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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
by 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 agoYou 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 agoExactly 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.