Monday, September 7, 2009

China Is Selling, The Fed Is Buying

Over the past twenty five years the United States has financed its growth with a debt binge. Consumers, corporations, and the government have borrowed the greatest amount of money in both nominal and percentage terms in human history.

As discussed in great length since this web page begin a little over a year ago, this debt has been financed through the savings of foreign countries. They have worked hard, produced goods, and saved their money. They sent those goods to us, and we borrowed their savings in order to consume the goods.

The following is the recent timeline for US treasury bond purchase from China:

  • In 2006, China and Hong Kong accounted for more than 50 percent of the increase in the amount of Treasury debt sold to the public …

  • In 2008, their share had fallen to 22 percent as the U.S. government increased its public debt by a record $1.2 trillion …

  • In the first half of THIS year, China and Hong Kong acquired only 9 percent of the more than $800 billion worth of Treasury bonds that were sold — and now …

  • In June, China became a net SELLER of U.S. Treasury notes and bonds.
In the summer of 2007 the rest of the world began to shun the purchase of corporate and mortgage debt in the United States. They stopped financing the housing bubble and corporate merger/IPO mania.

The results of this have been clearly seen in our economy and housing markets.

In June of this year they have officially shun the purchase of our treasury bonds. This is the government's debt. Obama's spending party.

However, the bond prices have remained high as a record amount of supply ($2 trillion deficit this year) and a collapsing demand ($25 billion net treasury debt SOLD by China in June) have become the new market atmosphere.

How is this possible? For an in depth understanding, please see the article below written by Chris Martensen called the Shell Game. (Post: Sunday August 30th)

In simple terms, the Fed is now financing the vast majority of government debt. They are now the buyer of almost every new mortgage in our country. (See the Post below titled "Four Headed Monster" on August 12th)

The train that I have been discussing has now run over the edge of the cliff. We are officially bankrupt as a nation in every possible aspect. Our only form of financing is the printing press, and it is running full steam.

China has already figured it out. They have taken the Fed's purchase of government debt as the opportunity of a lifetime to sell their dollar based assets. They have announced massive purchases of gold, silver, copper, and have set up long term oil contracts with surrounding nations. They are purchasing every form of commodities they can get their hands on as the dollar remains artificially high and commodities remain artificially low.

They will continue this strategy along with setting up trade agreements based on non-dollar currency transactions. The clock is ticking, and everyone is now moving as quickly as possible to protect themselves from the coming dollar collapse. Americans are oblivious to what is taking place and can only cheer on the new "bull market" in front of them.

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