China's next move may be to liquidate U.S. Treasuries.
Grand Rapids, MI -- (SBWIRE) -- 09/30/2011 -- Dennis Tubbergen is a financial advisor, advisor to financial advisors, author and radio talk show host. In a blog he posted on his website on September 21, 2011, Tubbergen asks: “Is China about to liquidate its U.S. debt?”
“I have previously written about what I consider to be one of the most under-reported news stories in the mainstream media,” begins Tubbergen. “While this news story may be rightfully ignored due to the fact that it may not have any immediate consequences for U.S. taxpayers and investors, I believe that longer term, over the next three to five years, this story will become front page news.”
Tubbergen explains that what he is referring to is the level of U.S. debt that will need to be financed and refinanced over the next 5 years.
“An article published in the Financial Post reported that of the $9 trillion in U.S. debt outstanding to the public, over $6 trillion needs to be refinanced over the next 5 years and that does not include the deficit spending that will need to be financed in addition to that number over that same time frame,” cites Tubbergen.
He goes on to say that assuming we have average deficit spending over that time frame of $800 billion annually (about half of the current deficit), an additional $4 trillion in new debt may need to be financed for a total approaching $10 trillion.
“I have stated that for this primary reason I believe that the U.S. will face an additional credit rating downgrade by the end of 2012,” notes Tubbergen. “Given the massive level of debt that will need to be financed by the U.S., one has to wonder what those holding U.S. debt will do as the debt that they hold matures.”
Tubbergen refers to an article published September 15, 2011 in The Telegraph that may provide a clue to this important issue.
The article reads in part, “The debt markets have been warned. A key rate setter for China’s central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of U.S. debt as soon as safely possible.”
The article quotes Li Daokui at the World Economics Forum in Dalian as saying, “The incremental parts of our foreign reserve holdings should be invested in physical assets. We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way.” He goes on to say, “Once the U.S. Treasury market stabilizes we can liquidate more of our holdings of Treasuries.”
The Telegraph states that the term ‘liquidate’ is now being used, whereas in the recent past China’s policy has been to ‘diversify slowly’ by investing in other assets and currencies.
“There you have it,” emphasizes Tubbergen. “A large holder of U.S. debt has now publicly stated that it intends to liquidate out of U.S. Treasuries as soon as it is safely possible, stating that it prefers to hold ‘physical assets.’”
What might that mean?
“I believe it means that as this debt needs to be financed and refinanced, there will be no option except to have the Federal Reserve buy the debt with newly-created money,” claims Tubbergen.
And that will likely further devalue the U.S. Dollar and prove to be bullish for tangible, physical assets.
“While the U.S. Dollar may rally short term as the only viable alternative to the Euro, longer term the outlook for the U.S. Dollar is not favorable,” concludes Tubbergen. “It’s hard to argue with simple math.”
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in the USA Wealth Management Building in Grand Rapids, Michigan. Tubbergen is CEO of USA Wealth Management, LLC and has an online blog that can be viewed at http://www.dennistubbergen.com and a monthly financial newsletter that can be read at http://www.moving-markets.com. His weekly talk show The Everything Financial Radio Show is simulcast on two Michigan metro stations and also airs to over 600,000 financial advisors, with recent podcasts available at http://www.everythingfinancialradio.com.
The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.