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I'm not very familiar with this issue but could you please explain how China can soak up $1T of LIQUIDITY when most of this $1T is, as I understand it, in bonds
by abduhl 11y ago
I'm not very familiar with this issue but could you please explain how China can soak up $1T of LIQUIDITY when most of this $1T is, as I understand it, in bonds. Wouldn't this debt being in bonds mean that 1) there is a schedule of payments that have already been accounted for in the budget and 2) that they cannot "call in" the debt?
Certainly China could refuse to buy additional bonds that we put out which may impact liquidity but there are always buyers for US debt - Japan was the largest foreign holder of US debt just last year.
- jcoffland 11y agoChina can sell US bonds to buyers for slightly less than the US government. This would actually create more liquidity in the US bond market but effectively reduce the US government's ability to finance more debt. The US government would have to sell bonds even cheaper to finance more debt. Whether this would have a big effect would depend on a lot of other factors but it's a significant playing card in the Chinese hand.
- foxhedgehog 11y agoReplied above, but the secondary bond market is liquid enough to absorb this event over the time period required.