Trump’s tweet storms and sabre rattling are discouraging foreign investors from taking positions in U.S. debt at the moment.
Whether the cause is any one of these arguments or an unhappy combination of them all, one thing is painfully clear for the future. Foreigners are not only buying less American debt now than in the past, they are outright net selling it. The foreign holdings of American Treasuries have declined from 56 percent of the total debt holdings as recently as 2008 to only 43 percent today.
Is Your Retirement Portfolio Ready for the Collapse of Government Financing?
The really scary part surrounds the consequences for the future of American government debt financing. Any persistent decline in overseas demand for Treasuries will have lasting impacts on the United States’ capability of inexpensively financing itself. This is all the more true with President Trump’s ambitious designs on reducing taxes, increasing infrastructure spending massively, and putting “America First” again.
Gold is the ultimate safe haven for protecting financial assets and purchasing power when government debt markets implode. Should the Federal government finally find itself out of options for financing its runaway spending habits and mountain of impossible-to-repay debt, the ultimate precious metal will hedge your retirement and investment portfolios as it has for others in similar circumstances over literally thousands of years. Contact Regal Assets today to obtain your no-obligation, no-cost gold IRA rollover kit by clicking here to learn all that you need in order to safeguard your individual assets with a partial allocation into physical gold.