Foreigners Might Not Want Our Debt

There is more evidence that foreigners increasingly are skittish at best about buying US debt. I have been following this story because of its pertinence to the structural problems I have been commenting on: the US issues debt in the form of Treasuries which US and foreign investors buy for 'safe haven' shelter from the tumultuous asset markets world-wide. Those borrowings allow the United States to fund the difference between what it spends and what it earns via taxes and other mechanisms. We have been living on the world's largest credit card and we are seeing the world's appetite to extend us more and more credit lines begin to decrease. 

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What does it mean when foreigners are net-SELLERS of our debt? For years, foreigners have been net-buyers of our debt, meaning as a whole in a given month or year, more treasuries were purchases than sold by foreign investors. We have relied heavily on their net-buying, especially from China and Japan, to fund our wars, our budgets, and our 'way of life' through access to cheap credit in the form of auto loans, credit cards, mortgages, and school loans. 

As we foreigners shift gears and begin to be net-sellers of our IOU's, it means that there is growing discomfort with the attractiveness of the seemingly 'safe' status of US Treasuries and therefore US dollars as well. The Bush and Obama Administrations combined will have issued a flood of Treasuries into an already flooded market. It seems inevitable that eventually countries will seek to use their flows of capital to invest in their own countries rather than lend it to US citizens and government who eventually, if not already, will be tapped out. 

Please see my last post regarding another measurement from the market which shows cracks in the US's credit integrity. It is not about conspiracy theories. More so, I am merely following the empirical data that are publicly available. 

Many will point to the recent strength of the US dollar as being a reasoning that reaffirms the world's belief in the dollar as the Reserve Currency. And yes, the fact is it still is, but the arguments in currency circles for dollar strength are certainly not based on glowing reviews of the US economy. As one article put it, the dollar is the least ugly of the bunch, when comparing it to the Yen, the Euro, the Pound, and others. It is true that Europe has significant problems and the UK is "done" in the words of Jim Rogers, the famed investor. In the end, however, the issues of US debt sales running into resistance is akin to a sliver of a crack in the Hoover Dam and must be monitored. Why? Because all of the hard-earned dollars and assets held in dollars like homes which your family has worked tirelessly to accumulate stand in the balance. Understand in no plain terms, over the last 100 years, the value of each dollar has lost 92% of its value. Please make decisions accordingly. 

Thank you.