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Unless we take action now, our nation faces a dire future. We got a preview of that this week. 

The Federal debt is now $25 trillion.  That’s $25,000,000,000,000.  By my count, we’ve added $6 trillion this year alone when you include the Fed’s QE program.

And this week, we started to see the consequences of our debt binge.  

Usually, the government sells 30-year U.S. bonds to finance its budget deficits.
But this week, we learned that global investors don’t want to buy 30-year bonds from us – at least until we get our fiscal house in order. It’s like the credit card company not increasing your credit line after you’ve maxed out.

 Investors wanted to buy 10-year bonds. But selling 10-year bonds could destroy us. If we don’t get our fiscal house in order within ten years, we could be forced to refinance our debt at astronomically high interest rates in a decade. 
This week, Treasury Secretary Steve Mnuchin found a middle ground: he said we would issue 20-year bonds for the first time in decades.
The worst part is that we’ve maxed out our credit cards at exactly the wrong time – at the very beginning of a 100-year global struggle with China.
And China is not the Soviet Union. Barring any unexpected shocks, China’s economy is expected to overtake ours in the next 12 years! And let’s not forget they 1.4 billion people.  
With an economy almost as big as ours, and a population four times our size, they can exert pressure on us and our allies in ways the Soviet Union never dreamed of.  
Here’s what they are doing RIGHT NOW:

  1. Putting economic pressure on our partners: This week, China slapped 80% tariffs on beef from Australia just because they joined our call for an independent investigation into the pandemic. Australia’s standing firm now, but for how long?
  2. Putting military pressure on us in the South China Sea: For years, China has been building A2-D2 (Anti Access/ Area Denial) weapon systems to deny our entry in the South China Sea. Because these cheap missile systems are so effective, a recent Pentagon study warned that they pose too great a threat to our aircraft carriers. They propose we start phasing them out. Aircraft carriers are the backbone of our Navy. They’ve just took out our backbone. 
  3. Putting monetary pressure on us: China is working non-stop to have their renminbi take the dollars place as the world’s reserve currency. The first part of their plan was to create new digital currencies and push them out to our adversaries. Now that that’s accomplished, they’ll begin to force countries to settle all trade in their currency. That move alone could cut our position as the world’s reserve currency in half.
  4. Putting technological pressure on us: That the Chinese Communist Party (CCP) thinks and plans for the long-term is beyond doubt. Fifteen years ago, they began funding Huawei’s development of 5G technology. With a country funding a private company, Huawei’s been able to leapfrog all western firms in the development and release of 5G equipment. Now Huawei’s able to sell their equipment at a loss, just to support the CCP’s plans to have their technology installed everywhere.

Make no mistake about it: China is using this pandemic to make their bid for world power. They see it as a historic opportunity to push us aside and become leaders of the world.

I am absolutely convinced that we can win the coming struggle with China. Our system of capital allocation is superior and, over time, will win. 

But to do that, we need a solid plan to tackle our debt – or we lose our biggest advantage. And we need that plan now.  

We have to do it because no nation can face an existential challenge like the one posed by China unless it’s in tip-top fiscal shape.

It’s like Rocky fighting Mr. T. Except that we’re Rocky and with our debt levels, we’ve gained 100 pounds.

“The Buck Stops Here,”

Dylan Jovine

Chairman, Behind the Markets

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