Investigating the Claim "Countries Trying to Get Out of Treasuries"

Mish

Are countries trying to dump US treasuries? How so?

The Claim

Questions Abound

  1. What countries are "trying" to get out of treasuries?
  2. Is this something one has to "try" to do?
  3. Why can't they just do it?

Do or Do Not, There is No Try

Why Can't They?

The chart in the claim provides the answer.

The US continually runs a trade deficit and one of the reasons is the fiscal deficit.

Mathematically, a perpetual trade deficitforcescountries to accumulate US Dollar denominated assets.

Those assets do not have to be US treasuries, but imagine what would happen if China tried to buy Boeing or Apple.

Treasuries are the most liquid global asset and they do pay an interest rate, so treasuries it is.

From time to time China does sell Treasuries. But is not an attempt to get out of Treasuries . On the contrary, it has been a forced reaction to shore up a plunging Yuan.

There is "No Try". Mathematically, there can't be.

There are only idle threats.

Mike "Mish" Shedlock

Comments (54)
No. 1-16
Casual_Observer
Casual_Observer

Getting out of treasuries is like saying you want to get out of cash. LOL. Sure you can sell some treasuries to shore up other assets but at the end of the day the only global currency is the dollar because most commodities are traded in dollars, including oil. China got to pick the leader of the World Health Organization and look how that's worked out for the world. Anyone want to risk them influencing the next IMF or World Bank head ? While the US gets blamed for anything and everything these days, the biggest culprit of trying to destabilize organizations that were once pillars of global safety is China. They are currently sacrificing the lives of their own citizens to help countries that are ripe for economic and geopolitical takeovers. All with the help of holding not selling US treasuries.

Schaap60
Schaap60

I thought Jim Bianco covered the reason China may be selling treasuries well in the video Mish posted recently. If you didn't watch the video, China needs dollars in order to buy the resources needed to restart its economy and therefore needs to sell treasury holdings. China's capital controls, and other political issues, prevent it from being able to do swaps with the Fed like other countries and the EU. The point is not the rush to unload treasuries, but China needing dollars.

abend237-04
abend237-04

The conversation would go something like this:

China, "We're damned tired of taking funny money Treasuries for trade payment."

US, "Sorry, It's all we've got since Nixon closed the Gold window in 1971."

Meeting adjourned.

It's at least a refreshing change not having to argue about the mythical "sidelined cash" or "net-zero-loss" sector rotation myths.

Sechel
Sechel

Let me get this straight .Treasury bond yields are at record lows. The dollar is up? On what anecdotal evidence is this claim even being made?

tokidoki
tokidoki

They can dump Treasuries for oil. But then the Saudis will have to put all those dollars into .... Treasuries.

But don't worry the end of the dollar as the international reserve currency is nearing.

Tony Bennett
Tony Bennett

"Treasuries are the most liquid global asset and they do pay an interest rate, so treasuries it is."

...

THE last domino

Brexitologist
Brexitologist

The reason US Treasuries are still saved up and not dumped for gold is that the US dollar continues to be the world´s reserve currency... until it isn´t.

The time is ripe for 50% gold-backed SDRs.

..."... When the wealthiest country in the world is unable to produce basic medical gear to cope with a rampaging pandemic, it is dealing with a strategic vulnerability by depending on multinational supply chains to produce manufactured goods. Absent sufficient redundancies and physical reserves of resources, “just-in-time” lean supply systems can’t cope with sudden disruptions..."...

Stuki
Stuki

While someone has to hold everyone of them, and trade deficits do ensure someone will, how much others are willing to give up, in exchange for one of them, can very easily be reduced.

Chinese producers previously willing to hand over three ventilators and a million N95 masks in exchange for given stack of treasuries, no longer being willing to hand over more than one of the former and a tenth of the latter, is till problematic.

Much of the world have been willing to accept US IOUs, because they believed there was something, anything, of value backing those IOUs. IOW, they'd eventually be able to get something of real value in exchange for them. The more obvious it becomes that this belief was erroneous, the less real goods and services each IOU is able to command. Which does effectively shrink the size of the treasury market, as log as you measure it in terms of anything other than nominal dollars (and other, dollar tracking, fiats).

QE2Infinity
QE2Infinity

What if China took their US dollars and bought gold?

jacob_zuma
jacob_zuma

Mish, countries can dump US treasuries for other currencies or commodities, like gold and silver. I dont think this is happening yet, but if helicopter money continues it is a possibility.

TCW
TCW

What if China started bartering prescription drugs for gold?

QE2Infinity
QE2Infinity

At this stage of the game I'd much rather hold gold than US treasuries. Trump and Congress are already talking about another big stimulus package and we are early into this crisis.

What will the US Federal deficit be in 2020? $4 Trillion, $6 Trillion, perhaps even more? That'll be a $30 Trillion national debt by 2021.

Maximus_Minimus
Maximus_Minimus

You've got to investigate the possibility that after this (man made) financial calamity, to pay back the free money provided to the financial casinos, there would be calls for a financial transaction tax. There is no other way to fill the budget gap(s). This will be obviously opposed by the US, but other governments still care about budget deficits. This would effect the treasury market among other things.

Irondoor
Irondoor

I read an article by a "Financial Journalist" that said the world was "dumping" $100 million of Treasuries. That's 2 tenths of 1% of the average daily volume. Some "dumping". Is there a country in the world that isn't increasing its supply of its own currency? Probably, but none come to mind at this time.

The Chinese Communist Party has a currency. They are now #2 in GDP. They buy stuff all over the world. Why won't the sellers of commodities accept their currency as payment? It's not convertible.

awc13
awc13

I saw those same "try" headlines and had the exact same thought. what do they mean by "try"? The only thing I could think of was that countries wanted to sell but there was no market, so they were unable to. This is ridiculous so my next conclusion is that the "journalist" was lying. another writer working a political angle to scare the world. but why? perhaps the explanation is simply they want to generate clicks, sell copy.

Wotan
Wotan

There are many different scenarios in which foreigners could "get out" of treasuries, and all of them involve the devaluation of the US dollar.

For instance, foreign owners of the treasuries sell them, the Fed buys them, and then, with the US dollars they receive in exchange, the foriegners buy gold, oil, stocks, real estate, etc.

It's perfectly true that at the end of the day someone, somewhere, owns the dollars. But relative to the value of other assets these dollars have now greatly diminished in value. Relative to the total value of all assets, the combined value of all US dollars in circulation has shrunk, perhaps drastically.

As a collector you can buy yourself a quadrillion Reichsmarks from the Weimar era - you own these things outright - but portion of your "portfolio" represented by them will be vanishingly small.

So we can't assume as a matter of course that the system by which the US has funded its debt for the better part of the last century will necessary remain intact and/or stable - in fact it's very dangerous to do so. It could very easily collapse altogether.


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