What would happen if Japan sells of a major chunk of it's US treasuries (Japan is the largest holder of american debt) with the justification of bolstering its collapsing currency
FYI Japan is in a major debt crises, it's debt is now 263% of it's GDP
And what if after that China follows too by selling of it's holdings as well of US treasuries
Will US still be able to make it's interest payments on its debt AND fund military campaigns abroad?
@impactology Sell to whom? And if you increase supply while decreasing demand, prices crash. So why should China and Japan do that?
That being said: these are structural problems. China and Japan (like Germany) have a big trade surplus. The US is the main actor buying that surplus in exchange for money/treasuries. Getting rid of this would thus require to remodel the whole East Asian economy and increase consumption. It’s exactly what China tries to do, and struggles hard to do.
@impactology not an expert, but I assume they also have a surplus given their economy is basically all oil? So how should they buy it, with dollars? That won’t work… renminbi? How should they pay for those? With dollars?
@b3n Basically I was wondering given Japan is in such a debt crises of it's own and the largest holder of US's treasuries, would it be prudent if it sells of some of its treasuries to finance its debt and if that would lead to a geopolitical flashpoint
To understand the debt crisis in Japan you need to put it in the context of their broader economic stagnation that started in 1991. It's hard to even summarize it in a short post, so I'll encourage you to read up yourself on The Lost Decades, a deflationary trap, Abenomics and the demographics of Japan.
Japan and China keep buying US treasuries to keep the value of their own currencies low, making their exports more competetive, therefore protecting their economies.
@impactology ah, that’s where you’re coming from. I’m not sure about the inflationary and deflationary consequences of such moves within Japan. Just selling too fast will probably lower the price so you don’t really get much for it. And whom to sell to? If you’re indebted to your own pensioners, you don’t really have that big of a problem if you have USTs lying around…
@impactology for UAE and Co? What do they give the Japanese in return? I’m not an economist, but the way I look at it is through big asset flows. To simplify, US treasuries are in Japan because there are a lot of cars flowing the other way. If you want to have the treasuries flow somewhere else, you’d have to find something else to balance it…
@impactology and this means giving this scenario the benefit of the daubt that the numbers add up. UAE etc. are much much smaller economies than Japan and China.
@impactology …and then from a political lens it doesn’t make 100% sense. The Saudis have a “good” coopetitive relationship with the USA, China is flirting with Iran. So why piss off the Americans for the Chinese and also pay a big price for it? After all you’d probably have to sell that nice diversified portfolio of VW shares and everything that you invested so much time and relationships to build.
@b3n Given the interconnectedness I was wondering if there is any sophisticated financial modeling and simulation system to visualize interconnectedness of sovereign debts, investments, and liabilities of governments
A tool to visualize interconnectedness and vulnerabilities of global financial markets
@impactology The important question is overall balance. You used to have a net export surplus from Germany to China and then a much bigger one from China to the US. (“German robots for China, Chinese widgets for the US.”) This has changed in the last 5-ish year, which is why Germany struggles so hard. Still, I would be very surprised if US isn’t still a net importer.
@impactology this is the process you have to pay if you want to provide the worlds leading currency. It’s also the reason why China won’t have it. They love exporting too much. Because the domestic market is too weak. Because Chinese elites made their money and got their power with exporting stuff.
@impactology (I’m stealing this line of argument from Klein & Pettis “Trade Wars are Class Wars” by the way. Awesome and quite prophetic book if you haven’t read it yet and are interested in this stuff!)
Well chinese govt has a lot of strategies at hand to acquire IP from american companies and in that process of "tech transfer" I'm sure they have learnt a lot of advanced manufacturing techniques
@impactology China wants to become the next Germany - quite explicitly so. It even has a tagline: “Made in China 2025.” They have lured many German manufacturers to China and yes, also learned a lot on the way. Guess that was the pact all along: get rich (in the 2000s and 2010s) but lose against new competitors with cheaper (Uyghur) labor, more state subsidies, and fewer restrictions.
@impactology yes, put there’s a massive legal dimension to that. If you want to steal tech you want a whole factory as you need the tacit knowledge of the workforce.
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