RECORD US DEBT SITTING WITH CHINA

NO MORE Mortgage is worried as much as China about the value of the US Treasury. In an era of amazing budget deficits, the US has to print money in order to cover its borrowing needs, and this devalues the US dollar. China has had record operating surpluses, and they have invested those surpluses into the US treasury, doubling their holdings in just the last 2 years.

Nobody wants to hold a losing investment, and the Chinese are getting worried about this one with America. They value of the US dollar is declining faster than the interest the Chinese can get from their bond holdings.

These huge investments also give the Chinese huge leverage over the USA and our economic policy, since they are now our largest creditor. This is not good for national security or the economy.

It also means that if the Chinese stopped buying our debt, the US would have to print even more money, which would devalue the dollar even further. This is a catch-22 for both the USA and China, and thus the 2 nations are performing a very uncertain dance with very uncertain results on the horizon.

In the opinion of NO MORE Mortgage, the only solution is for the USA to live within its means, and who knows when we could ever pay off or buy back these bonds. Right now the USA just prints more money with longer due dates, but this cannot go on forever.

For more information please visit www.bloomberg.com

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