The money flows to the only game in town, st least for now. Interest rates won’t change since Europe is in a mess and they’re not cleaning up their act anytime soon.
But don’t be fooled by the quietude in the economy. This placidity is heading toward some speed bumps in the investing road which are outside the current awareness of the small investor.
Outside this country there are tidal pulls on money coming from how the international economies are working in relation to one another and to ours. Those eddies and surges have effects that don’t have much force until they get in phase. Such as this.
Foreign ownership of US debt slips again in May
WASHINGTON (AP) — Foreign holdings of U.S. Treasury securities fell for the second straight month in May.
The Treasury Department says total foreign holdings dropped 0.5 percent to $6.21 trillion after slipping 0.8 percent to $6.24 trillion in April.
Japan, the second-biggest foreign owner of Treasury securities, reduced its holdings by 0.8 percent to $1.13 trillion. China, the biggest foreign investor in Treasurys, increased its holdings slightly to $1.24 trillion.
The national debt is nearly $19.4 trillion and is expected to grow, which means the United States will need foreigners to keep buying Treasury securities. (emphasis added)
Of the debt total, nearly $14 trillion is publicly traded on financial markets. The rest is money the government owes itself, including holdings in the Social Security trust fund.
The only reason the US can keep printing money rests with other countries buying our debt. If they cease buying or worse start selling US Treasuries, the Government has to make up the difference by curtailing spending and/or raising interest rates.
While the benefits to your savings accounts are good, mortgages, all loans and borrowing will cost more. Those rates have to go up high enough to attract buyers of T-Bills. The payment of interest must come from somewhere and it does: Higher taxes and fewer and/or smaller entitlement payouts.
If you are old enough to remember Jimmuh Carter’s wonderful years of Stagflation where a car loan for 3 years had rates of between 11% and 14%. Mortgages got up to where people were priced out of the market and the housing market stalled for lack of sales.
With the rise of interest rates comes the decline of the equity markets as money will flow to safe havens, AND if the interest rates keep rising, that money will depart for commodities such as metals, food stuffs and/or fossil fuels. All those are negotiable when money is worthless.
We either get control of this situation now or we’re going to have a serious problem.
If you want a preview of how all this turns out, look no further than Venezuela.
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