China’s currency reserves are not what they used to be. According to some estimates, the dollar’s share of China’s reserves has been slashed to a record low, as the world’s second largest economy looks to diversify away from the greenback. Not only that, but China has reportedly been selling U.S. securities.
Thu far, this has not caused any type of panic and doesn’t even appear to be on the radar for most investors. You could certainly make the argument that a pullback in buying by the biggest creditor of the U.S. should be a cause for concern.
A significant decline in Chinese purchases of U.S. debt could leave a formidable gap-a gap that would have to be filled somehow. Perhaps other, smaller nations might look to accelerate their purchases of U.S. debt. Perhaps U.S. citizens could fill the gap through the purchase of savings bonds or other instruments.
Whatever the case may be, the gap will have to be filled sooner rather than later.
In a recent Barrons.com article, MacroMaven’s Stephanie Pomboy laid out the dilemma:
According to the article, Ms. Pomboy has calculated that “there’s an $800 billion gap between the $1.1 trillion that the treasury is borrowing to cover the budget gap and the roughly $300 billion overseas investors are buying.”
In her opinion, the Fed will step in to fill any remaining gap through debt monetization.
Put another way: The central bank will print more money to cover the government’s debts.
Ms. Pomboy was quoted as saying: “Having pushed interest rates to zero, launched QE1 and QE2, there’s no reason to believe that the Fed is going to allow free-market forces to destroy the fragile recovery it has worked so hard to coax forth now. And make no mistake, at $800 billion, allowing the markets to resolve the shortfall in demand would send rates to levels that would absolutely quash this recovery…if not send the economy in a real depression.”
The Fed buying more U.S. paper could simply accelerate the race to the bottom currently being seen in currency markets.
This, combined with some countries already moving away from the dollar could potentially fuel a significant dollar decline.
A significant dollar decline would drastically erode your purchasing power. Imagine not being able to afford groceries anymore or paying $10 for a gallon of gas. Imports would become more expensive and jobs could be lost.
The time to consider an allocation in hard assets that may potentially help preserve your purchasing power is now. Gold, silver and other physical precious metals may potentially offer an effective hedge against declining paper currency values.
Don’t wait for QE3, QE4 or QE5 to be rolled out before taking action. Explore your options now.
Speak with an Advantage Gold account executive today to learn more about the potential benefits of physical precious metals ownership. Our precious metals professionals are here to answer your questions, and can even show you how to buy and hold these key precious metals using your IRA account.
Don’t take chances with your financial future. Prepare for the possibility of weaker paper currency values and a decline in purchasing power today. To get started, simply pick up the phone. Call us today at 1-800-341-8584 to learn more.Tags: advantage gold, china, currency reserves, demand, Fed, gold, government debt, interest rates, purchasing power, quantitative easing