What Does that Mean to the U.S.?
Across America, consumers are urged to send their gold away to refiners who will melt down their old jewelry and give them a little cash in return. On more conservative networks, the advertisements are a little different. Gold sellers are
encouraging Americans to buy gold, rather than sell it. In China, the government is getting into precious metals advertisements as well. The Chinese government is echoing the advertisers on the more conservative networks, asking its citizens to purchase gold and silver. The United States currently relies on China to purchase treasury bonds in order to keep up with our massive overspending. What does the Chinese investment in precious metals mean to Americans?
An Unbalanced Budget
The United States continues to run an astronomical budget deficit every year. The national debt continues to grow, as the government spends more than it receives in taxes every year. As the national debt grows, so does the interest that the government spends on the debt. As the United States continues to overspend, the value of the dollar theoretically weakens.
China currently owns more than a trillion dollars of the government's debt. The Chinese have lent the United States money in the past, because they felt it was in their best interest. Because they have such a large investment in our finances, they have in the past lent to us. As they lose confidence in the US economy, they are less eager to lend money. In February, Luo Ping, who is a director-general for the Chinese Banking Regulatory Commission, stated "we hate you guys" when referring to the US government's spending binge. They are clearly not happy about lending to the US government, because it has failed to clean up its spendthrift ways.
Getting out of Dollars
Although the Chinese government is still buying dollars, they are slowly divesting of their investments, spending more dollars than they are buying. At the same time that China has been slowly reducing their dollar holdings, the country has been
investing in gold by investing in gold mines. The Chinese must believe that it is in their best interest for their citizens to buy gold, or they wouldn't be pushing their citizens to do so.
If the Chinese government continues to dump US dollars, they will have less of an incentive to keep the dollar afloat. This could result in inflation, or perhaps even hyperinflation, for the dollar. By encouraging the citizens of the most populous country in the world to purchase precious metals, the supply of gold and silver could become limited, causing an increase in the price.
(by Brooke Lorren | AC)
No comments:
Post a Comment