Are Foreign Investors Ditching U.S. Treasuries for Bitcoin?

Although the federal government and hacks like Paul Krugman want us all to believe that U.S. economy is doing “extremely well”, the numbers tell a different and very harrowing story.

I’m not talking about the inflation figures. Everyone who shops knows that they are paying about 30% more for their chicken, eggs and beef, and about 60% more to fill up their gas tanks than they were just two short years ago.

I’m referring to a different foreboding economic barometer that many likely missed while they were busy uploading pictures of their overpriced chicken cacciatore dinner onto social media.

This past Friday, Moody’s Investors Service lowered its ratings outlook on the United States’ government to negative from stable. Although Moody’s cites its reason as “rising interest rates and political polarization in Congress,” the move comes fresh off the heels of Thursday’s disastrous 30-year Treasury bond auction.

Just how bad was Thursday’s auction?

It really could not have gone any worse.

The auction attracted the smallest pool of bidders since 2021. Not even sweetening the yield was enough to entice buyers. The demand was so abysmal that primary dealers were forced to step in and buy 25% of the bond issuance - well above the average 11% that primary dealers tend to purchase when investor appetite is low.

For those who don’t know, primary dealers are big banks who are obligated to finance whatever portion of a Treasury auction that isn't purchased by other investors. “Obligated” is the operative word in that sentence.

Imagine peddling a product so undesirable that you have to require others to buy it? Just because such “sales” tactics work for the mafia, it does not mean that it should be employed by the federal government.

Nor should the government be trying to mask its economic failures by blaming auction flops on cyberattacks when the true cause is simply weak demand. If you ask the government, Thursday’s dismal auction had nothing to do with foreign investors running away from Treasury bonds as if they were the plague. Instead, according to government spin doctors, the weak auction was due to a ransomware attack, on the U.S. unit of China’s largest commercial lender, which disrupted the U.S. Treasury market from settling trades.

Oh, okay. Sure, Jan.

So, are we to assume that cyber hacks and glitches also caused the abnormally high levels of primary dealer participation in the recent 3-year and 10-year Treasury auctions which took place on completely separate occasions?

Because truth lags lies, time will soon confirm whether Thursday’s pitiful auction was the result of some cyber breach or if foreign investors are indeed backing away from U.S. T-bonds.

The fact is that foreign demand for Treasuries has been declining since 2021.

Given bitcoin’s recent price surge, my guess is that foreign investors are abandoning Treasuries and looking to bitcoin as their new safe haven.

Foreign countries presently own $7.4 trillion in U.S. Treasuries — roughly 24% of total U.S. debt. If they sell or simply stop buying, the only way the U.S. will be able to pay for things - like its wars, the interest on the debt it already owes and its ever-increasing welfare programs needed to support a surging population falling into poverty - is to either print more money or replace foreign investors with a fresh cohort of Treasury buyers.

Printing money will only exacerbate the already rampant inflation and cause our food and gas bills to soar to even greater unaffordable heights. It will also crush the stock market and wipe out 401(k)s in the process. Although a starving citizenry may not concern the government, a collapsing stock market during a big election year most certainly will. Therefore, my guess is that the government will go with option #2 and seek new Treasury buyers - pronto.

So, where will these new Treasury buyers be lurking?

I doubt they’ll be on Mars since Elon Musk hasn’t yet populated our neighboring planet. And considering that machines haven’t yet figured out a way to demand compensation or reparations for all of their unpaid math labor that they have contributed since the advent of the calculator, I don’t see robots stepping up to cut checks anytime soon.

I ask again. Who is going to buy U.S. Treasury bonds?

Let me give you a hint.

The answer is you.

You, the hard-working American, will be the newest Treasury buyer.

Congratulations!

Whether you want them or not, the government will soon be forcing you to purchase its crappy investment products that no one else on this, or any other, planet wants.

There are a number of ways that the government will be getting you to involuntarily buy its crap.

First, will be through government-mandated retirement vehicles. You’ll be told that these vehicles are for your own good and that they will help you save for retirement. Blah, blah, blah.

