Well, we knew this was coming but today's pronouncement by the premier of China, Wen Jiabao that he is "worried" about the amount of US debt that China holds and it's value in the face of the current economic melt down is the first big warning shot to the Obama administration.
Many commentators, investment firms and others have long been warning that China would not tolerate for long the financial misadventures of the US Congress and our exploding deficits if it threatened the viability and stability in pricing of US Treasury's held by China.
Premier Jiabao said " We have lent a huge amount of money to the US. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried."
Lets just say that China has now officially let it be known that the massive bailout, spending and stimulus program embarked on in the first 50 days of the Obama administration has got it more then a little concerned, as they realize that even more Treasury paper will be flooding the credit markets and that the US has become a debtor nation.
The implications of this policy are laid out in two excellent articles today.
What this means to the financial markets, tax payers and others is that much as the loan sharks send Vinnie the collector over to your place of business to remind you that Friday is pay day and that they expect you to be on time, China has now sent a clear message to the US that the orgy of spending and printing of money is going to come at a huge cost.
That cost is China and many of the middle east oil producing companies are going to be directing, through the pressure they exert as a major lender, the direction and priorty of US fiscal policy and that our nation is now vulnerable to economic blackmail from countries that are not our friends.
The implications for us are that we as a nation have got to pare back debt, pare back foolish spending, start investing in real businesses, technology and processess that create real wealth and value or we are looking at an extended period of economic decline or malaise as a country. Both parties have their hands all over this deal and it will fall not on political leadership but individual citizens and business people to set the course straight again.
Keep your powder dry, your assets in safe and secure places, invest in your business and educations and spend wisely. It's going to be a new world order and the US and it's citizens just got a glimpse of it this morning.
If you are in the structured settlement or settlement planning profession, prepare yourself and your clients for a continued flight to safety and quality, guaranteed yields and very shortly, inflation investment strategies. The price new lenders will require of the US will be increased interest rates and a stronger dollar and our profession needs to prepare for that looming environment.