One of the central points in Senator Gregg’s op-ed about our debt is his warning about the Chinese government not buying our debt:

If the Chinese start to reduce their purchases of our government securities because of our need to borrow increasing amounts of money to finance all the spending that the president has proposed, we will have to start offering higher interest payments to potential lenders to make our securities more attractive.

As that interest on U.S. Treasuries goes up, so does the financial burden on taxpayers in the next generation. This would hit the next generation with a double whammy — unnecessary debt we’re already incurring, plus higher interest rates on our borrowing.

Actually, President Obama not only agrees with you Senator Gregg, but was more clear about what was going to happen than your statement above. Last week the President said there “is no doubt that at some point” the countries buying our debt will stop. Not may stop, but will stop.

Here is the President’s entire quote:

“I am concerned about the long-term issue of our structural deficit and our long-term debt because if we don’t get a handle on that then there’s no doubt that at some point whether it’s the Chinese, the Koreans, the Japanese, whoever else has been snatching up Treasuries are going to decide that this is too much of a risk,” he told Bloomberg.

In fact, the Chinese also agree with Senator Gregg and President Obama, and are predicting that the dollar is “poised for a fall” and are buying precious metals for the new role of the yuan (the Chinese currency) after dollar’s collapse.

Here are some other relevant facts:

1) four months ago, in March, the Chinese announced they were going to diversify (sell) their U.S. dollars they were holding or as you say “reduce their purchases;”

2) not only did China recently restate this policy, but they have already begun to not only “reduce their purchases,” but the total value of their dollar holdings has dropped:

China, the largest holder of U.S. Treasury securities, trimmed its holdings to $763.5 billion in April, from $767.9 billion in March. Japan, the second largest holder of Treasury securities, reduced its holdings to $685.9 billion, from $686.7 billion a month earlier.

and,

3) you will be interested to know that CNBC, Reuters and many others quoted a Chinese Communist Party economist who this week said is not in China’s financial interest to buy U.S. Treasury bills that finance our debt:

“Should we buy gold or U.S. Treasuries?” Li asked. “The U.S. is printing dollars on a massive scale, and in view of that trend, according to the laws of economics, there is no doubt that the dollar will fall. So gold should be a better choice.”

The same Chinese Communist Party economist went on to advise:

Speaking at a foreign exchange and gold forum, Li also said that buying land in the United States was a better option for China than buying U.S.Treasury securities.

Is it any wonder that China and Russia and others are not only calling for a new global currency, but actively meeting to plan for a new currency once the dollar tanks.

The way the U.S. can start attracting investors to buy our dollar is to increase our interest rates, making our Treasury bills a better return on the investor’s money. Since there is risk buying our T-bills, we must acknowledge and compensate for that risk by giving a higher interest rate.

But since the Federal Reserve is not increasing the interest rate to attract buyers for our Treasury bills, (both the number one and number two holders of our debt — China and Japan, in that order — have reduced their U.S. Treasury holdings) we must be printing our own money to buy our own Treasury bills. This is how we are now financing our own debt, we are “massively” printing money, or as the economists like to say “monetizing our debt.”

This, obviously, cannot last, so interest rates will spike, or if we keep printing money, the dollar will collapse and we will see rampant inflation. And the unemployment rate will go up, and Congress will cry stimulus, and we will print more money to fund our spending habit, causing more inflation or higher interest rates, or both.

Because the White House and Congress refuse not only to reduce our deficit or debt, but the ruling party continues to insist on trillions of dollars in new taxes and spending on Cap and Trade and health care reform.

The U.S. has a Hobson’s choice of our making: inflation or high interest rates.

This economic effect will be the Agent Orange of our ‘green shoots” economy, and will ultimately destroy the Obama Presidency, since it is clear no one in the international bond market believes the U.S. will reduce its debt or deficit.