[Puffer Fish]

China is beginning to sell off the U.S. Treasury bonds they own. The significance of this is that it is ultimately going to make it more difficult for the U.S. to continue to maintain its debt and will increase inflation of the U.S. dollar.

China's ownership of U.S. Treasury debt reached a peak in August 2017 of 1.2 trillion dollars.
But now, as of August 2023, China's ownership of U.S. debt has hit a 14-year low of 835 billion. (That's 69% of the peak)

China has been slowly selling off U.S. Treasury debt. It's believed the reason China is doing this is because of their recent economic slump. China is trying to prop up the yuan, to stabilize it. Historically China kept their own currency weaker by buying U.S. bonds, in order to help promote exports, but the situation now appears to have reversed.

But with China selling off U.S. Treasury debt, it's going to flood the marketplace and then the world will not be buying more debt that the U.S. Treasury is selling. This is going to make it more difficult and expensive for the U.S. to continue to service their debt.
This is all part of the so-called "run on the dollar", with other countries around the world beginning to dump the dollar due to the high rates of inflation. Which will contribute to even more inflation when there is less international demand for the dollar.

The American public has been warned about this before, that it's dangerous for China to hold so much of the U.S. debt. If China suddenly dumped a large portion of it, it could cause shockwaves in the market.

Beijing selling off US Treasurys is a sign of China's economic weakness as it tries to prop up the yuan, Matthew Fox, August 25, 2023, Business Insider - India

[JohnRawls]

China is beginning to sell off the U.S. Treasury bonds they own. The significance of this is that it is ultimately going to make it more difficult for the U.S. to continue to maintain its debt and will increase inflation of the U.S. dollar.

China's ownership of U.S. Treasury debt reached a peak in August 2017 of 1.2 trillion dollars.
But now, as of August 2023, China's ownership of U.S. debt has hit a 14-year low of 835 billion. (That's 69% of the peak)

China has been slowly selling off U.S. Treasury debt. It's believed the reason China is doing this is because of their recent economic slump. China is trying to prop up the yuan, to stabilize it. Historically China kept their own currency weaker by buying U.S. bonds, in order to help promote exports, but the situation now appears to have reversed.

But with China selling off U.S. Treasury debt, it's going to flood the marketplace and then the world will not be buying more debt that the U.S. Treasury is selling. This is going to make it more difficult and expensive for the U.S. to continue to service their debt.
This is all part of the so-called "run on the dollar", with other countries around the world beginning to dump the dollar due to the high rates of inflation. Which will contribute to even more inflation when there is less international demand for the dollar.

The American public has been warned about this before, that it's dangerous for China to hold so much of the U.S. debt. If China suddenly dumped a large portion of it, it could cause shockwaves in the market.

Beijing selling off US Treasurys is a sign of China's economic weakness as it tries to prop up the yuan, Matthew Fox, August 25, 2023, Business Insider - India

They are selling US bonds because their economy is in the shitter. There is no real problem for US or EU at selling their bonds when needed because majority purchasers by a large margin are not even countries but pension funds from different places outside and inside the West.

[Puffer Fish]

They are selling US bonds because their economy is in the shitter.

That's one factor.

But continuing to hold so much of their assets in US bonds is becoming seen as less desirable with the recent high rates of inflation of the US dollar.

China's exports to the US are significantly down from what they were a year ago, or especially 10 or 15 years ago. Part of this is that they're simply not getting as much US money now, so they have less reason to store that savings in US bonds.

So those I believe are the three main factors behind this.

Less likely, but one additional factor is the Biden Administration has embarked on a policy of weaponizing the US dollar, and US-China relations have been more strained recently. If China were planning for possibility of military action against the US, they might want to begin unloading or reducing their holdings of US debt, for fear the US might threaten not to pay. (As well as reducing their holdings of US dollars in Western bank accounts)

[JohnRawls]

That's one factor.

But continuing to hold so much of their assets in US bonds is becoming seen as less desirable with the recent high rates of inflation of the US dollar.

China's exports to the US are significantly down from what they were a year ago, or especially 10 or 15 years ago. Part of this is that they're simply not getting as much US money now, so they have less reason to store that savings in US bonds.

