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As I understand it, other countries' "belief in our debt" has little to do with their treasury holding levels. All countries that net export products to the US

As I understand it, other countries' "belief in our debt" has little to do with their treasury holding levels. All countries that net export products to the US tend to end up owning T-bills proportionate to their export surplus. This is because their banks end up with a bunch of US-Dollar-denominated cash from exchanges by the exporting companies, and getting a return of even 1.5% (our 2-year interest rate) is better than 0% on cash. The treasury level rising and falling is not usually intentional or by itself sinister, merely a byproduct of a fluctuating export surplus. This article has a nice illustration of the process: https://www.theatlantic.com/business/archive/2011/03/infographic-how-china-manipulates-its-currency/73201/ https://www.theatlantic.com/business/archive/2011/03/infogra... https://www.theatlantic.com/business/archive/2011/03/infographic-how-china-manipulates-its-currency/73201/ https://www.theatlantic.com/business/archive/2011/03/infogra...

eof 7y ago
One does not follow from the other. Your explanation would only make sense if the only two choices are keep cash or buy US debt. Of course their holdings have to do with their belief in US debt, those dollars could be spent on many things.
- qroshan 7y ago
  You have to be careful about that sentence. The only other options is to sell $ for another currency. Anything that they buy things that are denominated in $ are usually US imports hence goes back to the net export calculation. Of course they can also use to buy global commodities like Gold, Oil which are denominated in $$, but that is just a proxy for selling $ in foreign exchange and using that currency. So, logically only 2 options. Sell US $ in FX or buy US assets (Bonds, Stocks, Real Estate)
  - largbae 7y ago
    Exactly right. Also you need to think about the sheer amount of dollars that China and Japan have. There are only so many investments that can give you a return on 1 trillion dollars without significantly adding to the risk of losing the principal. Treasury bills are essentially no more risky than the cash that you trade for them.
qroshan 7y ago
They can always sell dollars in foreign exchange for other currencies, local currencies or gold or bitcoin. The reason they hold $ is a 'belief in our currency won't inflate' (by monetizing debt) which implies 'belief in our debt' If China is a net exporter to Argentina or Venezuela, rest assured they are selling those currencies as fast as they can
- option_greek 7y ago
  Actually they don't even let them settle in their own currency. Almost all of the global trade happens in dollar or euro or yen. Even loans between countries happen in these currencies along with interest payments.
- joe_the_user 7y ago
  It's not a belief our currency won't inflate, it's a belief our currency won't inflate or lose value any more than other vehicles. Note that even gold "inflates" through the production of gold mines - and gold miners produce more as the price of gold (in dollars or equivalents) rises so mining serves as a check on the relative value of gold.
  - whatshisface 7y ago
    Some definite inflation to mean slipping value relative to a benchmark basket of goods, in which case I think gold has historically been deflationary.
  - roenxi 7y ago
    Well sorta. In real terms, the price of gold is anchored to the amount of energy required to mine a kilo of gold with a sustainable margin. That quantity doesn't change very much (in real terms) over time. Compare that to, say, American dollars, where we expect at some point (hopefully not in the next few decades) the government will lose its discipline and allow the dollar's value to drop to 0, its true marginal cost of production. My memory is the vast majority of governments have cracked on that score, sooner or later. Really it reflects a belief in the as-observed-in-the-market marginal cost to produce, which is easier to think about than inflation. It also explains bitcoin and shows how important the large pool of mining power is.
vaguesortof 7y ago
Wish that article finished with why this is good or bad for America, what real effects it has..
- jjeaff 7y ago
  I can tell you some reasons it's not bad. You commonly hear about how we are indebted China or whoever and because of that, they wield power over us. This isn't loan shark style debt. The US holds all the cards in this case. It's sort of like, the mantra, "if you owe the bank millions of dollars, it's your problem". If you owe them billions, it's their problem. The US could even pay back that debt with money they themselves issued if needed.
  - n0t-satoshi 7y ago
    "The US could even pay back that debt with money they themselves issued if needed." Hyperinflation is effectively defaulting. No one will give credit to those who pay with Monopoly money.
    - deleted 7y ago
      [deleted]
    - laser 7y ago
      Taking debt to pay back debt does not automatically lead to hyperinflation. The US federal government currently takes debt every year to pay off debt. That's sustainable so long as these payments stay a relatively small percentage of the total revenue. Unfortunately, as debt to GDP ratio continues to rise, if inflation drives interest rates to rise, things can get messy pretty quickly.
    - RobertoG 7y ago
      Most (all of them?) episodes of hyperinflation, including the infamous Weimar Republic and Zimbabwe, are not caused by "printing" too much money, but by a fall in the productive capacity of the economy. Here, Zimbabwe for hyperventilators: http://bilbo.economicoutlook.net/blog/?p=3773 http://bilbo.economicoutlook.net/blog/?p=3773
billions 7y ago
Soon you'll have the option to choose the currency of choice for your savings account (Cryptocurrencies included)
- Gustomaximus 7y ago
  I have that with my trading account but I can't see banks offering that as standard. There's too much risk to open this widely.
deleted 7y ago
[deleted]

eof 7y ago

One does not follow from the other. Your explanation would only make sense if the only two choices are keep cash or buy US debt. Of course their holdings have to do with their belief in US debt, those dollars could be spent on many things.

