Russian state run news agency TASS published theories recently on China selling its trillion dollar plus stockpile of U.S. Treasury securities in order to hit back at President Trump’s trade wars and to hurt the USD reserve currency status.
Many analysts have warned of this development for some time, as America has essentially used China as a banker to fund its wildly irresponsible spending for decades.
Reserve currency status only lasts for so long throughout history, the last being the British Pound Sterling. At some point, the bond market will realize America has neither the ability or the will to pay back its massive debt. This will be the real financial crisis.
Our enemies know this.
China may reduce investment in US public debt in the coming months. This could be the way Beijing responds to surging trade tensions and a war of words between the two largest economies over the origin the coronavirus outbreak, Nezavisimaya Gazeta wrote. If China immediately puts $1 trillion on the market, which is stored in US government bonds, this could trigger the collapse of the dollar and financial markets, which could also harm China, experts warn.
The likelihood of China ditching US debt cannot be ruled out, according to experts interviewed by the newspaper. “There is no real problem in the fact that China could reduce purchases of US government debt. No one in the world is now confident in the future, and the fact that Beijing was reviewing the structure of its investments seems reasonable and logical. It needs the money itself,” said Anna Bodrova, a senior analyst at Alpari Analytical Center.
A massive sell-off of US debt by China could happen if the Chinese currency comes under excessive pressure and the authorities have to use all measures to protect it, Anton Pokatovich, chief analyst at BCS Premier, believes. “A large outflow of capital from Chinese assets can lead to this state of affairs, for example, if the United States embarks on a new round of increasing trade duties and imposing tough sanctions on China,” he pointed out.
At the same time, selling US debt can also lead to significant capital outflows from risky assets, including Chinese ones, experts noted. “In addition, if such a sale begins, then US securities will begin to lose value,” Pokatovich forecasted.
Director of BCS Broker sales office Vyacheslav Abramov noted that this sell-off could cause unpleasant effects on financial markets, and collapse the US dollar. “But it is not beneficial for anyone, especially in the era of trade wars. If national currencies rise against the dollar, this will greatly affect the export revenues of all countries. Russia included, which is strongly tied to exports of oil, gas and other minerals, which will lead to an even greater drop in revenue amid low oil prices and a budget deficit,” Abramov said.