So those I believe are the three main factors behind this.

Less likely, but one additional factor is the Biden Administration has embarked on a policy of weaponizing the US dollar, and US-China relations have been more strained recently. If China were planning for possibility of military action against the US, they might want to begin unloading or reducing their holdings of US debt, for fear the US might threaten not to pay. (As well as reducing their holdings of US dollars in Western bank accounts)

So did Russia which held them along with EU ones that are confiscated. You seem to not understand why institutions buy them. The reason is simple, it is a safe asset to store value in without risk and this isn't going to change any time soon.

China has like 800 billion of them and the total is around 24-25 trillion. That is less than what US issues in a month if you look at statistics. Just a small blip in the grander scheme of things.

Realistically, this might only slow down people buying new debt issued by US a tiny bit. US issues twice more per month what China has right now to satisfy its needs and the market.

[Puffer Fish]

Since US Bonds are claims to US Dollars, dumping bonds is tantamount to dumping dollars.
This is all part of "dumping the dollar", a trend that has recently begun.

China beginning to sell off significant amounts of the US Treasury debt it holds is a very significant signaling point in the timeline.

[JohnRawls]

Since US Bonds are claims to US Dollars, dumping bonds is tantamount to dumping dollars.
This is all part of "dumping the dollar", a trend that has recently begun.

China beginning to sell off significant amounts of the US Treasury debt it holds is a very significant signaling point in the timeline.

Are you dumb or something? If you sell the debt to someone else it doesn't mean that the debtor needs to pay it now and pays only at the end of the specified date to whoever holds the financial instrument. It doesn't change anything for America. As I said, it can only slow down US selling more financial debt instruments that it sells depending on what the market needs and what China has. Not that China holding like 3% of it changes much since US issues like 5-6% every month anyways.

[Rancid]

This isn't an issue.

People are really really really fucking ignorant when it comes to economics.

"Calling in debt".


I'm guessing @Puffer Fish has never bought a bond.

"The dollar is dead", has been stated over and over again since at least the 90s.

Replace the dollar with what exactly? If you say they Yuan, you have no fucking clue.

[Rancid]

Aside from people not understanding how bonds work. The right wing has some serious inconsistency problems on their positions.

On one hand they complain that China owns so much US debt (which isn't a problem actually). "They own us.. blah blah blah..."

On the other hand "they are getting rid of their US debt... the dollar is dying!!"

Like which the fuck is it @Puffer Fish

[Puffer Fish]

Are you dumb or something? If you sell the debt to someone else it doesn't mean that the debtor needs to pay it now

It's economically equivalent.

Explaining how the country's debt works is a little bit complicated. Different classes of debt come due at different intervals of time. This ranges from 30 year Treasury bonds, at one extreme end, to 13 week Treasury bills on the other extreme end. The 10-year bonds and 52 week (1 year) Treasury bills seem to be the most popular.
As they become due, that debt needs to be continually "renewed", so the U.S. Treasury must continually reissue new Treasury bonds and Treasury notes, to pay off the older ones that come due.

China reducing its holdings of U.S. Treasury debt probably doesn't involving selling it on the open private market, but collecting the money as it comes due and choosing not to repurchase it.

[JohnRawls]

It's economically equivalent.

Explaining how the country's debt works is a little bit complicated. Different classes of debt come due at different intervals of time. This ranges from 30 year Treasury bonds, at one extreme end, to 13 week Treasury bills on the other extreme end. The 10-year bonds and 52 week (1 year) Treasury bills seem to be the most popular.
As they become due, that debt needs to be continually "renewed", so the U.S. Treasury must continually reissue new Treasury bonds and Treasury notes, to pay off the older ones that come due.

China reducing its holdings of U.S. Treasury debt probably doesn't involving selling it on the open private market, but collecting the money as it comes due and choosing not to repurchase it.

Okay and? Where are they going to store the value in then? If you are going to say Yuan then everyone is going to laugh at you and if you are going to say that they are not interested in storing value for now then this means that they are spending it on tackling some issues now at what I said. Both are kinda irrelevant to the dollar as I said.