You know the shpiel. In fact, the government has tried a similar shtick before with its now discarded myRA retirement program. Launched in 2014, myRA was a retirement program for low-to-mid-income households that only allowed for the purchase of Treasury investments which, at the time, were barely yielding 1%.

The myRA scheme helped no one except for those who ran the program. In fact, it cost taxpayers $72.4 million just for the government to manage a paltry 20,000 myRA accounts worth only $34 million. Yes, you read that correctly. The government raked in management fees equivalent to over 200% of AUM (Assets Under Management)! In case you are not very good at math, 200% is a much bigger number than the 1% that the account holders were generating in Treasuries.

Now the government wants to take its failed and prodigal myRA program one step further. Instead of it being voluntary, businesses and individuals will be forced into funding government-run retirement accounts that can only invest in U.S. Treasury products.

At first these government-mandated retirement vehicles will contain opt-out clauses and maybe even a few other investment choices, offered by deep-pocketed providers with good lobbyists. But you know the drill. As government expenses rise and its need for Treasury purchasers escalates, the discretionary features will be legislatively removed by those we’ve voted into office.

Eventually, in order to keep its little Ponzie scheme going, the government will need to ban competing products altogether. The government’s first line of attack will come through its Department of Labor (DOL) where it will likely amend rules to constrain investment options in more conventional retirement vehicles.

Of course these restrictions will not apply to everyone. Legislators will not be limiting themselves to buying Treasury bonds - as doing so would cause them to forgo their lucrative stock portfolios that appreciate based on the legislation that they pass. Nor will legislators do anything to frustrate the money flowing in from their wealthy donors.

Nope, the ones who will be left holding the Treasury Bond bag will be America’s unaccredited investors who the government deems as too poor and too stupid to make sensible investment decisions. These are the 90% of Americans who make under $200,000 (or $300,000 with spouse or partner) or who have a net worth of less than $1 million (excluding the value of their home).

This is precisely where the government’s Securities & Exchange Commission will be weaponized come in handy. The SEC will be tasked with raising the accredited investor thresholds to ensure that a much smaller number of Americans will qualify as accredited investors.

The SEC will also be utilized to make it difficult, if not impossible, for competing financial products to reach everyday investors. Instead of qualifying superior investment products, the SEC will just sit on their applications - forever.

And, if that is not enough to deter financial innovators, the SEC’s enforcement arm will keep them embroiled in costly litigation for no other reason than, because it can.

As unaccredited Americans start discovering ways to build wealth through decentralized finance, the government will resort to even more Orwellian methods to drive demand for its shitty bonds.

Next up on the government agenda will be CBDCs (Central Bank Digital Currencies) - otherwise known as the greatest government confiscation of wealth in the history of mankind. CBDCs will give the government the power to transfer all of your unspent wages into its Treasury bonds if it so wishes - simply with the click of a computer key.

You’re probably thinking, no way would any of this ever happen in a free country.

Unfortunately, this article is not some fictional dystopian banter. The government is doing a lot of this already. Read, for yourself, some of the recently introduced retirement bills as well as the suggested DOL and SEC rule amendments pertaining to retirement plans and the accredited investor definition.

The dwindling demand for Treasuries, coupled with recent authoritarian regulatory actions, as well as soaring cryptocurrency prices are all harbingers for what’s to come.

As the world ditches their Treasuries for Bitcoin, the best thing you can do to protect your wealth is to follow suit and accumulate crypto - primarily Bitcoin and Ethereum.

On the bright side, if it results in the government becoming more fiscally responsible with our tax dollars, the lack of Treasury buyers could end up being just the medicine needed to fix America’s disastrous financial condition.

Ultimately, with less money available for bureaucrats, there will be more capital flowing to innovators and job creators and greater autonomy for we-the-people - just something to ponder as you’re building your crypto fortune.

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Are foreign investors ditching their U.S. Treasuries for Bitcoin? If so, how will this impact the price of Bitcoin and the market value of the cryptocurrency market at large? Drop me in a note and let me know what you think.