Typically most successful businesses value their best customers and go out of their way to keep them happy. Unfortunately governments and politicians don’t always follow that same strategy, and yesterday in addition to escalating the war in Afghanistan, President Trump placed sanctions on 2 of the biggest U.S. creditors in China and Russia.
The United States already holds $20 trillion of publicly stated debt, not to mention what is likely well over $100 trillion in additional unfunded liabilities. Yet rather than seeing any progress in addressing these issues, the government is increasing military expenses and creating more obstacles for economic growth via sanctions.
At times it seems as if the decision makers have to either be oblivious to financial reality, or simply just don’t care. Russian and China are two of the largest holders of U.S. debt, and in the past decade they have given every indication possible that they are growing tired of U.S. imperialism and dollar financing.
They also seemingly hold the ability to crater the U.S. economy at any time of their choosing if they simply decide to unload all of the U.S. paper they hold. That would spike interest rates in the U.S., and given how the economy is addicted to low interest rates, it simply wouldn’t be able to handle such an event.
So is it really wise to continue to escalate foreign tensions? Are the decision makers still holding to their old philosophy that war is an economic boom? It seems like a reckless policy at best, especially at a time when domestic economic affairs are already so fragile.
In either case, the idea that the dollar and U.S. treasury markets represent some sort of safe haven or flight to quality becomes more far fetched by the day.
So whether it’s this year or at some point in the future, the day where the financial markets get repriced is coming. And when that happens, I’ll sure be glad I’m holding precious metals rather than U.S. dollars and treasury bonds.