Within the last week, I saw a news headline stating that China has been selling off its holdings of US Treasury Securities. My immediate reaction was – that’s not good! After Japan, China is the second largest foreign holder of US debt, and if they are selling at a time when the total US Federal debt is exploding higher, it could very well translate into higher Treasury interest rates (more supply, less demand). As a matter of fact, the latest government statistics (as of June 30) show that both China and Japan have significantly reduced their holdings of US Treasury securities - Japanese holdings are down 10.3% from one year ago, while Chinese holdings are down 11.0% over the same time period. Most notably, Chinese holdings are at their lowest level in the last twelve years! What’s going on? The most obvious answer is that both the Japanese and Chinese currencies are down sharply against the US dollar this year, and both countries, to some extent, are selling dollars in an effort to support their own currencies as part of an effort to fight inflation in their countries. However, with respect to China, is something more nefarious going on here?
In a recent article, noted China hawk Gordon Chang predicted that China could soon invade Taiwan. We have absolutely no inside information, but we suspect they are not quite yet ready to do so. As we have pointed out before, conducting a war takes a helluva lot of money. For instance, since 2009 Russia has invaded Georgia, Crimea and the Ukraine, and each time it did so, the price of crude oil was over $100 a barrel. Given that high of a price, they were generating billions of dollars from sales of their massive oil reserves, and so they could well afford to spend the massive amount of money that a war entails. (Just look at the billions of dollars the United States is sending to Ukraine, and we are not doing any of the fighting)! We suspect that the Chinese have been closely watching the United States reaction to the Ukraine invasion. They have watched the United States use the western financial system to both sanction Russia and freeze their assets. If and when the Chinese invade Taiwan, they will not want to have the United States capable of seizing hundreds of billions of their dollars now invested in US Treasuries. Therefore, we would expect to see a continued, sharp reduction of their holdings of US treasuries before they actually invade.
The trend seems obvious, but it hasn’t quite fully happened yet, so our guess is that there is still some time for the President and Congress to decided how we will react if and when the Chinese attack Taiwan. Remember that back in October of 2021, CNN anchor Anderson Cooper asked President Biden if the US would come to Taiwan’s defense in the event of an attack by China, and Biden replied: “Yes, we have a commitment to do that.” Although that comment was immediately walked back by someone else in the White House, you have to wonder, for the President has shown a willingness to spend “whatever it takes” to support the Ukraine war effort, to send our troops back into the quagmire of Somalia and to keep our military ensconced in Syria.
Speaking of Syria, we barely noticed an important story that was scarcely mentioned in the news media that was instead focused on Trump’s indictments and Biden’s corruption. Just this past week (on August 24), General Mark Milley, the chairman of the US Joint Chiefs of Staff, told Jordanian TV that US forces occupying the oil fields in Syria's northeast will remain there for the “foreseeable future to fight ISIS…"The ideology is not yet dead, and there are some ISIS terrorists that are still roaming the deserts of Syria and somewhat into Iraq, so that presents a threat." Earlier in March of this year, the General visited Syria and stated that the nearly eight-year-old U.S. deployment to Syria to combat Islamic State is still worth the risk…"There are still fighters in small groups in and around Syria and around Iraq... and if we were to somehow suddenly withdraw, those forces could reconstruct themselves. So the situation is much, much better than it was. But it still requires a level of commitment. So we've got some modest amount of forces in Syria, and we've got forces in Iraq," he added…The US military chief also said that “the decision to leave Syria falls on President Joe Biden. I can't imagine that the United States would ever walk away from [West Asia]. I think we'll remain committed for many, many years and decades to come.”
Decades? Talk about a Forever War – there will always be some ISIS terrorists roaming around the Middle East! That’s quite a contrast to the position of former President Trump when he was in office. Instead of micro-managing the war against ISIS, he gave carte blanche to his Generals to do whatever it takes to defeat them. By December of 2018, ISIS was largely defeated and had lost almost all of its territory, and the President announced his intention to withdraw the 2,000 US troops who were engaged in the war effort. That he did, and by the time he left office, there were reportedly only 200 troops remaining. President Biden has now obviously chosen the opposite tack.
In just 14 months, the United States will decide who our next President will be, and a very important question will be how far we will spread our military, and how much money must we borrow to support war efforts all over the world. By his own actions, President Biden has shown where he stands. By his rhetoric and by his prior actions, former President Trump has shown that he favors significantly less military intervention than that of now President Biden. We certainly would like to see more transparency on this issue from the other Republican candidates.
In regard to Syria and Iraq, our opinion is that there will always be radical Muslims who hate our country for the freedoms we enjoy, and for the protections our Constitution give to all Americans. Furthermore, it is our opinion that ISIS is not much of a threat to the United States; and in fact, it is much more of a threat to the Syrian government, to Europe, to Russia, to Turkey, to the Kurds, to Iraq and to Saudia Arabia, than it is to us. Let them spend the money and risk the lives of their soldiers. Let them do the fighting instead of us.
The big picture for us is that the United States is now burdened by too much debt, and that we can no longer afford to be the world’s policemen. We should only utilize our money, and more importantly risk the lives of our soldiers, to defend the vital and important national interest of the United States. Does the Ukraine, Taiwan, Somalia, Iraq and Syria qualify? We don’t think so, but in the next election, Americans will be choosing the path they want our leaders to take.
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