The Implications of Foreign Investors Pulling Out of U.S. Bonds

Since the recession a few years back, through a combination of stimulus packages and market rehab, stock trading is reaching record highs. This is also a product of the proliferation of new start-ups and businesses from a younger generation that embraces a DIY culture. However, despite the market highs, the U.S. government debt exceeds 17 trillion. That equates to almost $149,000 per individual taxpayer.

The debt has been at these heights for years, but the reason the United States government has been able to avoid significant damages is due to the demand for domestic bonds from foreign investors. The United States is always on the cutting-edge of technological innovation, and the products developed within are very lucrative. Companies like Apple, Chevy, McDonalds, and more are supported heavily by individual and commercial investors overseas.

Now there is a difficult new trend emerging. As the country’s debt increases, so does the perception of the value of its stocks. Foreign investors are slowly losing trust in the market and believe the trillions of dollars they supply the U.S. is not going to translate into a bigger return. This money is instead increasingly being utilized to develop products and technology that competes with the United States. China and Japan are the most noticeable examples.

China and U.S. Dollar

China is already discussing discontinuing the United States dollar as a reserve currency. This means they could begin shifting their interests away from the U.S. stock market and increasing their own productivity, leaving America with fewer resources and more debt. If foreign investors do make significant pull-outs from U.S. bonds, the interest rates will increase dramatically, as well. Bond price and interest rates move in opposite directions.

The Importance of Accuracy and Education

One way that the Unites States is combating this is by making trading easier for citizens. By providing funding for online trading platforms and educational resources like purefinancialacademy.com, the average person can make the smart choices necessary to lessen the country's debt. With debt relief coming from domestic resources, the foreign dependency the United States has with countries like China and Germany is removed in a financially secure manner.

For those who do not have the adequate time or resources to educate themselves, money managers and stock brokers are available and thriving in this landscape. Considering that some of these professionals had a significant part to play in the recession, the United States government is increasing regulations and investigations.

There are also numerous organizations dedicated to ensuring the integrity of Wall Street, as well. This makes it easier for citizens to trust service providers with their resources as they help to relieve the country’s debt, and turn a profit, simultaneously.

Fallouts of Foreign Dependency

Owing significant amounts to numerous countries places the United States under tremendous stress. China constantly offers debt-relief incentive packages that are very difficult for the government to ignore. These programs involve easier trade, information sharing, and more.

Although the deals create short-term benefit for the United States, they also give the other country more power and resources to eliminate their need for investing in American bonds. This creates a very difficult positive feedback loop for politicians to navigate.

As private businesses outsource their practices and operations to foreign countries, the United States loses money in business and property taxes. Instead, these funds go directly to other countries, along with knowledge on how to make the product of the company in question. This grants the foreign country another reason to pull out of bonds in the U.S. and support their own domestic products.

The Best Weapon to Retain Foreign Interest

The one thing that is undeniable, and which cannot be fabricated by anything less than a unique blend of innovation, freedom, and creativity, is a genuinely great idea. America has a bigger history of this than most countries, even the countries with significantly less debt and more revenue. The demand for items always exceeds every other metric in stock trading. While the United States is the country with the highest debt, it is also the country that produces the most sought-after commercial products.

Nike, Chanel, Reebok, and Hershey’s are but a few of the major companies whose items are sought after all around the world. These companies also have strict regulations when it comes to trading, and, although their manufacturing might be done in other locations, their designing and planning is all conducted in the United States. When American inventors make a product that foreign consumers desire greatly, those countries have no choice but to invest.

This is a big reason why the United States is attempting to foster a community for creative entrepreneurs. It only takes one good idea to transform international trading.