China dropped $21.5 Billion in US bonds recently. That is only likely to accelerate as our relationship “deteriorates” (read “gets realistic”). Other countries are following suit (Japan). Good, we should finance our own debt and pay our own folks back with higher interest rates the way we used to when America was prosperous.
What to do about it?
I’ve been buying into TBT for sometime. TBT is an exchange trade fund that should rise as (existing) bond prices drop – because folks are dumping them and because the yields on new bonds must increase to attract investors. It has been up more than 25% in the last few months due to the Fed cutting back on QE (printing money). TBT could really spike if China exercised their so called “nuclear option” threat to dump U.S. bonds in bulk as a policy punishment.
Word to the wise, ” Never project your own motivations on your adversaries.” Sun Tzu would admonish you to instead seek to understand their thinking. Whereas most naive U.S. analysts dismiss this economic warfare possibility because it would “hurt China more than the U.S.” they miss the point that China’s leaders put power and politics ahead of economics. For the Boys in Beijing the flirtation with Western Capitalism is simply a phase on the way to global totalitarianism and economic growth is a tool to increase political and military power. Capitalism is NOT a systemic part of their ideology. They’ve never said this. The Politburo members would rather see China (and the world) impoverished with Communist leadership than wealthy under democracy and freedom. Letting some Chinese get rich off the backs of others is a technique to capture Western technology and capital for the ongoing conflict. If you don’t understand that fact you simply don’t understand China. See today’s WSJ cover story for a recent example of neoMaoism revealing itself from Zhongnanhai.
In fair warning you need to stay on top of any investment. TBT might drop in the event of:
- U.S. government actually deals with their spending addition – not bloodily likely.
- System is changed so gov’t revenues increase – not bloodily likely because it must involve a politically unpopular situation where multinational corporations actually pay income taxes (as opposed to continuing to soak only the entrepreneurial class “rich”).
- We see a double dip recession and gov’t does QE4.0 or whatever – this could indeed happen, though the Feds ability to print money is becoming constrained.
As noted, I hold this fund. It is leveraged and therefore a highly volatile investment. If you care I’m also long on TSLA and AAPL (with constant “constructive activism” on China) and often short on BBRY (in on the bumps out on the drops until it dies) at this time. Do your due diligence before making any investment decision and monitor the changing conditions that signal it is time to get out – I won’t tell you. Don’t email me when you lose all your money. 🙂
Greg Autry serves as Senior Economist with the American Jobs Alliance, Economist with theCoalition for a Prosperous America and is co-author (with Peter Navarro) of Death by China: Confronting the Dragon – a Global Call to Action. He blogs regularly at: http://www.gregautry.us/blog and on the Huffington Post.