Replies

They have long threatened to dump their US Treasury bonds in a similar act of market manipulation, to drive up US interest rates, and bust the Federal budget.

I have little doubt that China can ruin us economically because they own all our debt, which our government is addicted to. But a USA with an economy in rubble would leave China with their own problems. They are far too dependent on the USA as a market, way more than we are on them (because they won't open their markets to us).

Besides, such an overt act would get retaliation. Economic at first, perhaps. Ultimately escalating to military. It would probably start WW3. They might make us broke but we could still feed ourselves and still launch our nukes, at least for a while before civil unrest of the gimmedat class started when the government checks stopped showing up.

Would China take that risk?

While the stock market went down last night, at the same time the US bond market went up. Our debt is greedily purchased from people all over the world, not just China. And when I say people, I mean countries, banks and pension funds. The US ten year note is going up in price. The yield has dropped below 3%. Our country is not falling apart. Our debt is not currently a big deal.

If you are looking for cracks, consider the EU. And especially watch Italy. If the western world falls apart, it will start there. Before the central banks intervened, Italy’s debt was yielding over 7%. Now its about 3.2%. And it was only 1.7% in May. The EU only talked about not buying bonds and germany’s bonds went up to .24%. Italy’s bonds moved to 3.2%. So the yield could more than double, going back to 7%, if the EU’s central bank stopped buying their bonds. If the EU falls apart, there would be contagion. And that would cause trouble in the US. But until you see it there, its not coming here. They are the front line.

US Debt held by Foreign Sources is about 30% of overall debt. China holds ~ 25% of that which would be about 7 1/2% of the overall debt....article says 5.6% I’m sure it fluctuates.

https://www.marketwatch.com/story/heres-who-owns-a-record-2121-trillion-of-us-debt-2018-08-21

Article is a little over 3 months old.

[I have little doubt that China can ruin us economically because they own all our debt, which our government is addicted to.]

Others have pointed out that China owns 7.5% of outstanding Treasury debt. It’s an even smaller chunk of total debt outstanding (including mortgages, etc), about 2.5%. China owns Treasuries not because it likes us, but because they need to keep a good chunk of their foreign exchange earnings in dollars in order to prevent their currency from appreciating even further. Incomes there have gone up almost 10x (in dollar terms) in the past 30 years. A lot of Chinese manufacturing operations are becoming more costly than their Indian, Mexican, Vietnamese, Cambodian, Filipino and Indonesian counterparts, because of skyrocketing Chinese land and labor costs. That is why it is a matter of great urgency for them to keep the yuan cheap against the dollar. That means not selling their dollar currency holdings to buy yuan. So those dollar holdings earn some interest, they buy US Govt Treasury debt and Agency securities (bundled Fannie Mae, Freddie Mac mortgage debt).

[But a USA with an economy in rubble would leave China with their own problems. They are far too dependent on the USA as a market, way more than we are on them (because they won’t open their markets to us).]

China doesn’t so much depend on the US to buy Chinese products as it relies on US multinationals to build plants in China to re-export the products they make there to the US. China’s relationship to the US is that of a house cleaner to a white collar office worker. Those tariffs are straining that relationship to the max. 25% tariffs on an $800 iPhone will prompt Apple to move its assembly plant out of China, perhaps to the Philippines or Indonesia. As it is, Adidas and Nike have moved a good deal of sneaker production for the US market out of China for cost reasons. A 25% tariff on smartphones would cause all US-bound smartphone production to leave China.