the "E" in D.I.M.E. stands for economics
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Hopefully, everyone here knows what the Davidson Window is about and all the concerns about the People’s Republic of China (PRC) being ready to go to war by 2027.
While I can argue the point, I am more inclined to stress that it doesn’t mean the PRC is going to take that risk, especially if we increase the risk for them. However, were I a Chinese planner, if the Chairman tells me to do something, I’m going to do it. I’m going to do a damn good job of it, and I’m going to have recommendations that have been going back years on things we need to do. It won’t just be things the military has to do either. Oh, no. We would need to expect that it may evolve into a global war that goes on for years. This planning would need to have a whole government approach to be ready for that eventuality. Whole of nation, really.
I saw a graph over the weekend that gave me pause.
If you follow economic trends including the trade in U.S. Treasuries—which is one way we finance our debt—you need to keep an eye on who holds what.
If you’ve been doing that, then you have some fairly solid indications and warnings (I&W) in that data that, even if it can have a variety of benign explanations—you look at it through a military lens, it’s a pretty strong I&W that the PRC is preparing for war with the United States.
As happened in the last world war, your fiat currency is almost worthless if you need things to feed your people and arm your military. You need a more sound store of value. You unquestionably do not need anything connected to your most likely opponent in that war.
When I saw this—all I saw was flashing red lights.
That chart is only good to 2024, but I’ve found one that gives additional data through 2025 in another format.
Want to know what has been driving the cost of gold?
That does not tell the full story.
Now look at where it is compared to the U.S. Dollar and crude oil.
Yes, yes, yes…this is multicausal, but go back to the chart we started with. Why are they doing this? Why so much gold? If you know the history of gold during times of war—this has to be a secondary indicator.
COA Most Likely is that they’ve made a decision that it is not in their interest to be holding so many of the debt instruments of their primary competitor on the world stage. COA Most Dangerous is that they want to sell what looks good at peace—interest bearing debt instruments—to what you need at war: gold.
Somewhere in the middle is that they have no intention of going at the USA militarily, but have made plans to somehow disrupt our economy and put us in a deep recession/depression where our debt becomes of questionable value.
That is about as scary as war.
Look at the below chart that runs through 2Q 2025. Of all the areas of the world that hold U.S. debt, only one has significantly decreased its holding. Indeed, a smaller slice of a larger pie.
How much longer will it take for them to unwind their position? What will it look like in FEB 2027?
We’ll find out.
Final note: I will repeat what I bring up regularly. Our national debt is the greatest national security threat to our nation…and of our allies. Demographics will call the bill due at some point. Don’t be holding debt when it does.
