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Foreigners Are Dumping U.S. Debt At A Record Pace And Our $20 Trillion National Debt Is Poised To Become A Major Crisis

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While most of the country has been focused on the inauguration of Donald Trump, a very real crisis has been brewing behind the scenes. Foreigners are dumping U.S. debt at a faster rate than we have ever seen before, and U.S. Treasury yields have been rising. This is potentially a massive problem, because our entire debt-fueled standard of living is dependent on foreigners lending us gigantic mountains of money at ultra-low interest rates. If the average rate of interest on U.S. government debt just got back to 5 percent, which would still be below the long-term average, we would be paying out about a trillion dollars a year just in interest on the national debt. If foreigners keep dumping our debt and if Treasury yields keep climbing, a major financial implosion of historic proportions is absolutely guaranteed within the next four years.

 

One of the most significant aspects of the “Obama legacy” is the appalling mountain of debt that he has left behind. As I write this article, the U.S. national debt is sitting at 19.944 trillion dollars. During Obama’s eight years, a staggering 9.3 trillion dollars was added to the national debt. When you break that number down, it comes to more than a hundred million dollars every single hour of every single day while Obama was living in the White House. In just two terms, Obama added almost as much to the national debt as all of the other presidents before him combined.

What Obama and the members of Congress that cooperated with him have done to future generations of Americans is beyond criminal.

Unfortunately, hardly anyone is talking about this right now, but the consequences are about to start catching up with us in a major way.

The only possible way that our game of “borrow, spend and stick future generations with the bill” can continue is if the rest of the world participates. In other words, we need them to continue to buy our debt.

Unfortunately for us, a major shift is now taking place. According to Zero Hedge, the most recent numbers that we have show foreigners dumping more than 400 million dollars of U.S. debt over the past 12 months…

The wholesale liquidation of US Treasuries continued in November, when according to the just released TIC data, foreign central banks sold another $936 million in US paper in November 2016, which due to an offset of $892 million in buying one year ago, means that for the 12 month period ended November, foreign central banks have now sold a new all time high of $405 million in the past 12 months, up from a record $403 million in LTM sales as of one month ago.

This isn’t a catastrophic emergency just yet, but if we continue down this road we will eventually get there. The only way that the U.S. government can continue on with business as usual is if it can continue to borrow billions upon billions of dollars at ultra-low interest rates. Now that Treasury yields are rising, some people are beginning to get quite nervous

As we pointed out one month ago, what has become increasingly obvious is that both foreign central banks, sovereign wealth funds, reserve managers, and virtually every other official institution in possession of US paper, is liquidating their holdings at a disturbing pace, something which in light of the recent surge in yields to over 2 year highs, appears to have been a prudent move.

In some cases, like China, this is to offset devaluation pressure; in others such as Saudi Arabia and other petroleum exporting nations, it is to provide the funds needed to offset the drop in the petrodollar, and to backstop the country’s soaring budget deficit. In all cases, it may suggest concerns about a spike in future debt issuance by the US, especially now under the pro-fiscal stimulus Trump administration.

Someday historians are going to look back in horror at what took place during the Obama years.

The amount that was added to the national debt during his years comes to “approximately $75,129 for every person in the United States who had a full-time job in December”. There is no possible justification for this. But because there haven’t been any catastrophic consequences so far, most people assume that this theft from future generations of Americans must be okay.

In a previous article, I explained that government debt greatly stimulates the economy. If we had not borrowed and spent 9.3 trillion dollars over the past eight years, we would be in the worst economic depression in U.S. history right now.

But most people don’t understand this. They don’t get the fact that we are living way, way above our means. And they also don’t get the fact that the only way that Donald Trump can keep the party going is to borrow and spend just like Obama was doing.

And even with all of Obama’s recklessness, he was still the only president in all of U.S. history not to have a single year when U.S. GDP grew by at least three percent. The following comes from the Hill

Despite the trillions of dollars in government spending pumped into the economy every year under Obama, America has never once enjoyed an annual GDP growth rate at 3 percent or higher, making Obama the least successful president—at least when it comes to economics—in modern history.

