Central banks have been dumping U.S. debt at an unprecedented rate.
Last year, foreign central banks sold an astonishing $225 billion in U.S. treasury bonds. And now, just a few months into 2016, the rate of selling has increased, with central banks having already sold $123 billion in bonds.
Once regarded as a safe haven, the perception of bonds has changed in recent years, with much of the blame going to our Federal Reserve and a significant loss in confidence in the central bank. Now, the trend away from U.S. debt is becoming increasingly clear. And as nations continue to sell, we may be a snowball effect of more countries following suit — because no one wants to be the last ones left holding an asset that no one wants.
What happens when there is no one there to buy the debt except for the Federal Reserve? They are the buyer of last resort. Will they start feasting on their arm to save themselves? How long can they buy their own debt for before there is nothing left to chew on?
As many nations around the globe seek to access capital, it is highly probable that this sell-off will only intensify.
Some of the sell-off has even been used as a political weapon, with Saudi Arabia threatening that if the U.S. releases the 28 redacted pages from the 9/11 report, they may dump their $117 billion in U.S. treasuries.
Such a sale would not just be lethal to the United States financial system, but the shock waves from it could trigger further turmoil and possibly even retaliation from our government.
What’s saddest about these current state of affairs is that here in the U.S., we have no one to blame but ourselves. Specifically, we can point to our politicians, who have continued to spend money that they don’t have and ratchet up the debt, and the Federal Reserve Bank, which has promoted extremely loose monetary policies for years now.
When you combine these factors, you get the loss of confidence that we’re seeing today from other nations. Plus, you get a stock market that currently appears to be dependent on the Fed’s “easy” money, and primed to crash at some point in the near future. In fact, billionaire George Soros just recently made a massive move out of stocks.
For Soros and foreign central banks, they have something else common beyond their loss in confidence: They’re moving to the “safe haven” asset of gold.
Soros has taken some large positions in gold-related investments. And among central banks, demand for the metal is up 20% so far this year, according to the World Gold Council.
Others are flocking to gold for a reason. Are you?