4 ms·

>Selling off their treasuries more aggressively would do damage Er, who's gonna buy them? Interest rates have risen significantly since they were issued so the

>Selling off their treasuries more aggressively would do damage Er, who's gonna buy them? Interest rates have risen significantly since they were issued so they would be selling at a big discount.

jerf 4y ago
That's the damage; reducing demand even more. Remember that when the United States Treasury is selling their treasuries, they're selling into the same market. Crashing demand leaves the Treasury unable to raise money. And then the second-order effect of this in a derivative-riddled market causes its own havoc. Part of the reason they don't fire this gun is precisely that they'd lose out on a lot of value. But then, what do they do if the US signals strongly that it is going to go ahead and inflate the currency sharply, meaning they're only going to get a de facto big discount anyhow? And I don't mean that as a simple question, where I'm implying a certain answer I'm trying to convince you of. You have to game this out like a game of chess, where this cascades out into a huge decision tree. The tree has gotten complicated lately. Taking economic damage to deal your enemy a bigger economic blow is getting disturbingly close to a rational move lately, in cold global realpolitik terms. Would China be willing to bet they could roil the US in enough domestic chaos that US leadership would become uninterested in stopping their incursion into Taiwan, even if it meant taking a hit themselves? I'm not saying the answer is "yes". I'm saying "the answer is a lot more complicated than it was a decade ago".
- lordfrito 4y ago
  > That's the damage; reducing demand even more Not saying your pet theory is wrong. But it does sound a lot like cutting off your nose to spite your enemies face.
  - jerf 4y ago
    The key element you're missing in that analogy is that a lot of this failure and damage is going to occur anyhow. Economic fragility is baked into the cake. We're looking at a down cycle for everyone here. There's no option where we all hold hands together in happy harmony and the economy just keeps going up for everybody, or likely, we'd take it or some approximation of it. In this environment, weighing out whether you can cause proportionally more damage in your enemy's collapse by some action or other becomes distressingly rational. Contemplate a payout matrix that looks like the Prisoner's Dilemma, except the payout for snitching while the other player doesn't is still negative, instead of zero. If that's your game theoretic situation, complaining that a player took an option with an expected negative payout is a null objection. There was no alternative. So the game changes. This is part of why I say it's different than a decade ago. We did have some approximation of a hold-hands-and-be-happy option and we did take it. One can quibble about the details; I'm definitely on team "can was kicked down the road" rather than "everything was fixed, hooray", but hey, that's debatable.
    - lordfrito 4y ago
      I get what you're saying. The Chinese would hurt the US economy by a mass sell-off of Treasuries, but they'd be dropping a bomb into their own economy as well. Alternatively, they could ramp-up to some sort of a localized/proxy hot conflict, and get their military-industrial base firing on all cylinders. It was WWII spending that pulled the US out of the depression. The wikipedia article on war economy [1] says "War is often used as a last ditch effort to prevent deteriorating economic conditions or currency crises, particularly by expanding services and employment". I find it difficult to believe that any sane nation-state would purposely bomb their own economy just to hurt an enemy, when a much better option exists economically (war footing). Likely what China would do would be a combination of the two. Still it's food for thought. Our economies are definitely intertwined, and there are levers that can be pulled. [1] https://en.wikipedia.org/wiki/War_economy https://en.wikipedia.org/wiki/War_economy
      - jerf 4y ago
        The news is moving quickly, and now I can show you an example of someone hurting themselves to hurt someone else more that has happened just since this discussion: https://www.cnbc.com/2023/03/15/credit-suisse-shares-slide-after-saudi-backer-rules-out-further-assistance.html https://www.cnbc.com/2023/03/15/credit-suisse-shares-slide-a... The Saudi National Bank was not obligated to give Credit Suisse more money; that is not what I'm talking about. They are not obligated to send good money after bad. However, they were also not obligated to internationally announce that they in particular aren't giving them any more money. This is transparently obviously stupid; even without giving them more investment if they wanted to maximize the value of what was left, they shouldn't have said anything. This is not the same magnitude by any means as China selling off treasuries, but it demonstrates what I'm talking about here, that it is becoming distressingly rational realpolitik to hurt yourself if it hurts someone else more. A BRICS ally taking a bit of damage (not even a lot necessarily, I mean, the expected value of that investment wasn't that high anyhow, but they just conclusively nuked it) in order to topple a Global Systemically Important Bank in the West might just suit them fine.
        4y ago