qroshan 7y ago
You have to be careful about that sentence. The only other options is to sell $ for another currency. Anything that they buy things that are denominated in $ are usually US imports hence goes back to the net export calculation. Of course they can also use to buy global commodities like Gold, Oil which are denominated in $$, but that is just a proxy for selling $ in foreign exchange and using that currency. So, logically only 2 options. Sell US $ in FX or buy US assets (Bonds, Stocks, Real Estate)
- largbae 7y ago
  Exactly right. Also you need to think about the sheer amount of dollars that China and Japan have. There are only so many investments that can give you a return on 1 trillion dollars without significantly adding to the risk of losing the principal. Treasury bills are essentially no more risky than the cash that you trade for them.

qroshan 7y ago

They can always sell dollars in foreign exchange for other currencies, local currencies or gold or bitcoin. The reason they hold $ is a 'belief in our currency won't inflate' (by monetizing debt) which implies 'belief in our debt' If China is a net exporter to Argentina or Venezuela, rest assured they are selling those currencies as fast as they can

option_greek 7y ago
Actually they don't even let them settle in their own currency. Almost all of the global trade happens in dollar or euro or yen. Even loans between countries happen in these currencies along with interest payments.
joe_the_user 7y ago
It's not a belief our currency won't inflate, it's a belief our currency won't inflate or lose value any more than other vehicles. Note that even gold "inflates" through the production of gold mines - and gold miners produce more as the price of gold (in dollars or equivalents) rises so mining serves as a check on the relative value of gold.
- whatshisface 7y ago
  Some definite inflation to mean slipping value relative to a benchmark basket of goods, in which case I think gold has historically been deflationary.
- roenxi 7y ago
  Well sorta. In real terms, the price of gold is anchored to the amount of energy required to mine a kilo of gold with a sustainable margin. That quantity doesn't change very much (in real terms) over time. Compare that to, say, American dollars, where we expect at some point (hopefully not in the next few decades) the government will lose its discipline and allow the dollar's value to drop to 0, its true marginal cost of production. My memory is the vast majority of governments have cracked on that score, sooner or later. Really it reflects a belief in the as-observed-in-the-market marginal cost to produce, which is easier to think about than inflation. It also explains bitcoin and shows how important the large pool of mining power is.

vaguesortof 7y ago

Wish that article finished with why this is good or bad for America, what real effects it has..

jjeaff 7y ago
I can tell you some reasons it's not bad. You commonly hear about how we are indebted China or whoever and because of that, they wield power over us. This isn't loan shark style debt. The US holds all the cards in this case. It's sort of like, the mantra, "if you owe the bank millions of dollars, it's your problem". If you owe them billions, it's their problem. The US could even pay back that debt with money they themselves issued if needed.
- n0t-satoshi 7y ago
  "The US could even pay back that debt with money they themselves issued if needed." Hyperinflation is effectively defaulting. No one will give credit to those who pay with Monopoly money.
  - deleted 7y ago
    [deleted]
  - laser 7y ago
    Taking debt to pay back debt does not automatically lead to hyperinflation. The US federal government currently takes debt every year to pay off debt. That's sustainable so long as these payments stay a relatively small percentage of the total revenue. Unfortunately, as debt to GDP ratio continues to rise, if inflation drives interest rates to rise, things can get messy pretty quickly.
  - RobertoG 7y ago
    Most (all of them?) episodes of hyperinflation, including the infamous Weimar Republic and Zimbabwe, are not caused by "printing" too much money, but by a fall in the productive capacity of the economy. Here, Zimbabwe for hyperventilators: http://bilbo.economicoutlook.net/blog/?p=3773 http://bilbo.economicoutlook.net/blog/?p=3773

billions 7y ago

Soon you'll have the option to choose the currency of choice for your savings account (Cryptocurrencies included)

Gustomaximus 7y ago
I have that with my trading account but I can't see banks offering that as standard. There's too much risk to open this widely.

deleted 7y ago

[deleted]