“We are bearish on U.S. government paper in all its forms,” says Bill Bonner. “And here’s why. The latest estimate from Goldman Sachs puts U.S. government borrowing for this fiscal year at $2.5 trillion. Meanwhile, foreigners are showing less and less interest in U.S. debt. They’re switching to short-term paper -- bills and notes, which are less vulnerable to inflation and currency declines. And they’re pulling out of U.S. Treasury market generally. The total percentage of U.S. debt owned by foreigners is falling from 60% down to about 40%... a huge drop. “Either one of two things will happen. If the government funds its deficits honestly -- by borrowing from willing lenders -- this huge extra demand for credit will force up yields... thereby lowering bond prices. Or if the government resorts to “monetizing the debt” -- that is, funding its debt with printing press money -- investors will flee bonds, in fear of higher inflation.
“Either way, it will be bad news for bond prices.”
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