Will China soon stop buying America’s debt?

Since the economic collapse nearly a decade ago, libertarians have warned that the United States would be in shambles if other nations, particularly China and Japan, stopped buying America’s debt. With Tokyo and Beijing maintaining approximately $7 trillion worth of U.S. debt, the federal government would be in quite the pickle.

That time may have come, according to a new report from Bloomberg.

Sources close to the situation say that officials are examining China’s foreign-exchange holdings, and one of the recommendations is to either stop or slow down purchases of U.S. Treasuries. Though it is unclear if the suggestions have been adopted by the ones in charge, it should still send shivers up the spines of President Donald Trump and his administration.

Ostensibly, there are two reasons why some are encouraging the Chinese government to cease buying U.S. bonds. The first, U.S. government bonds are becoming less attractive in today’s market. The second, trade tensions between Washington and Beijing are intensifying – China could gain an advantage by threatening to slow down or halt buying American debt.

More from Bloomberg:

The people didn’t specify why trade tensions would spur a cutback in Treasuries purchases, though foreign holdings of U.S. securities have sometimes been a geopolitical football in the past.

The investment strategies discussed in China’s review don’t concern daily purchases and sales, said the people. The officials recommended that China closely watch factors such as the outlook for supply of U.S. government debt, along with political developments including trade disputes between the world’s two biggest economies, when deciding whether to cut some Treasury holdings, the people said.

U.S. Treasuries dropped after Bloomberg reported the discussions, sending benchmark 10-year note yields to 2.58 percent, the highest since March, as of 10:45 a.m. in London. Yields were already climbing this week amid expectations the improving global economy will boost inflation pressures round the world, just as major central banks scale back their asset purchases.

The news comes as the Treasury Department confirmed that government will need to borrow more, particularly as the Federal Reserve winds down its balance sheet and the federal deficits increase.

Like Social Security, America’s debt is a ticking time bomb.

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