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Falling BRICS
China Selling U.S. Treasurys

China, Russia, and Brazil are unloading huge stores of U.S. debt, the Wall Street Journal reports:

Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis.

Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the U.S. economy. Previously, all four were large purchasers of U.S. debt.

Few analysts expect much higher yields in the Treasury market as a result. Foreign private purchases of U.S. debt have increased amid pessimism about the world economic outlook. U.S. firms and financial institutions continue to buy Treasurys, as do some foreign central banks.

Just a few years ago, American politicians and researchers were panicking that BRIC countries, particularly China, would eventually control America by owning all its debt. That prediction looked silly then, and it looks even sillier now. As U.S. banks buy up foreign governments’ stores of U.S. Treasurys, it is increasingly Americans who owe themselves a debt.

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  • f1b0nacc1

    This looks like excellent news indeed

  • Nevis07

    It’s not silly to think of the potential threat of China dumping US debt in the event of a serious military confrontation. It may not help the “control” the US but it sure may give our leadership pause. I doubt our intelligence agencies war-gamed these potential scenarios for no reason – and TAI should be reminded that Russia offered to dump US debt with China during the financial crisis to take the US economy down. It’s not as powerful a weapon as many believe it to be, but it’s still not something to be ignored.

    • Jacksonian_Libertarian

      In the event of a war, China’s US Treasuries will be repudiated. You don’t owe your enemy anything. These countries are all currency manipulators, they had been buying Treasuries to give their exporters a price advantage. But now that their currencies and economies are crashing, they are more worried about expensive imports choking off what economic activity they still have. They are having to deal with fleeing investors as well, who are cashing out of these risky Countries.

      • Nevis07

        Agreed mostly, but it isn’t that simple. The assumption that we know where China is holding all of there holdings is inaccurate. They have scattered hidden investments through a variety of hedge funds and pensions as part of holdings off shore accounts that will not immediately be clear to the US Treasury Dept. They could certainly disrupt financial markets because we wouldn’t know if financial outflows were Chinese in origin or legitimate trading partners. However, as as everyone knows and you alluded to, they’ll be risking severe damage to themselves in a market panic. The US would still come out ahead as I tried to say originally, but in the event of conflict, it’s not a tactic that can be entirely ruled out.

    • f1b0nacc1

      As long as US treasuries are seen as a ‘safe’ investment by other players (notably other American investors), this is all to the good for us. The notion of this ‘taking the US economy down’ in the absence of a world-wide movement from all players, not a few economic rogues, simply doesn’t wash.

      • Nevis07

        That’s not what I’ve argued at all. You misunderstand. See my response below.

        • f1b0nacc1

          Actually I don’t think that I misunderstood you at all, I simply disagree with you. China has very, very little leverage here, and while they could certainly cause a bit of mischief, that would be limited at best. Keep in mind that unless you believe that they can execute a series of perfectly timed trades on all of these vast secretive holdings (good luck with that, the problem with highly diverse, highly dispersed holdings is that they are almost impossible to coordinate) without tipping off what they are trying to do, ultimately they won’t accomplish a great deal other than losing a lot of value in their own assets. This is precisely the scenario that was mooted about in the 1980s with the Japanese, and it was as wrong then as it is now.
          The market is a very, very big place, and China (or any group of players allied with them) are simply not big enough to dominate that market. Disrupt it momentarily, of course, but the key word there is ‘momentarily’….

          • Nevis07

            Difficult to execute? Actually, it’s never been easier with computerized trading. And with all of the quants? They’re computer models would breakdown and sell in market panics as has become increasingly clear. You create one large organized outflow and again you’ll get legitimate money following the hot money – and that means the larger market would follow. Now, the regulatory authorities can always halt trading, which I expect they would, but that’s actually relatively disruptive. Anyway, agree to disagree. Have a nice day Fib.

          • f1b0nacc1

            I don’t know how much experience you have with computerized workflow systems, but you are drastically overestimating their effectiveness. More to the point, you are on the one hand envisioning a complex set of dispersed/diverse investments (largely secret, to maximize surprise and prevent precautions) and on the other hand assuming that it will be possible to coordinate them while the ‘good guys’ won’t be able to detect any of this.
            As for using leverage to magnify the effectiveness of market players, once again, there is a lot of hand-waving and very little substance. Were it truly this simple, it would be easy enough to do on a regular basis, and yet we don’t see that happening do we? Perhaps such things can occur (I remain unconvinced), but it is certainly neither easy nor risk-free, and given the costs that suggest that it would almost have to be in order to be attempted. Why would the Chinese risk a huge proportion of their national assets on the far from certain hope that they could create economic disruption in the West?
            As you say, we will have to agree to disagree. In fairness however, I cede the last word to you….Cheers!

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