US Economic Forecast Looking Grim

Wednesday, March 3, 2010 , Posted by Zeeda Andrews at 12:25 PM

Uncommon Wisdom says it best. Till Debt Do Us Part. Millions, billions, trillions. It is hard to wrap your brain around numbers that big, but I think our politicians don't even bother to try. On February 1, President Obama released his 2010 budget that projects the U.S. deficit to grow to a record $1.56 trillion, an increase over last year's record of $1.4 trillion deficit. One consequence of all that spending is that someone has to buy all the Treasury bonds we keep issuing to finance these trillion dollar deficits. In most cases, the people buying those bonds are Asians.

According to the U.S. Treasury Department, China owns $894.8 billion of our Treasury bonds, making it the largest holder of American debt in the world. Japan, by the way, is the second largest holder with $768 billion. The Chinese, however, are losing their appetite for our seemingly endless spending spree and are starting to reduce their holdings of our government debt. In December (the most recent numbers), China cut its portfolio of U.S. government bonds by $34.2 billion. For years, China has steadily increased its bonds holdings so this change is a clear warning signal that China isn't willing to be America's global sugar daddy any more.

The depreciation of the dollar has become an inevitable historical trend," said Zheng Xinli, vice president of China Center for International Economic Exchanges. That's a harsh criticism, but the biggest Chinese cheese of all, Chinese Premier Wen Jiabao, issued a similar warning: "To be honest, I am definitely a little worried. We have loaned huge amounts of money to the United States, so of course, we have to be concerned. We hope the United States honors its word and ensures the safety of Chinese assets."

Sure, our runaway spending is eroding global confidence in the dollar. But we've been running deficits for years and although the Obama administration has taken government spending to insanely high levels, I think the catalyst behind the change is more political than economic. The Chinese are furious over Obama's decision to sell $6.4 billion worth of arms — Black Hawk helicopters, F-16 fighters, communications equipment and 114 Patriot missiles — to Taiwan. This so enraged the Chinese leaders that a group of high-ranking military officers publicly urged China to dump its U.S. Treasury holdings.

Huang Xueping, a top official at the Chinese Ministry of National Defense, urged the U.S. to "speak and act cautiously" or risk serious damage to the relationship between the two countries. Qin Gang, a Foreign Ministry spokesman, warned that arms sales threaten China's security and said "the people who tied the knot should untie the knot."

Don't wait until a panic hits this country to be self reliant. Its time to go totally green and prepare food storage, water crisis for meltdowns of global apportion.

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.
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