Kerby Anderson

Here’s an economic prediction. The government will start encouraging you to buy bonds. If you think about that, such a proposition will be a tough sell since US treasuries pay around 2 percent when the inflation rate is 8.5 percent.

Why would the federal government want more American citizens to buy bonds? I can answer that by citing two articles and one chart. The first article appeared in the Wall Street Journal and discussed how the US and the EU shut off Russian central banks’ access to foreign currency (like the US dollars). As I talked about in previous commentaries, other countries saw what happened to Russia and would certainly wonder if this could happen to them.

The second article has the title, “China Scrambles for Cover from West’s financial Weapons.” China is the world’s largest holder of foreign reserves and understands that they could become the next economic target. One Chinese economist says they were shocked and “never expected that the US would freeze a country’s foreign current reserves one day.”

How is this related to buying bonds? China is holding over $1 trillion of its $3 trillion worth of foreign reserves in US treasuries. I predict that the Chinese government will be selling those treasuries and allowing others to roll off their balance sheet. And it is highly unlikely they will be buying anymore.

Look at the US Debt Clock. The national debt is over $30 trillion, and the current deficit is over $2 trillion. That’s why I predict we will hear more about the need for Americans to do their patriotic duty and buy bonds. I also believe Congress might even pass legislation to require mutual funds and financial instruments to allocate a percentage of their portfolio in US treasuries. A government going broke needs someone to cover their debts.