“The T-bill bomb that many have suggested is China’s supposed ace is utter rubbish. The logic is that in a real spat the Chinese, the second-largest foreign holder of U.S. government debt, could just dump some of the U.S. T-bills it holds on the market and crash the U.S. economy. That’s not how things work. *You cannot just walk up to the U.S. Treasury building and demand your money back; it’s a fixed term note. *Any interim sale of a T-bill to another party has to have a buyer. No buyer, no sale. *China could theoretically try and sell its T-bills whenever the U.S. Treasury was trying to sell new debt and that would raise the cost of U.S. financing. But not only is the U.S. T-bill market the largest in the world so it would have to be a big sale, but what would “massive” success bring? It would push down the value of the U.S. dollar. Considering the Chinese regularly intervene in their markets to push the U.S. dollar up so that they can sell more goods into the U.S. market, it would work at cross purposes to the set of Chinese policies that make the Chinese economy possible. *And of course, the U.S. Federal Reserve can simply mop up the T-bill market if it chooses by printing currency. It’s a perk of running the global currency.”
China depends on the USA for trade far more than we depend on them. We’re the least internationally integrated country on the planet by percentage of GDP. We export food, and, including Canada, energy (on our own within 2 years.)
They hold no cards, anyone who tells you otherwise is either ignorant or lying. They can’t even protect their own sea lanes, and they import 75% of their energy and a decent amount of food as well. All it would take is the US military announcing they won’t protect chinese shipping and the entire country folds like a house of cards built on top of a smaller house of cards."
+++
"Red China holds about $1.1 Trillion in Treasuries, the same as Japan, and about 5% of US debt. The US Federal Reserve owns about twice that, and US investors/companies as a whole own $14 trillion of it.
While it's true if the Chinese 'dumped' their US treasuries it would be bad for the dollar ... It would also be bad for the Yuan because it is still mostly pegged to the dollar..."
+++
A weak dollar/strong yuan absolutely murders the Chinese export potential globally, this is why their monetary policy has long been criticized for the artificial devaluation of yuan to aid exports. Dumping usd by selling treasuries on the market would be bad for them, and of course holding foreign currency reserves is a strategic national security imperative which is the reason they hold usd in the first place.
It would be a punch in the gut for the US, which we can handle.
It would be a shotgun blast to the head for China. They would die.
+++
true
ReplyDeletethe problem is, with the US running on a budget that MUST HAVE lenders, we NEED China to continue to be a customer of T-bills. in the last 20 years China has significantly REDUCED the percentage of US debt it holds. now, the US citizens own $14T in debt. that is our 401Ks, our investment accounts... WE are the suckers of the US Gov debt now. if the US citizens are the ONLY future customers, we get screwed faster in this downward spiral. and it is downward.
ReplyDeletebottom line, we need the Chinese much more than they need us. we are their marketplace to sell all that crap their Mfg produces, so in that way they work to keep us afloat.
either way, we are hosed. if it comes to a trade war or financial combat, we lose faster than "normally".
Totally wrong anon. We are their market. We run a $300 Billion+ trade deficit with China. Add up 20 years of that and you can see how they've been able to grow like they have. Like Trump said, it's not a trade war, we lost that years ago. He's simply trying to level things like today he's thinking of an additional $100 Billion in tariffs on Chinese goods. If China could do anything about it, they would but they can't.
ReplyDeleteI like very much:
ReplyDelete"It would be a punch in the gut for the US, which we can handle."
and
"Totally wrong anon. We are their market"
If I've got it right:
When the Fed wants to stimulate the economy with more cash it buys T-Bills which lowers interest rates and the dollar goes down with respect to other currencies because there's more dollars in the system. In other words, the Fed "prints money" and increases the Money Supply.
When the Fed wants to raise interest rates it sells T-Bills, which simultaneously raises interest rates (T-Bill price goes down) and drains dollars out of the system(the opposite of "printing money"). Both higher yields and fewer dollars in the system make the dollar appreciate with respect to other currencies.
If China sells its T-Bills there is no change in the Money Supply (dollars in the global financial system)so I don't see how this weakens the dollar. I anticipate that with lower T-Bill prices (higher T-Bill yields) the market will start liquidating other assets and acquiring dollars in order to buy T-Bills to get the higher yield from the closest thing this planet has to a risk-free asset.
If China does a hard, large, all-at-once dump of T-Bills to drive the T-Bill price down, they may even start buying T-Bills to take advantage of the higher yield. They'd be no different than anybody else with a large pile of cash that they want to put to work A.S.A.P.