China's Message to Biden

No less than three headlines hit the news today, all outlining things to come when it comes to America's relationship with China and how this will influence the US dollar. First out was a story about Biden's stance on China, which sounds to be as tough on trade as Trump was. Then there was a headline on rising yields in the treasury market, and finally a bipartisan decision to unleash close to one trillion dollars in economic stimulus.

Surely, China cannot be very pleased with any of this. With trillions of dollars tucked away in US treasuries, China is liable to lose a lot of money unless US politicians show some restraint. More likely than not, China is going to be a net seller of US treasuries going forward, and the recent spike in interest rates may well have been China's way of telling Biden that he better be careful. If Biden stays tough on China and lax on monetary policy, China is liable to accelerate its sale of treasuries.

That would mean that no less than three trillion dollars of Chinese owned dollars are about to hit the market in addition to the trillion dollars unleased by the US congress. Which begs the question, where will it all end up. Being wary of US assets in general, China will continue its recent hoarding of commodities. It will also buy gold and silver. This will set upward pressure on prices for goods relative to the dollar. With interest rates likely to continue upwards as a consequence of China's shift from treasuries to commodities, anything sensitive to interest rates will also be hit. This means that stocks, debt and real estate will face downward pressure relative to gold. While these assets may see nominal gains in dollars, their real value will go down together with the value of the dollar.

With US politicians showing no restraint on debt or foreign policy, it seems inevitable that some sort of hyperinflationary bust is on its way. Those not properly prepared for this outcome are likely to suffer greatly.

Train wreck

By Photo credited to the firm Levy & fils by this site. (It is credited to a photographer "Kuhn" by another publisher [1].) - the source was not disclosed by its uploader., Public Domain, Link