Why would China sell off its U.S. debt — if that's what it's doing - Marketplace (2024)
"We care about whether foreign governments or entities are buying U.S. Treasurys because it impacts the cost of borrowing in this country," said Jesse Wheeler of Morning Consult. Mark Schiefelbein/POOL/AFP via Getty Images
The biggest foreign holder of U.S. debt is Japan, followed by China. Which brings us to this: China appears to be offloading its U.S. Treasurys. If so, is that a problem?
“Total Chinese holdings of U.S. Treasurys were about $805 billion as of August, and that’s the lowest since June 2009,” said Win Thin, global head of currency strategy at the bank Brown Brothers Harriman. Why China would be doing this, and even whether it is actually doing this, are hotly debated.One theory: “They have to sell these Treasurys to help support the yuan,” he said.
Selling Treasurys is a fast way to whip up U.S. dollars, and China will sometimes use extra dollars to go out on the global market and buy up their own currency.That artificially pumps up its value.It’s like planting someone at an auction to drive up your prices.
That’s one idea.Another is that China is ditching Treasurys because of trade.
“Trade barriers created under [President Donald] Trump and now continue under [President Joe] Biden explain a large part of the decrease in China purchasing U.S. Treasurys,” said Kent Smetters, a professor at the Wharton School.
With sand in the gears of international trade, China isn’t earning as many dollars, Smetters said, and therefore isn’t storing as many in Treasurys.
Finally, argument No. 3 for why China is getting rid of Treasurys is that maybe it isn’t. It just looks like it.
“China uses offshore custodians to hold some of their U.S. dollar-denominated assets,” said Christopher Vecchio, head of futures and foreign exchange for Tastylive, an options brokerage research group.
He said it could be that China is just hiding its Treasurys so people don’t poke around in its business.
Whatever the explanation, this all raises the question of why exactly do we care how interested foreign countries are in our debt?
“So we care about whether or not foreign governments or entities are buying U.S. Treasurys because it impacts the cost of borrowing in this country,” said Jesse Wheeler, senior economist at Morning Consult.
“If that pool of people is just restricted to U.S. households, then the government is gonna have to pay a higher return on that debt in order to be competitive,” said Smetters of Wharton.
That would push interest rates higher — including those on home loans.So as long as they stay interested in our debt, Japan and China could be saving you moneyon your mortgage.
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United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending, in addition to taxation.
is a fast way to whip up U.S. dollars, and China will sometimes use extra dollars to go out on the global market and buy up their own currency. That artificially pumps up its value. It's like planting someone at an auction to drive up your prices. That's one idea.
China focuses on export-led growth to help generate jobs. To keep its export prices low, China must keep the renminbi low compared to the U.S. dollar. U.S. debt to China comes in the form of U.S. Treasuries, largely due to their safety and stability.
It's going to put it into bonds of other countries. It will have to buy other currencies in order to invest in those countries' bonds. So US interest rates will no doubt rise as the supply of US Treasury bonds suddenly increases and the dollar will fall as China moves a lot of money out of dollars.
Debt as a share of GDP has risen to about the same level as in the United States, while in dollar terms China's total debt ($47.5 trillion) is still markedly below that of the United States (close to $70 trillion). As for non-financial corporate debt, China's 28 percent share is the largest in the world.
If China continues to trim its Treasury holdings, market players may see it as a factor pushing up bond yields and thus as a matter of concern for the U.S. Federal Reserve. The unsteady Chinese economy has added yet another unpredictable variable to global financial markets.
One theory: “They have to sell these Treasurys to help support the yuan,” he said. Selling Treasurys is a fast way to whip up U.S. dollars, and China will sometimes use extra dollars to go out on the global market and buy up their own currency. That artificially pumps up its value.
China's debt overhang far exceeds the burdens facing the United States. As recently as 2020, total debt in the United States relative to GDP exceeded China's. But as of mid-2022, China's relative debt burden stood 40 percent higher than America's.
China owns 384,000 acres of American agricultural land. That's a 30% increase just since 2019. And on top of that, they own land near an air force base in North Dakota.
Switzerland is a country that, in practically all economic and social metrics, is an example to follow. With a population of almost 9 million people, Switzerland has no natural resources of its own, no access to the sea, and virtually no public debt.
When looking at the data from the Human Freedom Index, Switzerland emerges as the freest country in the world with a score of 9.11. It is followed closely by New Zealand (9.01) and Denmark (8.98).
The value of U.S. Treasury securities held by residents of Russia amounted to 33 million U.S. dollars in June 2023, the lowest over the period under consideration. Furthermore, in March 2020, the figure decreased sharply to 3.85 billion U.S. dollars, down from 12.6 billion U.S. dollars one month prior.
China's outstanding foreign debt, including US dollar debt, reached US$2.29 trillion at the end of September in 2020, up from US$2.13 trillion at the end of June, according to China's State Administration of Foreign Exchange.
The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government. Offered in a wide range of maturities.
The United States pays interest on approximately $850 billion in debt held by the People's Republic of China. China, however, is currently in default on its sovereign debt held by American bondholders.
Of the $33T of debt, roughly 78% is owned by the public (70% US vs 30% International). The major US public owners include the FED ($6T, but they are no longer buyers), mutual funds, banks, states, pension funds and insurance companies.
China's debt is more than 250 percent of GDP, higher than the United States. It remains lower than Japan, the world's most indebted leading economy, but some experts say the concern is that China's debt has surged at the sort of pace that usually leads to a financial bust and economic slump.
The largest holder of U.S. debt is the U.S government. Which agencies own the most Treasury notes, bills, and bonds? Social Security, by a long shot. The U.S. Treasury publishes this information in its monthly Treasury statement.
Introduction: My name is Dan Stracke, I am a homely, gleaming, glamorous, inquisitive, homely, gorgeous, light person who loves writing and wants to share my knowledge and understanding with you.
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