The Media Won’t Cover This Story…

If you owe the bank $100, that’s your problem.
If you owe the bank $100 million, that’s the bank’s problem.
 – J. Paul Getty

Welcome to America’s problem.

And it’s a big, big problem.

Maybe you’ve heard that China and Japan are selling out of the US Treasury paper they own. I touched on this in a dispatch I sent you back in June, reporting that Japan’s Norinchukin Bank had announced plans to dump about $63 billion worth of sovereign debt from various nations—largely the US.

Well, now things have taken a darker turn.

See, China has been selling—and continues to sell—large bags of Treasury paper. Chinese holdings of US debt are now below $800 billion, down from $1.1 trillion as recently as 2021, a meaningful 30% plunge.

Among foreign investors, China once held about 50% of all US debt. That’s now down to about 27%.

And now we have more bad news from Japan…

The Land of the Rising Sun is sinking financially. Decades of government money-printing have failed to accomplish much of anything, other than saddle Japan with extreme debts, alter Japanese society, and now sink the yen to lows not seen since the mid-1980s.

For all those decades, however, Japan put on a good face and continued to buy and own US debt. So much US debt, in fact, that the Japanese were the #2 holder of Uncle Sam’s IOUs, trailing only China.

Now, the Wall Street Journal is reporting that Japan’s state-owned Government Pension Investment Fund, which holds the Social Security reserves for most Japanese workers, is looking to dump $400 billion of US debt it holds. Those proceeds are supposedly earmarked for Japanese bonds and the Japanese stock market—an effort by Japanese officials to continue smiling to the world as they race around in their ever-more desperate attempt to stave off sovereign collapse.

But wait!

There’s more!

Japan’s government pension fund is the “caller” in a square dance of all Japanese pension funds—the dude directing the dancers to do-si-do and roll away to a half sashay. Which means, don’t be surprised when other Japanese pension funds (largely private) start shedding their holdings of US debt, too. 

Combined, all the other pension funds in Japan hold about the same amount of assets as does the state plan. So, could another $400 billion-ish worth of Sammy’s debt soon come to market as well?

Hard to say.

But given the sway of the state plan, that path seems logical.

But wait!

There’s even more!

Norinchukin Bank is dumping the US debt it holds to repair its troubled balance sheet. Troubled, in part, because America’s Federal Reserve jacked up interest rates too far, too fast, and the value of existing US debt—the debt that banks like Norinchukin have on their balance sheets—plunged… which befouled the balance sheet.

So, Norinchukin’s only solution is to sell US debt in an effort to repair its finances.

Norinchukin is Japan’s #5 bank. Not small, but certainly not the Big Kahuna.

The question is: What if the Bigger Kahunas start selling their US debt, too?

There’s talk now that larger Japanese banks could follow in the footsteps of Norinchukin. If so, then we’re talking about Japanese banks vomiting up hundreds of billions of dollars of US Treasury paper.

Japan Post Bank, which is slightly larger than Norinchukin, owns about $200 billion in US debt, and another $350 billion of “investment trusts” that largely own… US debt.

It’s a little late in the dispatch for me to tell you this (and you’re a Field Notes reader, so I suspect you already know this) but Japan and China selling US debt isn’t a Japan and China problem. It is, to paraphrase J. Paul Getty, a Treasury Department problem.

Which means it’s America’s problem.

The Treasury Department regularly sells new tranches of Treasury paper to fund the government. As Japan and China dump tens and hundreds of billions of dollars of American debt onto the market, the price for American paper dives, meaning the yields on that paper rise. (Falling bond prices mean yields go up; rising bond prices mean yields go down.)

So as Treasury sets out to sell new paper, it’s forced to sell it at yields higher than Treasury would like, because otherwise the buyers that still do exist for American paper would just buy the old debt and earn a higher yield.

Which means Uncle Sam’s debt-repayment costs are higher because he’s forced to pay higher interest rates on the new debt he has to sell to keep the lights on in the White House.

This is all part of the pending debt/monetary crisis America faces—which I’ve been writing about for a while.

This is what happens when the politicians running a country care not about the finances of the country, and only care about their re-election to the easiest and most overpaid job in the land.

What’s going on in Japan and China should be a far—far!—bigger concern for politicians and the financial media.

I’ve yet to see a single politician talk about this. And the only media coverage is the matter-of-fact announcements that China is selling more US debt and that Japanese banks and pension funds are selling debt to shore up potholed balance sheets.

I don’t see much coverage explaining those events and the dots that will emerge in the American economy as a consequence.

Those dots will appear soon enough, though, and prominently—like financial chicken pox.

And the media still wonder why gold prices keep going up.

Japan and China selling US debt is part of the storyline for gold, because even if the media is missing the story, gold buyers fully understand how and why these vast sales of Treasury paper help precipitate a crisis to come.

And, so, they’re loading up on ever more gold as their financial insurance policy. More to come, soon…