The dumping of US government debt by foreign investors heralds the end of the era of cheap financing for the United States. According to the US Treasury Department, overseas investors sold a record $54.5 billion in long-term US debt in April, with China slashing its holdings by $5.4 billion.

As it stands, the US government holds roughly 40 percent of its debt through the Federal Reserve and government agencies such as the Social Security Trust Fund, while US and foreign investors each hold 30 percent. Emerging economies many of which use large trade surpluses to drive GDP growth and supplement their foreign-exchange reserves with resulting capital inflows are leading buyers of US debt.

Over the last decade, these countries' foreign-exchange reserves have swelled from $750 billion to $6.3 trillion more than 50 percent of the global total providing a major source of financing that has effectively suppressed long-term US borrowing costs. With yields on US ten-year bonds falling by 45 percent a year on average from 2000 to 2012, the US was able to finance its debt on exceptionally favorable terms.