• News
• 2024-08-27

$273B US Treasury Dump; US Retaliates with New Debt Issuance

While verbally claiming solidarity with the United States, actions speak louder than words. As an ally of the U.S., in the current situation where the U.S. urgently needs to issue Treasury bonds to sustain its lifeline, what allies should do is to contribute positively; even if they cannot contribute, they should at least not undermine.

Recently, the U.S. Department of the Treasury released the latest data on holdings of U.S. Treasury bonds, which not only surprised the U.S. but also revealed to the world the paternal affection and filial piety between the U.S. and its allies. If China's sale of U.S. Treasury bonds was expected, then the sales by the UK and Japan were completely unexpected. What is happening in the U.S. now? Why are its own allies abandoning it? Will China take over the U.S. Treasury bonds that the U.S. is abandoning next?

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Unified Action by China, the UK, and Japan

If the China-U.S. trade confrontation was the beginning, then financial confrontation is the climax. However, while the U.S. is using the dollar tide to harvest globally, China, the UK, and Japan have stood on the same side. Have the UK and Japan defected?

On November 16, the U.S. Department of the Treasury announced the situation of U.S. Treasury bond holdings in September. The latest data shows that our country continued the past trend of selling U.S. Treasury bonds, reducing the holding share to below 800 billion U.S. dollars, and the share held has reached a new low since 2009.

It can be said that China's reduction of U.S. Treasury bonds is understandable and acceptable. After all, in recent years, China's overall trend has been to reduce its holdings of U.S. Treasury bonds, and the reduction has even increased compared to previous years.

We know that in the past, holding U.S. Treasury bonds was to find better investment targets for the held U.S. dollars, and now, although the yield of U.S. Treasury bonds is at a new high, compared to the risks of the U.S. dollar, this return is not worth clinging to.

Moreover, this year, countries around the world have been vigorously promoting the de-dollarization process, and the U.S. interest rate hikes are also nearing an end. Therefore, holding U.S. Treasury bonds is not as attractive as before.

If China's reduction of U.S. Treasury bonds can be understood, after all, the China-U.S. relationship is competitive, then Japan and the UK are completely incomprehensible.

In the data released this time, Japan reduced its holdings of U.S. Treasury bonds by 28.5 billion U.S. dollars, the UK sold 29.2 billion U.S. dollars worth of U.S. Treasury bonds, and China's reduction was only 27.3 billion U.S. dollars worth of U.S. Treasury bonds.From the data, we can see that both Japan and the UK sold more than China did in this instance. It can be said that Japan and the UK are not only no longer supporting the US, but they have also started to undermine the US.

We all know that this year, high-level US officials have visited our country multiple times, with one of the main requests being for China to purchase US Treasury bonds, thereby extending the US's lifeline through the purchase of these bonds.

We are aware that the current debt scale of the US has reached around $33.5 trillion, and previously, US officials have also stated that the US will expand its debt to around $50 trillion within the next decade. It can be said that the expansion of US debt is as fast as a rocket.

This requires more people to buy US Treasury bonds. But are US Treasury bonds still as popular as they once were, and will more countries come to buy them?

We have always believed that as allies of the US, countries would not reduce their holdings of US Treasury bonds, but we see that Japan and the UK have taken the lead in selling. Moreover, it's not just the UK and Japan; more and more countries are reducing their holdings of US Treasury bonds, and US debt is being abandoned by the world.

Overseas capital abandons the US

As a life-saving medicine for the US, US Treasury bonds have always been a magic weapon for the US to deal with crises. In the past, we have seen the Latin American crisis, the 1997 crisis, etc., but the US has always come out on top, while other countries have sunk, mainly relying on US Treasury bonds.

The US has always weathered crises by issuing debt and borrowing money. It can be said that for decades, this method has been tried and true. However, now it seems that the US's method is not working as well as it used to.

We know that in the past, as the global currency, the dollar required all countries to hold a large amount of dollars if they wanted to enter the international market. After all, in trade, other countries only recognize the dollar, which has created the scarcity of the dollar.While other countries are hoarding large amounts of US dollars, there are not many good investment targets, hence the emergence of US Treasury bonds. Countries with more dollars have also found investment targets. In the past, our country was the largest holder of foreign exchange reserves and also the largest holder of US Treasury bonds, but this situation is now changing.

It's not just us abandoning US Treasury bonds and de-dollarizing; almost the whole world is taking action. If the sales by the UK and Japan are considered individual cases, then the reductions by Canada, Saudi Arabia, France, and Brazil are not.

According to relevant data calculations, the peak reduction of US Treasury bonds by our country reached about 40%, and Saudi Arabia's sales ratio during the same period also reached about 39%. It can be said that Saudi Arabia, one of the world's largest financial powers, is also abandoning US Treasury bond assets.

We know that Saudi Aramco's annual earnings are around tens of billions of dollars, and last year alone, Saudi Aramco's profits reached about $160 billion. It can be said that a large part of last year's money was earned by Saudi Arabia.

However, Saudi Arabia did not reinvest in the US market because Saudi Arabia's holdings of US Treasury bonds have remained at a low level of about $100 billion. It can be said that now, whether it is the UK and Japan lacking money or Saudi Arabia making money, everyone is abandoning US Treasury bonds and staying away from the US market because everyone knows that the Ponzi scheme of US Treasury bonds has reached its late stage.

Will China take over?

US Treasury bonds are a reflection of US credit, and the sale of US Treasury bonds is an attitude of various countries towards the United States, that is, how much strength does the United States still have.

At present, although US Treasury bonds are in crisis, it is not the most critical moment. After all, we know that behind US Treasury bonds is actually the United States' assets and fiscal revenue as the target.

Moreover, the United States is not without high-quality assets; it is just a matter of whether the current United States is willing to exchange them. And we all know that although the United States is now old and decrepit, the possibility of collapsing suddenly is not great, after all, even a centipede dies but does not stiffen.The Dao, many might inquire, following the recent China-U.S. meeting, will China take on the responsibility of purchasing U.S. debt? We are aware that the U.S. is set to continue issuing debt, with a scale reaching approximately 1.7 trillion U.S. dollars. Such a substantial amount inevitably requires buyers.

In the past, numerous central banks and investors have purchased these debts, but now everyone is avoiding risks, fearing that one day they might be exploited by the U.S. Therefore, the U.S. urgently needs someone to take over.

In 2008, for the sake of global economic development, we chose to take responsibility. However, will we operate in the same manner today?

I believe this is a complex issue. Firstly, the advanced state is no longer that of 2008. At that time, the U.S. was the mainstay, and our country's economy was primarily based on foreign trade, hence the heavy economic reliance.

But today, our foreign trade share has dropped to around 30%, and our largest foreign trade organization has now become Southeast Asia, with the Silk Road economy rapidly rising. This means our ability to withstand risks has strengthened.

Additionally, in recent years, we have been promoting the internationalization of the renminbi, and the results have been significant. At least in Sino-Russian trade, it is entirely possible to abandon the U.S. dollar. Thus, the present is different from the past.

Lastly, considering the current pace at which the U.S. is issuing debt, can we still afford to take it on? Therefore, this is a question worth pondering.

So, whether we want to take it on or not, and whether we can afford to, are all issues. But no matter what, our country's interests must come first. Choosing what is most beneficial to us is the best course of action.