To China, on bended knee

The US Treasury must be getting very worried about China dumping Treasuries and buying gold. There was a recent visit to China by five top US Treasury officials who were no doubt asking China to stop selling. The Treasury is now issuing T-bills at over 5% and must be worried about issuing long term debt at these rates, which the market is now demanding.

This brings up an interesting point. Powell keeps talking about interest rate cuts but if the market is pushing interest rates the other way how effective will these cuts be (if we ever get them)?

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Nonsense. Once sold, Treasury debt can be sold on the open market. It has ZERO impact on future debt sales. If the debt sells at a major discount relative to the open market, the Treasury can buy it and retire it. Thus saving the US a lot of $$$.

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…and the effect on US interest rates? The FT has been looking at this:

https://www.ft.com/content/3840ad8d-ad56-3bde-9a80-b97303542e5d

(behind a paywall unfortunately)

I highly doubt this for a number of reasons. First and foremost, China sells goods to the US in exchange for US dollars. That means China has a big pile of dollars…so now what do they do with that money other than buy US treasuries?

Another thing is that percentage-wise China’s ownership of US treasuries is in the low single digits. If China were to threaten some sort of sell-off they can’t do it for very long, and they would devalue their own assets.

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The Chinese have never held that much US debt. At most 9% of the outstanding.

Bogey man stuff

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Buy gold- very sensible:

So you’re just making stuff up? Or do you have some source for this claim?

Just part of a bigger picture:

Interest in the topic, according to Mark Sobel, a longtime Treasury official and Chair of the Official Monetary and Financial Institutions Forum and others, is being driven by several developments, including the looming U.S. debt-ceiling battle in Congress, a China-brokered deal between Saudi Arabia and Iran as well as Beijing’s “no limits” partnership with Moscow, and growing unease abroad about Washington’s dominance over the global financial system…

…“The [dollar] is losing its market share as a reserve currency at a much faster rate than is commonly believed,” said Stephen Jen, formerly of Morgan Stanley, and Joana Freire, in a research note sent to their Eurizon SLC Capital clients. In the note, Jen and Freire highlighted what they said were signs that the dollar’s decline had accelerated over the past year.

I wouldn’t want to hold anything but T-bills at the moment!

If

Possibly. But none of that supports your claim about what was discussed during the recent visit to China - specifically the selling of US Treasuries.

And as others have pointed out, so what if they’re selling? No skin off our nose. The bond market (including US Treasuries) is multiple times the size of the stock market. Even China, with their significant holdings, doesn’t hold enough to move the market more than small fractions.

So I still think you are making things up.

–Peter

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No, I’m pretty sure there must be some worried people at The Treasury at the moment. If they aren’t worried then they should be. Who is going to buy the additional $20 trillion US debt to be issued over the next few years? I won’t that’s for sure.

The Chinese are slowly getting out of US debt and into gold - a good strategy:

I’ve a small legacy coming to me and that is going into gold and silver

Heh, if we really come to an TEOTWAWKI situation (just shy of “beans and bullets” time), I would be a more concerned about what the government does with the personal ownership of assets like gold than the risk of my US treasuries being worthless. The government would be very quick to seize whatever you have if it really felt necessary for its existence to continue.

What I will never understand is why gold bugs completely ignore that the US govt has already previously outlawed the personal ownership of gold and also once froze the price of it for roughly 40 years.

But seem to act like that would never happen again if things got really bad.

Ignore history at your peril.

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People are very good at that as we’ve witnessed over the past several years.

Pete

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I’m certain they are not worried about that. Deficit spending creates the demand for bonds. The reason is dead simple: Banks need a place to park all the money the government is injecting into the economy.

Let’s do a sanity test: If you what you are saying is true, then US bonds should be dirt cheap because no one will want them in the future. However, at the moment US bonds are more expensive than they have been for most of my time on this planet.

So either the bond market has gone completely crackers–in which case we are all doomed–or the bond market understands the part I explained above.

And for the record, the Chinese have increased their holdings of US debt for the past two months. In fact, foreign holdings of US debt just hit an all time high. So I don’t think anyone at the Treasury is worried about this topic.

https://www.reuters.com/markets/foreign-holdings-us-treasuries-surge-all-time-high-december-data-2024-02-15

To be clear, deficit spending causes problems, just not the ones you are talking about it.

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Good job that I don’t live in the USA then :slight_smile:

Worked a treat in Zimbabwe:

The central bank of Zimbabwe issued $100,000,000,000,000 notes during the last days of hyperinflation in 2009, and they barely paid for a loaf of bread.

Also in Italy, Great Britain, Czechoslovakia, and Germany, among others.

Then why care about the value of US debt? Absent contagion, I could not care less about whether or not Brazil debt is worth anything. I don’t live there so it does not matter. If you don’t live here, what does it matter?

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Gold worked differently in that case. The way gold worked is as follows - Sam, a big strong guy, saw you buying bread with gold coins, he followed you home, slit your throat, and took your gold. The next day, Sam went out and bought bread with the gold coins he took from you. Joe and Dave saw him doing this. They followed him home, slit his throat, and took all his gold coins. End of story.

Academic interest - I used to lecture on economics at university

Practical one - if the US dollar goes then so will many other Western currencies

History tells us that we never get much warning about these things:

It is a cliff…we’re going 60 mph towards it

BTW - I do hope that I am wrong about the future of the US dollar

I do not buy that.

20 laughs.