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China holds I believe 2 trillion dollars worth of US debt. Almost every media says it's a doomsday if China were to dump its holding in US debt.
Is anyone able to paint a picture of that scenario? Yes we all know price of US debt can plummet and yield can shoot up; I am talking 3,4, or even 10 steps beyond the obvious. What is that doomsday?
I for one, might convert most of my assets to US debt if 30 year Treasury yield goes to say 5-6%. Seems to me it would be a good opportunity to pick up some quality investment...
Very unlikely that happens. At least how you are painting it.
The biggest issue would be demand for Treasuries which we need to finance the goverment, would plummet. Prices would drop, rates would rise to compensate for the lack of demand. Borrowing costs would rise.
The Chinese are not going to play that Ace in the hole. They will hold it and do nothing with it because they don't have to do anything. If they want to stick something up our rear ends, they'll just cut down or stop buying treasuries, the market will feel the impact with either. Don't forget our own federal reserve is unwinding asset purchases as is. So any significant demand changes would be felt pretty quickly, especially on the short end.
Fact of the matter is, the United States will lose, bigly, in a trade war with China. The Chinese will simply match tariff for tariff in a calm, calculating way and ultimately we consumers are going to buy the goods anyway and pay for it. No significant jobs will be gained, in fact jobs will be lost because when prices start to rise it will throw the economy directly in the ****ter faster than Donald Trump can cut out a 1pm to hit the golf course.
If the jobs move out of China, it will be to another third or fourth world **** hole in asia that doesn't care if you use a class of people for slave labor and pollute / rape their environment. What people don't realize is, labor cost is a very small fraction of the overhead here. That isn't want is keeping jobs away. What keeps jobs away is clean air, water and the fact they can't just run a pipe out the back and dump a bunch of **** in the rivers and lakes here. Over there, put simply but more or less true, they can dig a hole and dump what they want, where they want with little oversight and rules where if they did that over here they'd get their balls sued off.
Much less the fact that everyone wants a piece of the rapidly growing Asian market and they are going to be far more important than us simply due to population size and demographics. Only makes sense to make stuff there and that shipping arteries would be so huge because that is where much of the world's population mostly lives.
Anyway China doesn't have to do anything. We are doing just fine at ****ing ourselves over while about 40% of the country pats themselves on the back thinking they are doing good.
As for 5% on Treasuries. Should they ever get that high in the near future, inflation will be so high that your statement would be laughable. We are far more likely to see a yield inversion than anything else but if rates did climb that high over the next few years odds are, given our economic situation, we'd be looking at Stagflation.
Stagflation is no joke. With the goverment spending like it is in relatively good times and consumers at record high debt wise the next recession isn't going to be pretty and is going to take a long time to work through.
Just remember something, it will be all self created and has nothing to do with losing manufacturing jobs, Bush, Clinton, Bush or Obama. It will be all on the current administration and it's missteps.
They’d get crushed trying to dump their debt holdings in any quick fashion. Also what do you surmise they would do with all the USD that coming pouring into their economy?
China would have to be willing to take a huge multi billion dollar loss doing so. We don't care who holds our debt. Can they afford to reduce their reserves in this fashion? What would they replace them with? How would they keep the Yuan pegged? China would bear the brunt of the cost, so its very unlikely to happen. Its a doomsday for China...
Well, maybe the same thing as any other country in the past who suddenly dumped its holdings of debt in another country (in a manner not precipitated by war). Has it ever happened before? IF not, why not, and what can we learn from all of this?
China holds I believe 2 trillion dollars worth of US debt. Almost every media says it's a doomsday if China were to dump its holding in US debt.
China holds $1.168 TRILLION as of January 2018.
It's unlikely China will dump its holding of US securities.
China, Japan and South Korea have been studying the feasibility of a unified Asian currency for some years now, and will continue to do computer simulations and modeling for some time. China's use of the Yuan for oil and other commodities is just the first step to move the currency to some stability.
What are the alternative assets to US debt?
German, Canadian and Australian debt markets are tiny in relation to the US. They may benefit, but only slightly.
One major beneficiary could be gold. Gold sank with stocks in the 2008 recession, but it shot up after the 2000 dotcom crash. Gold is hard to predict.
Think this through. This is their cushion. But...its a HUGE cushion. What if they just settled on selling 10% per month and buying some other countries debts with it? Yes they would lose some money...but they can afford it. Can we?
And thats what the OP wants to know. Not "will they", but "what if they.". And while some answers have shown up, it sounds like no one is really sure. Which is concerning.
Everyone assuming China will act rationally about this, but I'd suggest the memory of the opium wars has really stuck with them. I don't think they will be quite as rational as everyone assumes.
They’d get crushed trying to dump their debt holdings in any quick fashion. Also what do you surmise they would do with all the USD that coming pouring into their economy?
Actually, that is a big issue with China - about hot money coming into their economy - which could overheat their real estate and other equities markets beyond what it already is...
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Congress (special int) thinks it can run OUR country