Just to clarify, countries do not store value in unconvertable currencies since it beats the point of storing value when it is not convertable, hence dollars/euros are used which are freely convertible or their financial instruments. Yuan can't be used to store value since it is not a freely tradable/convertable currency and that is why Dollar/Euro are reserve currencies in the first place. There are relatively minimal restrictions on them with having a lot of economy behind it compared to any other currency or good in the world.

[Puffer Fish]

Okay and? Where are they going to store the value in then?

Perhaps you're not aware China has been buying up U.S. assets, farmland, agricultural companies, equity in U.S. companies.
Even making loans in U.S. dollars and then collecting back an interest rate. (For example Argentina desperately needs to borrow U.S. dollars right now to avoid a default on their national debt, discussed in another recent thread)
There are even plenty of wealthier Chinese immigrants that have moved to the U.S. and bought a house using U.S. dollars borrowed from a Chinese bank.

But in this case it's much more simple than that. The main reason China is doing this is to prop up their yuan. So right now the government is buying back Chinese currency, using U.S. dollars to do it.
Probably what this will mean is major companies in China are going to have more U.S. dollars in U.S. bank accounts. Which they can either sit on and collect interest (interest rates have risen recently), or use to buy things with.

If you are going to say Yuan then everyone is going to laugh

China has been on a buying spree of assets and natural resources in other parts of the world. If China props up the yuan, it's going to be economically equivalent to buying things with dollars, because a large part of the reason any other country even wants yuan is they know they can easily trade it for U.S. dollars.
So maybe China pays some African country some yuan, then in a separate transaction that African country trades that yuan to the Chinese government for U.S. dollars. And then finally the African country uses the U.S. dollars to buy things from the U.S., or to pay off their debts to the International Monetary Fund.

[JohnRawls]

Perhaps you're not aware China has been buying up U.S. assets, farmland, agricultural companies, equity in U.S. companies.
Even making loans in U.S. dollars and then collecting back an interest rate. (For example Argentina desperately needs to borrow U.S. dollars right now to avoid a default on their national debt, discussed in another recent thread)
There are even plenty of wealthier Chinese immigrants that have moved to the U.S. and bought a house using U.S. dollars borrowed from a Chinese bank.

But in this case it's much more simple than that. The main reason China is doing this is to prop up their yuan. So right now the government is buying back Chinese currency, using U.S. dollars to do it.
Probably what this will mean is major companies in China are going to have more U.S. dollars in U.S. bank accounts. Which they can either sit on and collect interest (interest rates have risen recently), or use to buy things with.

But this makes literally no sense to what you said before and only furthers what I said:

1) China is tackling its own domestic problems because the economy has issues.
2) Selling of US treasury bonds is literally irrelevant to America since this is just dollars changing hands.

[Puffer Fish]

But this makes literally no sense to what you said before

You seem to have trouble following the conversation. You asked a specific question and I answered it.

Trying to prop up the yuan has a complex set of economic implications, so of course I did not describe it all before. I just assumed people reading would be smart enough to think about it on their own.

Why would any country want to prop up their currency? (rhetorical question)

1) China is tackling its own domestic problems because the economy has issues.

And selling off their U.S. dollars is going to help provide some immediate relief.
That should have been pretty obvious.
Obviously they're not just going to sit on top of U.S. dollars collecting an even slimmer interest rate than they were getting from holding U.S. Treasury bonds.

[Puffer Fish]

2) Selling of US treasury bonds is literally irrelevant to America since this is just dollars changing hands.

That is not correct. The US has a big national debt and needs people to constantly lend it money.

It's true that if people are willing to just hoard dollars, in some ways that has similarities to "lending the government money" (a certain sort of economic equivalency).

But usually dollars are going to be employed in some other active use, like buying something, or lending it out for profit.

[JohnRawls]

That is not correct.

It's true that if people are willing to just hoard dollars, in some ways that has similarities to "lending the government money".

But usually dollars are going to be employed in some other active use, like buying something, or lending it out for profit.

Why would America care if the dollars are in private or public Chinese hands or somewhere else? The bonds are still sold and US has the same obligation that it had before to pay up for the bond when the time comes.

