[Puffer Fish]

Which is it? A foreign government buying up US debt instruments is bad, or selling them?

An analogy would be like asking which is worse, borrowing lots of money on a credit card or paying it back?

Both are integrally connected and part of the same process and issue.


Obviously a foreign government holding lots of US debt is only bad because that money will or may have to be paid back at some point.

And likewise obviously a foreign government holding lots of US dollars is only bad because what they are going to do with those US dollars. Those US dollars represent eventual purchasing power that has been diverted to that foreign country.

[Puffer Fish]

The U.S. isn't expecting or prepared to pay back all that money to China. The U.S. was expecting China to buy new Treasury debt as the old ones came due, to maintain an overall level that would not change too much.

It's going to come as shock to the U.S. economy and put a strain on the Treasury and government budget if China decides to let all that debt just gradually become due and suddenly ceases buying new debt to replace it. Or even if China just sold all their U.S. debt on the open market, that would still have a similar effect, since it would suppress the demand for Treasury debt on the market. (People will buy less U.S. debt from the U.S. government if they can buy that U.S. debt from China) It comes down to an issue of cash balance for the Treasury.

[Puffer Fish]

Basically, if China is experiencing an inflation problem (devaluing on the yuan), they're going to use the reserve of dollars they hold to try to dump that problem off on the U.S.
(so it will be inflation hitting the dollar instead of the yuan)

This will of course help them, but at the expense of the U.S., whom they care very little about. But it is about the U.S. paying back what they owe.

[Rancid]

The U.S. was expecting China to buy new Treasury debt as the old ones came due

evidence?

Anyway, this story of China (and other governments) selling off it's US debt is repeated over and over and over every year.

Conservatives have gold fish memory. As a result, easy to manipulate and jerk around with inconsistent ideas.

[Puffer Fish]

evidence?

I did not mean literally and specifically, but in general.

I wonder whether you really understand what I am saying.

It's oftentimes very difficult to make specific statements in economics that are entirely correct, without the statements becoming so long and complicated it becomes difficult to easily understand their meaning.

The question is, when China reduces its holdings of U.S. debt, where is that money going to come from? How will the US deal with that cash flow problem?

[Puffer Fish]

Some will talk about "the end of the Petrodollar".

Americans may remember how from about 1995 to 2011 the U.S. was importing all sorts of cheaply made goods from China, and how practically every consumer item sold in the U.S. had a "made in China" label on it. The U.S. ran a big trade deficit with China at that time. So that's how China got so much money from the U.S.
After some point in time, more oil from Saudi Arabia began going to China than going to the U.S. ... China has the money to buy it now.
As of 2020, 77% of Saudi Arabian oil being sold was going to other countries in Asia.
Just for comparison, in 1990 the U.S. imported about 1.5 million barrels of oil from Saudi Arabia a day. After 2020, that was down to only 450,000.