China Cuts $33.59B in US Debt, US Economy Warned of Potential Recession
The latest report released by the Peter G. Peterson Foundation in the United States shows that when federal spending in the U.S. exceeds its income, the country must borrow money to cover the deficit. This has led to a continuous increase in the national debt of the United States. As of August 8th, according to the U.S. debt clock, the total federal debt has reached a staggering $30.63 trillion, with an average debt of $91,999 for every American and $243,797 for each U.S. taxpayer.
The United States is the world's largest debtor nation. Historically, the largest deficits in the U.S. economy have been caused by increased spending around significant geopolitical conflicts or national emergencies such as the Great Depression. This serves as a warning for today's U.S. economy, where the burden of debt is taking a toll.
The U.S. economy is currently facing three new predicaments that will continuously generate debt:
1. The aging Baby Boomer generation;
2. The rising costs of healthcare;
3. The tax system's inability to generate sufficient revenue to meet the U.S. federal government's economic commitments.
As debt increases, so does the interest the U.S. economy pays. With more borrowing, federal interest costs rise and compound. Rapidly growing interest payments are a burden that hinders our future economy. Every day, Americans pay a total of $900 million in interest, and it is projected that in ten years, this will nearly triple.
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The foundation states that being irresponsible with the U.S. economy's budget is unfair to future generations of Americans, who will inherit this debt. The vast majority of Americans believe that addressing the debt issue should be a top priority for the U.S. economy. Seventy-six percent of voters say they want the U.S. economy to spend more time addressing the debt issue, and 83% of voters say their concern about the U.S. debt has increased.
According to the latest data released by the Internal Revenue Service, cited by the U.S. Accounting Truth website, an increasing number of U.S. taxpayers are leaving their states, unwilling to indirectly bear high taxes for high debt. The data shows that in New York, California, and Illinois, nearly 300,000 individual tax returns have been lost. New York lost about 130,000 people, California lost 115,000 people, and Illinois lost 50,000 people. The dire debt situation is accelerating the exodus of Americans from these regions.
Despite these three states being home to some of the largest cities in the U.S.: New York City, Los Angeles, and Chicago, wealth is pouring out of these states at an alarming rate, flowing into states with lower debt risk, such as Florida, Texas, or the Carolinas. When several of the most economically active cities in the U.S. experience a significant population outflow, it becomes a significant signal that the U.S. economy may be heading into a depression, further sounding the alarm for the debt-ridden U.S. economy.
It is worth noting that the Federal Reserve has raised interest rates four times this year, with the last two increases being rare 75 basis point hikes. According to the latest predictions from the Fed's observation tools on August 8th, the expectation for another 75 basis point rate hike in September has risen to 70.5%. This means that the overall debt servicing cost for the U.S. economy will further increase.
Despite the Federal Reserve's aggressive rate hikes this year, they have not been able to curb the U.S. economy's inflation, which has even surpassed the 40-year high of over 9%. The actual purchasing power of the dollar has not increased but decreased. This seems to be an intractable problem for the U.S. economy. The Fed's ideal is to maintain the full value of the dollar, but reality is quite different. As U.S. debt becomes unbridled, the dollar may ultimately become "green paper." As shown in the figure below, the plight of the dollar is laid bare.
At the same time, with the continuous decline in the credit of the U.S. dollar and the rise in global geopolitical economic risks, the attractiveness of U.S. debt and the dollar has significantly decreased. For example, Israel, a traditional economic ally of the U.S. with intricate connections to the Federal Reserve and Wall Street over the past half-century, has simultaneously begun the process of selling off U.S. debt and dollars.
According to the latest International Capital Flows report (TIC) released by the U.S. Department of the Treasury in late July (U.S. debt data is delayed by two months as per惯例), from December of last year to May of this year, Israel has reduced its holdings of U.S. Treasury bonds from $69.1 billion to $51.8 billion, selling off $17.3 billion worth of U.S. Treasury bonds, with a selling ratio as high as 25% of U.S. Treasury bonds.In the process of Israel selling off U.S. Treasury bonds, the American financial website Zerohedge reported that Israel has sold dollars in exchange for yuan. According to the latest report from the Bank of Israel, the country has for the first time included the yuan in its foreign exchange reserves, setting the proportion at 2%, while the share of dollars will decrease from 66.5% to 61%.
American media stated that although the increased proportion may not seem significant, Israel appears to be keeping pace with changes in the global currency landscape. Israel may be promoting a further decline in U.S. Treasury bonds and the dollar, which is surprising to the market considering the extensive economic ties between Israel and the United States. This further explains why there has been a continuous wave of U.S. Treasury bond selling globally this year, with as many as 21 countries collectively selling off U.S. Treasury bonds in May.
It is worth noting that among the world's major countries, Russia and Turkey had nearly cleared their U.S. Treasury bonds two years ago, and currently, the amount of U.S. Treasury bonds held by these two countries is only in the single digits. It should be known that Russia was once among the top ten holders of U.S. Treasury bonds, and Turkey was also ranked around the 15th. Therefore, for some of the world's major countries, clearing U.S. Treasury bonds is not impossible; it just requires an economic process.
At the same time, Russia and Turkey have been continuously moving away from dollar reserves by increasing the use of multiple currencies. The latest development is that, according to a report on August 7, based on the latest agreement between the Russian and Turkish economies, Turkey has agreed to pay part of the ruble to Russia, thereby purchasing Russian energy.
The global series of phenomena moving away from the dollar could serve as a reference for people to shed U.S. Treasury bonds, especially for the heavily indebted U.S. economy. It is worth mentioning that the latest report from the U.S. Department of the Treasury shows that since December last year, China has sold U.S. Treasury bonds for six consecutive months, with a total sale amounting to $100 billion. Zerohedge reported that China's sale of U.S. Treasury bonds is the most noteworthy; as of May, China's total holdings of U.S. Treasury bonds have dropped to $980.8 billion, falling below $1 trillion for the first time since June 2010.
What is even more noteworthy is that financial teams have pointed out on various occasions that, according to the historical data of the U.S. Department of the Treasury, China held a total of $1.3167 trillion in U.S. Treasury bonds in November 2013. Over the past nine years, China has cumulatively sold off U.S. Treasury bonds worth $335.9 billion, with a cumulative sale proportion of nearly 26%. This cumulative sale amount is second only to the total amount of U.S. Treasury bonds held by the third-largest holder, the United Kingdom. Even so, China remains the second-largest holder of U.S. Treasury bonds.
That is to say, the only major buyer with a trillion-dollar scale of U.S. Treasury bonds left is Japan, and from March to May this year, Japan has sold off U.S. Treasury bonds for three consecutive months, with a total sale amounting to $93.5 billion, and currently holds $1.21 trillion. The Asia Times analysis suggests that Japan has ample reason to sell off U.S. Treasury bonds more significantly.
American financial website analysis reports that, in the context of escalating global geopolitical economic risks such as the Russia-Ukraine conflict, especially with the continuous decline in dollar credit and increasing default risks, some major buyers may have the potential to clear U.S. Treasury bonds. Japan may further significantly sell off U.S. Treasury bonds, which could become the hidden force behind triggering a U.S. debt crisis and the Great Depression.
In this regard, Jim Rogers, the Wall Street billionaire known as the most visionary, believes that the United States bears the most debt in the world, and the sustainability of the U.S. debt economy is in the hands of a few major buyers globally. Signs indicate that today's U.S. economy seems to be entering the minefield of the Great Depression. Rogers stated that this will be the most severe financial storm I have never experienced in my life, and its impact on the U.S. economy will be higher than the 2008 financial tsunami.
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