[Puffer Fish]

Why would America care if the dollars are in private or public Chinese hands or somewhere else?

That goes back further to the issue of why would America care about trade deficits.
A lot of Americans back then didn't seem to be so worried when China was just using all that money to buy US Treasury bonds.

If China is suddenly going to offload a lot of US dollars, it is going to contribute to inflation. Or maybe trigger a dumping of the dollar by others in other parts of the world, resulting in even more inflation.

The bonds are still sold and US has the same obligation that it had before to pay up for the bond when the time comes.

The real issue is that China is collecting the money when it comes due and is not "renewing" those bonds. Which means the U.S. Treasury is going to have to come up with money from somewhere else.

That will not be easy. Most likely the interest rates the government has to pay on the debt will go up, consuming a greater share of the annual budget, and it will lead to higher inflation.

The issue is, the U.S. government (or most other normal governments) do not think in terms of "All this debt will eventually come due at this time and then the country will have to pay for it."
If the U.S. stopped issuing new Treasury bonds, they would be completely unable to pay back the Treasury bonds that will come due.
Even if the U.S. were given 15 or 20 years to prepare, they would be unable to do it.

So when another country like China stops maintaining its reserves of U.S. debt, stops buying new Treasury bonds or notes, it is like finally cashing in. And the U.S. has to look for someone else to borrow the money from.

In a way, it has an economically similar effect whether the bonds come due or whether they are sold on the open market. If the bonds are sold on the open market, then investors are going to buy fewer of them from the government. The government is constantly having to sell new bonds to pay for old ones coming due.

[JohnRawls]

That goes back further to the issue of why would America care about trade deficits.
A lot of Americans back then didn't seem to be so worried when China was just using all that money to buy US Treasury bonds.

If China is suddenly going to offload a lot of US dollars, it is going to contribute to inflation. Or maybe trigger a dumping of the dollar by others in other parts of the world, resulting in even more inflation.


The real issue is that China is collecting the money when it comes due and is not "renewing" those bonds. Which means the U.S. Treasury is going to have to come up with money from somewhere else.

That will not be easy. Most likely the interest rates the government has to pay on the debt will go up, consuming a greater share of the annual budget, and it will lead to higher inflation.

Trade deficit is a moot point, US has been running a trade deficit for ages and it is still number 1 economy in the world. The reason for that is simple, internal demand in the US is far more important for US than any meagre deficit. Trade deficit by itself is not good or bad. It is bad for countries with no internal demand/small internal demand but US is not such a country.

As for renewing those financial instruments, first of all, it is only 3%. Second of all, again you are contradicting yourself. 1) You said companies bought them so there is demand at Chinese private companies for them and US really doesn't care if its private or public. 2) If China is tackling its economic difficulties right now and needs money, it is not really an indicators that they will not need to store value again at some point.

[Puffer Fish]

Trade deficit is a moot point, US has been running a trade deficit for ages and it is still number 1 economy in the world.

You are changing the topic. If you want to discuss that, we would need to start a new thread.
You know that would be a long discussion.

1) You said companies bought them so there is demand at Chinese private companies for them and US really doesn't care if its private or public.

I don't think you understood the point I was making. If U.S. dollars go from the Chinese government to private companies, those U.S. dollars are going to be used some way, and are going to end up being dumped back into the U.S.

2) If China is tackling its economic difficulties right now and needs money, it is not really an indicators that they will not need to store value again at some point.

They will store value but it will likely not be in the form of U.S. Treasury bonds.
Unless possibly if interest rates shoot up high enough and the U.S. gets desperate enough and needs to borrow money from China again at a high interest rate.

[Puffer Fish]

This isn't an issue.

People are really really really fucking ignorant when it comes to economics.

"Calling in debt".

It has the same effect.
Yes, things may not literally work that way, on the small scale. But on the larger scale, that is basically how things work.

You're getting lost in the details and need to look at the bigger picture.

[Rancid]

It has the same effect.
Yes, things may not literally work that way, on the small scale. But on the larger scale, that is basically how things work.

You're getting lost in the details and need to look at the bigger picture.

Which is it? A foreign government buying up US debt instruments is bad, or selling them?

It is you that is missing the bigger point.