I don’t grasp basic economics. Can someone help me understand what Japan selling these US Treasuries would mean? Doesn’t someone else have to buy them?
The US used its soft power to pump the dollar, part of that was selling bonds to other countries to help secure its place as the reserve currency. Japan is threatening to dump that pump.
When foreign countries buy those US Treasuries, basically they are as if the US borrowed money from those foreign countries (ie foreign country gives the US money and the US promises to pay interest over time on that money, and to give back that money in the end. In this case it is said that foreign country “bought” US debt). This helps keep the value of the US dollar where it is (in other words, highly desirable). If foreign countries stop buying those US Treasuries or — worse — start selling them, it is as if those countries are taking their money back. Because the dollar becomes less desirable in that scenario, then the US has to jack up interest rates to make the dollar attractive to buyers again. For the people on the street, this results in higher interest rates on loans, credit cards, and mortgages. Companies face higher costs to borrow money and some have to fire people and/or reduce/close business.
In short, Trump thinks that he has leverage on foreign nations by affecting how they trade with the USA, but he doesn’t realize that foreign nations have immense ability to wreck the dollar if they are forced to do so by no longer giving their money in exchange of US debt.
Japan holds a trillion dollars of US debt in the form of bonds. If they sell the bonds, it increases the supply and lowers demand so to be more attractive the bond interest rates must increase. If the interest rates increase it means that the US must pay more towards paying down the national debt that it currently does. That means US interest rates will increase and the average American will have to pay more in loan and mortgage payments than ever, causing people to abandon homes and cars, and the value of the US dollar will crash. This will lead to a new depression.
Good summary, only one correction:
It will lead to an even worse Great Depression.
Great Depression 2.0 is already unavoidable in the US, even if Japan doesn’t dump US Bonds.
Japan (and others who would soon follow) dumping US Bonds would just pour cement over the grave we’ve already dug ourselves into.
But it’s even worse than that. The US has to rollover about 9 trillion of debt in 2025. Someone has to buy these bonds and if Japan or China are reluctant, it likely means higher interest rates to be offered in order to secure the sale.
https://finbold.com/9-trillion-of-us-debt-will-mature-in-2025-should-investors-be-worried/
Wow, I am rarely corrected that things are even worse from an economic standpoint than I asses they are… I am so very used to being called a hysterical paranoid doomsday fetishist.
9 trillion rolling over in 2025 huh?
Hwoahboy, we are fucking screwed.
… Good luck.
The crude idea is that it makes US bonds less desirable, meaning they have to increase the interest rate on them, costing the US a lot of money
That’d be a reasonable tool. Unfortunately, we do not live in reasonable times.
And the dear leader is incapable of reasoning. Treasoning however…
Loooooooooool
This is the geoeconomic equivalent of using the canned sunshine. And I can’t say it’s not justified.
What a degenerate abasement of the levers of policy : “cards” and “big things”.
We reap what we sow.
What an unfortunate thing to happen on free dozen eggs night.
So if I believe that the US won’t go bankrupt it might mean a good opportunity to buy US bonds at a high interest rates…
The interest is the price of the risk.
It’s not about “believing” which way it’s going to go, it’s whether or not you want to be paid to accept that risk.
The problem is that the high interest rate would trigger the debt ceiling and the USA may actually default on its debt
I would be extremely surprised if it happened but so much surprising shit is happening with the US at the moment…
Good luck finding a trillion dollars. This tool is also used by the EU, South Korea, Canada and China. Good luck finding 7 trillion dollars.
You can buy bonds without having to buy all of them, they’re part of a diversified portfolio.