A historically sluggish GDP isn’t the only concern worth mentioning. Under Obama’s tenure, average annual food stamp enrollment has risen by more than 15 million (compared to 2008). The home ownership rate is the lowest it has been since 1995, the earliest year provided in the U.S. Census Bureau’s most recent report. The Bureau of Labor Statistics reports more than 590,000 Americans say they are not in the labor force because they are discouraged, a figure that’s 26 percent higher than even the worst annual average under George W. Bush. Additionally, the employment-population ratio has been continuously below the 60-percent threshold under Obama; the last time it was this low was 1985.

Now that Donald Trump is president, he is going to have some very hard choices in front of him.

If Donald Trump and the Republicans stop borrowing and spending so much money, the economy will immediately start suffering.

But if they do continue down the same path that Obama put us on, it is a recipe for national suicide.

So either we take our medicine now, or we risk completely destroying the bright future that our children and grandchildren were supposed to enjoy.

Wake up America, because time is running out.

 
  • Homeisthehunter

    Good article. President Trump has a few more hurdles in the way. Over the last 30 years China has been buying up resources world wide…even in this country. We, on the other hand, have depleted many of ours in the last 100+ years. Let’s look at iron. We had mined our iron range to the point that in the 1970’s we were having to alloy our engine blocks made from our iron ore in order to get the same grade as Japan was getting with their cast iron (Japan had tied up resources in Australia and Africa). China is presently buying in South America…securing iron and other minerals that we should have been targeting years ago. To add insult to injury we stripped most of our scrap iron reserves a few years back. We loaded it up and sent it to China so that they could melt it down and we can now borrow the money to buy it back. We no longer have large steel reserves in our country. This should be a concern to our government.
    Then we have the problem of wages. The one thing that allowed our country to produce and allowed our workers to maintain a good wage was our lead in technology. We allowed Wall Street and big business to sell our technology to China so that management could line their pockets with high wages and bonuses but at the expense of our working and middle class. We allowed academia to demean our tradesmen and push for more education (much of it worthless) so that they could continue in their little tenured world. The result of this is that many of the skilled craftsmen, who made washing machines and toasters and almost everything else we consumed, are rapidly reaching an age of retirement and there are no replacements. We are so heavily in debt as a nation that without a working middle class that is making enough of a wage to purchase without borrowing more, we will not climb out of this debt cycle. We no longer have the technology edge to maintain such a wage. This leaves industry a choice of offering extremely low wages or going to robotics. Would you care to make a bet on how that turns out?
    Either way we cannot continue to borrow in order to buy that which we used to make and sell to the rest of the world.

  • Pete Okuhira

    The world should never trust Trump and his administration.

  • Pete Okuhira

    The late great United states. The days are numbered for America.

  • Poptoy1949

    All of the Points you have brought up are honest and valid. I commend you. Trump and his chosen Finance Men are aware of this and are responding appropriately. In my viewpoint the rest is up to GOD and not Economic Forecast. In a matter of one Week the World can change on a Wink and everything is now different. We shall see what is in store for the World and the United States.

  • Homeisthehunter

    How very accurate. “The fool hath said in his heart, There is no God.” It is my opinion that we are reaping what we have sown. God will not give a wink and a nod to the slaughter of nearly 60 million unborn children and the unbridled and licentious morality that is so pervasive in our country today. Repentance is not a multitude uttering the platitude of “God Bless America”. God will not bless sin. IF we will completely humble ourselves and repent and seek HIM above all else…then He has promised to heal our hearts and our land. Anything more is meaningless and nothing less will do…….

  • Homeisthehunter

    I wish there was a better way to commend President Trump for his action on mentoring/ apprenticeship in our trades. Too many small businessmen cannot afford to pay higher wages to kids who don’t have skills and although I haven’t read through his action, I hope it made allowances for lower wages if a skill is being taught. Now if we could get Trump to understand that his action/concession to the Clintons and Liberals in not prosecuting Clinton is a huge mistake and a wasted concession. The people I know think it is just another example of a ruling class in Washington with a double standard for justice. Best to you.

  • Poptoy1949

    Your words are Honest and True. We must give him time. For an outsider to come into this City of Dishonesty is a Challenge I bet he even thought he would never see. Like you I do not understand his concession to the Clintons. Down deep I personally do not think he will offer concessions again. It may be a double standard we shall have to wait and see. And Thank You for “The Best” and I extend the same to YOU and YOURS. PT.