On China Dumping US Debt & What Happens After Trump
October 25, 2016
My title for today’s E-Letter probably sounds a little strange. What does the fact that China is unloading US debt have to do with what happens after Donald Trump? Answer: Nothing, really. Those just happen to be the two topics I landed on for today.
China is the largest single-country holder of US Treasury debt on the planet. But it has been regularly selling off its US debt holdings over the past few years in an effort to support its currency, the Chinese yuan. According to Treasury Department data released in September, China’s holdings of US debt fell to $1.22 trillion this summer, the lowest level in three years, and have continued to decline.
The question is, what happens if China continues to liquidate its holdings of US debt? Answers are all over the board, ranging from very serious ramifications to not a whole lot. While the mainstream media would have us believe this could lead to another financial crisis, I’ll argue just the opposite today.
The other issue as it relates to China is that its national debt is now by far the largest in the world. You might have assumed that the United States’ gargantuan national debt of $19.7 trillion is the highest on the planet. Nope: China’s national debt is now estimated at $28.5 trillion – in an economy that is only about 60% as large as the US. I’ll explain that too.
Finally, I haven’t focused too much on the presidential election this year (as compared to previous elections). Yet it’s looking more and more likely that Hillary Clinton will be our next president, as much as I hate to admit it.
The question is, what will happen to Donald Trump and, more importantly, his enormous national following if he loses on November 8? I don’t pretend to know what Trump will do if he loses, but I don’t think his vast base of supporters will simply go away. I’ll offer some possibilities today that you may find very interesting depending on your point of view.
Let’s see if I can string these two very different issues together in another interesting E-Letter.