In the last four months, China has dumped over $60 billion in U.S. government debt. As an American why should you care? Because higher interest rates are coming as the U.S. must entice buyers to replace them.
Why is China selling? They say the U.S. is flooding the world with cheap money and setting the stage for a new round of financial bubbles and potential collapse, along with higher interest rates.
But China still has $877 billion of Treasurys, making them the biggest foreign lender to the U.S. government. They are dumping it in stages, because they don't want to collapse the market, setting off world panic, and destroying the value of what they already own.
But China is not the only big seller. PIMCO of Newport Beach, CA, one of the world's largest owners of U.S. Treasurys is also dumping their holdings. Last July, 50% of their Total Return Fund was in Treasurys, now it's 30%, the smallest percent in the Fund's 23 year history.
Why is PIMCO selling? Because they believe the U.S. government's mushrooming need for money will overrun the demand for Treasurys, driving up interest rates, as they must attract more buyers.
China and PIMCO are knowledgeable investors and they have decided to dump. But now you too are aware and can take steps to protect your financial security.
For example, lock in cheap long term fixed rate financing now, whether on real estate or on credit lines, and pay down your credit cards. Keep your savings flexible for lenders will have to pay more to attract your money. If you need to get rid of a boat, a motorcycle, or whatever, do it now while buyers can still get cheap money.
If you want to sell your home but are waiting for higher prices, what will happen to those prices as interest rates rise? Price it too sell now.
We are headed for a bumpy ride, but together, we will get through another financial crisis. In the meantime, be sure to find some joy each day and share it with others.
Dick
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