the Chinese have not been buying US debt for over a year now. Their announcement just made it official.
You would think that without the chinese stepping in to buy US debt—the dollar would be falling precipitously—and gold would be rising. Neither are happening. Rather the dollar has been tracking pretty much sideways in the last year. (and also roughly sideways for the last decade.) http://on.mktw.net/1cekhX9
Gold has been falling.
http://www.macrotrends.net/1333/gold-and-silver-prices-100-year-historical-chart
What’s going on?
The Chinese move would be disastrous for the USA if it were not for the shrinking US trade and federal government budget deficits.
Consider the federal deficit.
Here’s what the OMB said in October:
“The Office of Management and Budget and the Department of the Treasury today released the fiscal year (FY) 2013 budget results, which show that we are continuing to make significant progress in reducing the deficit. The final 2013 deficit was $680 billion, $409 billion less than the 2012 deficit.”
If over the next two years, the federal deficit shrinks this fast—the feds will be in surplus in 2015. Even if the pace of federal deficit shrinkage slows down—the federal deficit is rapidly returning to normal ranges.
But its not likely the budget deficit shinking is going to slow down by much, thanks to oil/natural gas and the fracking revolution....
But as well thank to the oil/gas patch fracking—the trade deficit has been falling since 2011.
http://www.mining.com/a-closer-look-at-the-us-trade-deficit-26143/
Oil and gas put upward pressure on the dollar. The fed’s QE’s put downward pressure on the dollar (except that most of the QE’s wind up in the stock market making the rich richer and increasing federal revenues by $100 billion or so.
For those of you with a historical view—what’s happening now is basically the same thing as happened in the late 90’s. During that period the stock market juiced the revenues to the federal goverment while the pubbies under Newt kept the federal government from increasing its spending. The result was that the budget balanced. Clinton got the credit while Newt got dumped on..
What’s right now in the cards is that Obama’s legacy—like Clintons— will be that he balanced the budget (despite his best efforts to break it)
The Chinese have sold off a small amount of US debt over the last two years. They are down from their peak holdings....Yes this is known but now they are trumpeting it I guess
How can it be? Obama is on track to increase the federal debt by 87% by 2016...
The Chinese essentially quit lending the US money several years ago; if anything, they’re lending us maybe $100 billion per year.
Regarding the Federal deficit - the national debt a month ago (after the latest budgetary can-kick) was $900 billion higher than it was the same date a year earlier.
Lastly, the last time the Federal government balanced its budget (on a fiscal-year basis) was during the Eisenhower administration. It nearly balanced one time in the late 1990’s, but has run a deficit EVERY SINGLE YEAR since about 1957.
How long can it go on? If as much money goes into the stock market as goes out (a simplification I know) the feds collect the capital gains taxes and the stock market stays stable. It seems that interest rates on savings would have to stay near zero to keep that balance, so the feds have to keep printing money.
Can this be a new normal which can be stabilized?