China to Dump All US Treasuries
China Threatens to Dump All US Treasury Holdings if Tensions Flare
The Debt Bomb Grows
A major risk, which has been bandied about within the precious metals market for years and more recently in the minds of broader investors, is the amount of US debt that foreign countries have accumulated over the past number of decades—and the fact that it could one day be used as a weapon against the United States.
Chief among these countries are Japan and China. The former holds approximately $1.26 trillion in US debt, and the latter holds $1.07 trillion.
However, even though it is Japan that holds the largest debt, it is always China that is invoked when any fear-mongering is done about the level of foreign US debt holdings.
This is for good reason and due to the fact that Japan and the United States have been strong allies and trading partners for decades.
While the United States and China have also been incredibly strong trading partners, their relationship has often been much more tenuous and uneasy.
This has been especially true over the last few years since President Trump has taken office, invoking his “America first” agenda and renegotiating US trade deals to be much more favorable for his country—much to the anger of China and others.
This has led to the point in which we are now, which is without a doubt the lowest point in China / US relations that we have seen in a very long time.
China Threatens to Unload US Treasuries
Exemplifying this low point in relations, China has repeatedly pointed out the fact that they hold so much in US debt—and the power that they now wield because of it.
China has made it openly known that they hope to change this position over time, shedding US holdings in favor of other holdings, such as gold bullion and other hard assets.
However, this cannot and will not happen overnight, as China would run the risk of completely tanking their own holdings of US Treasuries, destroying the value they personally hold.
Regardless of this fact, they have not eliminated the possibility of dumping their holdings in rapid succession, if the need ever arose.
Reuters reports:
“China will gradually decrease its holdings of US debt to about $800 billion under normal circumstances,” Xi Junyang, a professor at the Shanghai University of Finance and Economics, was quoted as saying on Thursday, without giving a detailed timeframe.
“But of course, China might sell all of its US bonds in an extreme case, like a military conflict.”
This second statement is the threat that so many of us have discussed for years, and it highlights the fact that these large holdings of Treasuries pose a very real threat to the security of the United States, as it could be used to tank the Dollar overnight, sending the economy reeling in the process.
In Conclusion: A Double Edged Sword
Although China is rattling their saber once again, I believe it is just that: saber-rattling. Dumping their entirety of US Treasuries on the market would have dire consequences for them as well.
And don’t think for a moment that if China was to dump its holding of US Treasuries other foreign holders would stand idly by.
Once China has offloaded to 800 billion dollars, Japan, and all the other foreign holders, would finally come to realize that American National Debt Increases have become unpayable, panic reigns and they will all be under tremendous pressure to follow suit. The dollar might spiral downward . . .
Joel Huan
The Mystery of Ephraim 