China Selling off US Debt

*This is an older blog post from my previous blog. All info is still relevant.*

Here at UnchartedFX, I have stressed following the bond/debt markets. This is coming out to be the biggest market where the financial/economic war is occurring. 

I have spoken regarding the fact that western debt has been weaponized. That with these trade wars, the Chinese can sell off US debt in order to spike interest rates. This was the case last week. RT posted this article, along with many others, outlining China selling off $3 Billion in US debt.

This was just an inkling of their power.

President Trump also went into radio silence regarding China as soon as the market dropped. President Trump wants a high stock market, as it will be his key to ensure the Republicans keep the house with the Mid term elections quickly approaching.

I have told my readers that western debt is our weakness, and other nations will exploit that. Does China have a debt issue? Of course, but I believe that the socio-political issues that will arise if rates rise here will have a profound impact on the public.

Even Ray Dalio speaks about the social issues arising due to social payments and commitments by government that are becoming untenable. 

https://www.marketwatch.com/story/the-next-financial-crisis-will-be-more-difficult-to-handle-says-billionaire-investor-dalio-2018-09-11

China basically said “who’s your daddy” to the Americans when they sold off debt causing the markets to crash. From now on, do not expect President Trump to say much about tariffs or currency manipulation.

Also speaking about issues regarding debt, as I have discussed, issues arise when the US Dollar gets stronger. We are already seeing an emerging market crisis unfold with Argentina and Pakistan needing to be bailed out.

Another side note: I spoke about how this next crisis would require countries to be bailed out, not just banks.

The Americans (and American companies) would love a weaker Dollar, and I believe President Trump will do what he can to talk down the US Dollar. The only problem is, the US Dollar still remains the safe haven, and money from Europe is flowing into US equities and the US Dollar due to it being perceived as the safe haven.

As Martin Armstrong says: “The US Dollar is the prettiest sister out of the three ugly sisters”

There will be a point where the US Dollar gets so high, that emerging market currencies drop double digits (already happening), and the situation reaches a crisis point where the Americans may have to act to ‘kill’ their Dollar.

This is the big confidence turning point that we are awaiting. Where the Fed will have to go against their narrative of the economy doing well and hiking interest rates…but then this could provide a valid excuse for the Fed to stop hiking, and perhaps cutting.

An event like this would be required to maintain confidence in the Fed. If the Fed came out saying the US REAL economy was not doing well, and because of that they would have to cut rates, I think there would be a confidence issue.

Eventually the confidence in central banks, and governments will be tested. Again, we believe that until that turning point, people will run into the US Dollar.

Once we reach a confidence crisis, that is when Gold, and perhaps even Crypto’s will be the asset of choice.

Amazing times we are living in folks. Once again, maintain your focus on the bond markets and the US Dollar.

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