Money and Metals

Economist Mark Skousen has a press release out on foreign inflows of capital. "Foreign governments have been bailing out the U.S. for several years now, buying up 70% or more of our federal debt. At one point, they were financing our ballooning deficit to the tune of $4 billion a day. Selling our debt to overseas banks, however, is getting harder, all too quickly, says Dr. Mark Skousen."

"Debt purchases have started to decline precipitously, from a peak quarterly rate of more than $400 billion in early 2004, to just $100 billion in the most recent quarter. At the same time, the federal deficit is expected to reach more than $500 billion in fiscal 2005. More debt, fewer buyers, a double whammy."

"The sharp slowdown in foreign purchases of U.S. debt will force the Treasury to raise interest rates to keep governments from unloading their T- bonds. Already, central banks from China to Argentina are quietly shifting to non-paper assets, specifically gold and precious metals, to diversify their portfolio."

The release has this chart to demonstrate the situation.