You have to be really careful when listening to the media when it comes to anything related to economics and finance, because it's mostly all wrong. Yesterday a friend of mine sent me an article from CNN.com that had the following headline: Global Central Banks Dump U.S. Debt at a Record Pace. Pretty scary, right? The problem is, it doesn't tell you anything and it's almost completely meaningless.
If you look at the Treasury's latest report on foreign holders of U.S. Treasuries, you will see that total foreign holdings are at $6.28 trillion. That's up $120 billion from a year ago and just $6 billion (less than one-tenth of one percent) below the all-time-high record that foreigners held in March. So who bought the $6 billion that foreigners sold? Domestic U.S. investors.
What happens when somebody sells Treasuries? Nothing.
The Fed takes back the Treasury and credits that person's bank account with reserves (cash). So it's just dollars switched from one form to another. It's the same as saying, what happens when you move your money from your savings account to your checking account? Nothing. The bank still has your money. You still have your money. It's just in a different form: it's not earning interest anymore.
Yet the media and ignorant "pundits" make such a big deal about this. The problem is, people read this stuff and they get scared, and it causes market moves that are totally based on nothing. People like me, who understand the monetary system, know how to take advantage of this and make profits trading and investing from others' mistakes. Unfortunately, though, there are a ton of people who just jump around in the markets trading on noise and on false understanding. They'll eventually lose.
I saw another article saying that the reason the dollar is going down is because the government is going to have to make a big, $38 billion interest payment. It was as if the author was inferring that the government didn't have the money and had to go looking around for it and that would cause loss of confidence, blah, blah. So ridiculous.
The $38 billion was paid. Monday. Did anyone even notice, other than the bond holders who got paid? Happens all the time. There is no "difficulty finding the money." The Treasury instructs the Fed to make the payment on its behalf, just like you would instruct your bank to make a payment to pay a bill. It gets paid by a keystroke on a computer.
I'll tell you one thing that scares me, however, and that is the debt ceiling. Not the debt ceiling itself, because that's a joke and should be done away with, but rather, the ignorance surrounding the debt ceiling. It will one day cause us to go "full Greece", and that will be a real shame. We will impose massive austerity on ourselves because of all the ignorance on the debt ceiling.
It could happen as early as next March. That's when the debt ceiling will have to be raised. We will have a new president at that time, and neither of the candidates has a very good understanding of U.S. debt.
There's already legislation that was passed by the House earlier this year called the Debt Management and Fiscal Responsibility Act that could pass the Senate. It would lead us on the path to needless and ruinous austerity over this idiotic debt ceiling.
No other country has a debt ceiling or, if they do, they hardly ever give raising it a second thought. Only here have we made the debt ceiling into this ticking time bomb that we will use one day to eventually blow ourselves up. I am absolutely dead certain of this.
The debt ceiling is an anachronism. It goes back to the days of the gold standard and in case anyone hasn't noticed we have been off the gold standard for 45 years.
When the debt ceiling time bomb blows, I will know, and I will know what to do. Will you? Most people will probably think that it's good that we imposed spending "limits" on ourselves, finally. They'll think it's right, it's prudent, etc. That kind of thinking will make them broke, I can assure you.
On the other hand, I will clean up. I don't want to say I made money when the economy and country and millions are plunged into needless hardship, but I am not going to let stupidity -- political or otherwise -- bring me down. No way.