The Front Lines of the Battle of Wits
And the odds that the dollar will be devalued
I couldn’t find a picture of Presidents Trump and Xi, so yours truly did his best with a sketch
We’re in the middle of a battle of wits, a cold war, between President Trump and President Xi Jinping of China. Tariffs are the swords, but not the only weapons.
About 23% of our $36.7 Trillion national debt is held by foreign countries.
As of February 2025, China holds approximately $759 billion of US debt, representing almost 9% of the $8.5 Trillion total of US national debt that we owe to foreign countries.
The rest of our $36.7 Trillion debt is held by individuals and the Federal Reserve.
Some analysts fear that China will sell their holdings of US treasury debt to hurt the US by sinking the bond market. That would weaken the dollar and force interest rates higher.
Others say it is unlikely that China would sell its U.S. Treasuries all at once because this would be economically painful for China and leave it holding those weaker dollars that it would need to spend or invest elsewhere.
Think of China as the lender and the US as the borrower.
When the dollar is weakened, the lender is hurt, so China would be only hurting itself.
That’s typical of a war; both sides can hurt each other, and often do.
President Trump could hit back if China sells Treasuries. He has an unmentioned weapon up his sleeve. This is a war of hard punches.
He could devalue the dollar.
I wrote about this in “The Markets” last week.
The Markets
A reminder: “This is not investment advice; If you follow my ideas and lose your shirt, don’t even think about suing me, because you wouldn’t get anything, because I would have lost my shirt too. This is just what I would do and what I recommend to my children, based on my own personal experience, unprofessional opinions and philosophy.”
… and on Saturday I wrote about the daily market yo-yo and devaluation as a possible way to pay off all or part of the national debt – a “reset”.
More About the Daily Market yo-yo
In yesterday’s post, “The Markets”, after touting gold, I closed with a promise:
But it hadn’t occurred to me until now that devaluation could also be in the arsenal of weapons in the game of chicken with China.
Things are happening very fast.
The devaluation of the dollar has happened before, in 1933 and 1971.
The odds of it happening again just ratcheted up another notch.
What are the odds?
Who knows? None of us can read President Trump’s mind, and he’s already been a bundle of surprises. He didn’t say much about paying the debt during his campaign, but we all know it’s a serious problem, and he has some great advisors who will be talking to him about it. Even if DOGE saves a trillion, and even if it were all applied to the debt, that would still leave 35.7 trillion. And interest rates have gone up since most of that was incurred, so the large amount that has to be refinanced shortly will be racking up even higher interest charges.
A lot will depend on how the tariff situation goes. If it’s really successful, that will lessen the odds of needing further action.
So far, the media hasn’t said very much about the possibility of devaluation, at least not that I’ve noticed. So apparently the risk is considered remote.
But as a very conservative investor, I like to cover the bases, and if there was a devaluation of the dollar, the impact on certain investments would be large. So I’m getting completely out of cash, or heading that way, and putting that cash into the things that would do just fine.
I wrote about this transition last week and and more is coming this Thursday 4/17, in “The Markets-Part 2, What I'm personally buying and not buying, and the reasons”.
I can’t help comparing with the dot com bubble in 2000. I went through a 180 degree reversal then, too, in 1999-2000. Remember the fear that all the computers in the world would crash because they were originally set up to change the date on all new documents by simply using the next higher number after 19xx? The computers wouldn’t know how to write 2000 on Jan1. “Year 2000’ was shortened to “Y2K” and all the computers would crash and we’d be in the dark ages.
The odds of such a crash happening were small, but I didn’t want to take any chances, so I sold all my rental properties, got completely out of debt, bought a little acreage out of town, sold our house, built a smaller one F&C, and retired. It was a complete change of lifestyle.
As it turned out, all the software was updated in time and nothing happened. But you know what? I never regretted the change - in fact, I love it.
Love the sketch! And maybe the reason that the tv talking heads aren’t mentioning devaluation of the dollar is just because they are mostly all so unable to keep up with anything trump is doing. He runs circles around most businessmen and triple circles around economists that talk on tv haha
Great way to start my day and I’m so glad hearing that you never regretted retiring. I had to laugh when you said you keep busy. If people only knew just how busy you are, they’d be Amazed!!