February 14, 2011 - $1.65 trillion in new borrowing – if that isn’t a flashing neon sign saying “buy gold bullion,” I don’t know what is. Perhaps $3.73 trillion – that’s the new budget. No matter how you slice it, those figures aren’t going to resonate well with global opinion.
The Chinese people are already gravely concerned over our debt to them, despite their government’s very public statements that so far they have lost no money on that debt. But “most of China's $2.85 trillion in reserves is invested in dollar assets,” says the Wall Street Journal, and if I were Chinese $1.65 trillion in new debt would not give me a warm fuzzy feeling.
A senior economist at China’s Industrial Bank Co., finds little assurance in Obama’s promises to honor Fannie Mae and Freddie Mac securities, which constitute the bulk of Chinese held long- term debt. "Looking at the current political situation in the U.S., for the U.S. Congress to give a clear guarantee on this issue is almost impossible," he said. The Chinese International Finance News echoes the concern, “saying that losses on China's Fannie and Freddie holdings could reach $450 billion.”
The concerns about the dollar are well founded, and the Chinese government is well aware of it. Last year it launched a program to induce private investment in gold bullion and even opened the door to investments in foreign gold. In addition, China greatly increased its gold imports, doing what all smart investors are doing: hedging their dollar-tied assets with gold.
Politicians on both sides of the aisle are displaying no signs of fiscal responsibility. We can’t spend our way out of this mess, but neither can we afford to fan the flames by slashing support for the states and blocking urgently needed repair of our infrastructure.
We would all do well to take a cue from China and stock up on gold bullion.
