The paper, authored by Chief Investment Officer David Ross who has extensive experience in U.S. Treasury investing and arbitrage, reviews the historical context of the rising U.S. debt, compares the level and scale of U.S. debt to foreign nations, analyzes key dynamics that drive China’s savings rate and reliance and the dollar, and reviews the likely future of the dollar as it weakens including the possibility of a new global currency.

The principle conclusions include:

1. U.S. is vulnerable to confidence crises, asset bubbles and a falling currency with the current high rate of debt accumulation

2. U.S. spending is weakening dollar’s role as a reserve currency – will cause movement toward international reserve currency basket that includes the Yuan

3. U.S. must return to fiscal balance and foreign countries, especially China, must continue to purchase U.S. debt to neutralize growing debt burden

4. U.S. will continue to run strong trade deficit with China

5. Growing U.S. economy and modestly rising interest rates coupled with a return to traditional levels of Federal spending can slow or reverse U.S. dollar’s slide

6. China is slowly moving behind the scenes to a reserve currency, will continue to purchase of U.S. debt and will try to prevent a rapid dollar collapse based on important internal dynamics

7. U.S. equities will likely continue to rise in next 1-2 years resulting from unspent stimulus and inflation hedging

8. Long-term bond and currency arbitrage likely to be attractive