Written by Chris Marcus for the Miles Franklin blog
One month after Russia sold off half of its U.S. Treasury holdings, they just dumped virtually the rest.
So officially gone are the days of just speculating about an exodus out of the U.S. Treasury market. As one of the biggest customers has just left the auction.
Russia has sharply reduced its holdings of United States Treasury bonds, with Russian ownership recently moving to an 11-year low.
Russia’s ownership of US bonds declined from $96.1 billion in March to $48.7 billion in April and then to just $14.9 billion in May, according to the most recent data available, the Russian news website RT and the finance blog Wolf Street reported this week.
While the move is shocking in its own right, it was not an action that came without warning. After all, Russian President Vladimir Putin has been very vocal and adamant about his dissatisfaction with the current financial arrangement, and the move to sell Russia’s U.S. treasury position shows that he is not just bluffing.
The action by Russia also sets up an interesting dynamic, in that the trade could not have gone unnoticed by the rest of the world. And now it’s interesting to wonder who is going to be next.
Because the reasons that Russia would sell its holdings are not a complete mystery. The U.S. debt has crossed $20 trillion, and rather than hearing any discussion of how that’s ever going to be repaid, instead the talk is just about how long it will take until the debt hits $30 trillion.
So for any nation that’s sitting there holding a large U.S. treasury position, there’s an incentive to move first in order to avoid being left without a chair when the music stops.
Many analysts claim it’s an impossibility that China would dump it’s treasury position. But given that’s exactly what Russia has just done, is it still so far fetched? Especially since the possibility that a run on the market has begun has to in the least be considered?
Yes, China has a much larger position that might not be as easy to unwind. But when you end up with a bad position on your books, the market doesn’t always wait for you to find an easy way to get out of the trade.
Sometimes you face the decision of cutting your losses, or risking an even bigger loss by staying with a losing trade. How China decides to handle this situation will likely be talked about for the ages. Yet given their recent actions to move away from dollar infrastructure, as well as how they continue to see the world in a manner similar to Russia, the probability of China moving away from the U.S. treasury market has to be increasing.
That the dollar was eventually going to run into trouble was only a matter of time. But now that time has come. Which means that following Russia’s move out of paper and into gold remains a more viable way to protect yourself against the dollar than ever.
–Chris Marcus
To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).
