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Strategies & Market Trends : The Financial Collapse of 2001 Unwinding -- Ignore unavailable to you. Want to Upgrade?

To: robert b furman who wrote (2461)	5/20/2019 6:21:52 AM
From: elmatador	Read Replies (1) \| Respond to of 13775

Beijing could punish Washington by “dumping” its holdings of US Treasury bonds. Considering that at the end of February, China’s declared holdings of US Treasuries amounted to US$1.1 trillion, this might sound like a viable threat. If Beijing were to sell them, say the move’s backers, it would trigger a collapse in bond prices, and therefore a sharp spike in US interest rates, which would punish the US economy and trash confidence in the US dollar. China’s US$1.1 trillion pile of Treasuries might sound a lot, but it’s less than 5 per cent of the total outstanding. If Beijing were to sell them slowly, private investors would have little difficulty absorbing the paper, especially given the safe haven flows into the Treasury market at a time of heightened tension. And if China were to try and sell them all at once, the US Federal Reserve would step in and buy them to preserve an orderly market and hold down interest rates; it bought more than that in the few weeks following the 2008 implosion of Lehman Brothers. And if Beijing did manage to sell its Treasuries, what would it do with the proceeds? Put them on deposit at Citibank in New York? Well, guess what? Citi would put the money straight back into the Treasury market. Net result: zero. And if China were to sell the US dollar proceeds of its Treasury bond sales in the foreign exchange market, what would it sell them for? Euros? No chance. There is already such a shortage of low-risk European government paper that the yield on 10-year German government bonds is negative. In any case, selling US dollars would just push down the US currency’s exchange rate, which would benefit US exporters and further hurt Chinese companies already penalised by US tariffs – hardly the ideal outcome in a trade war. Nor would funding hard assets work. China has tried that with its Belt and Road Initiative . Even according to the most generous estimates, current investments and future commitments come to less than US$200 billion. That’s already causing massive capacity problems. There’s no way China could attempt to invest US$1.1 trillion in short order and ever get its money back. scmp.com