>Selling off their treasuries more aggressively would do damage Er, who's gonna buy them? Interest rates have risen significantly since they were issued so they would be selling at a big discount.

jerf 4y ago

That's the damage; reducing demand even more. Remember that when the United States Treasury is selling their treasuries, they're selling into the same market. Crashing demand leaves the Treasury unable to raise money. And then the second-order effect of this in a derivative-riddled market causes its own havoc. Part of the reason they don't fire this gun is precisely that they'd lose out on a lot of value. But then, what do they do if the US signals strongly that it is going to go ahead and inflate the currency sharply, meaning they're only going to get a de facto big discount anyhow? And I don't mean that as a simple question, where I'm implying a certain answer I'm trying to convince you of. You have to game this out like a game of chess, where this cascades out into a huge decision tree. The tree has gotten complicated lately. Taking economic damage to deal your enemy a bigger economic blow is getting disturbingly close to a rational move lately, in cold global realpolitik terms. Would China be willing to bet they could roil the US in enough domestic chaos that US leadership would become uninterested in stopping their incursion into Taiwan, even if it meant taking a hit themselves? I'm not saying the answer is "yes". I'm saying "the answer is a lot more complicated than it was a decade ago".

lordfrito 4y ago
> That's the damage; reducing demand even more Not saying your pet theory is wrong. But it does sound a lot like cutting off your nose to spite your enemies face.
- jerf 4y ago
  The key element you're missing in that analogy is that a lot of this failure and damage is going to occur anyhow. Economic fragility is baked into the cake. We're looking at a down cycle for everyone here. There's no option where we all hold hands together in happy harmony and the economy just keeps going up for everybody, or likely, we'd take it or some approximation of it. In this environment, weighing out whether you can cause proportionally more damage in your enemy's collapse by some action or other becomes distressingly rational. Contemplate a payout matrix that looks like the Prisoner's Dilemma, except the payout for snitching while the other player doesn't is still negative, instead of zero. If that's your game theoretic situation, complaining that a player took an option with an expected negative payout is a null objection. There was no alternative. So the game changes. This is part of why I say it's different than a decade ago. We did have some approximation of a hold-hands-and-be-happy option and we did take it. One can quibble about the details; I'm definitely on team "can was kicked down the road" rather than "everything was fixed, hooray", but hey, that's debatable.
  - lordfrito 4y ago
    I get what you're saying. The Chinese would hurt the US economy by a mass sell-off of Treasuries, but they'd be dropping a bomb into their own economy as well. Alternatively, they could ramp-up to some sort of a localized/proxy hot conflict, and get their military-industrial base firing on all cylinders. It was WWII spending that pulled the US out of the depression. The wikipedia article on war economy [1] says "War is often used as a last ditch effort to prevent deteriorating economic conditions or currency crises, particularly by expanding services and employment". I find it difficult to believe that any sane nation-state would purposely bomb their own economy just to hurt an enemy, when a much better option exists economically (war footing). Likely what China would do would be a combination of the two. Still it's food for thought. Our economies are definitely intertwined, and there are levers that can be pulled. [1] https://en.wikipedia.org/wiki/War_economy https://en.wikipedia.org/wiki/War_economy
    - jerf 4y ago
      The news is moving quickly, and now I can show you an example of someone hurting themselves to hurt someone else more that has happened just since this discussion: https://www.cnbc.com/2023/03/15/credit-suisse-shares-slide-after-saudi-backer-rules-out-further-assistance.html https://www.cnbc.com/2023/03/15/credit-suisse-shares-slide-a... The Saudi National Bank was not obligated to give Credit Suisse more money; that is not what I'm talking about. They are not obligated to send good money after bad. However, they were also not obligated to internationally announce that they in particular aren't giving them any more money. This is transparently obviously stupid; even without giving them more investment if they wanted to maximize the value of what was left, they shouldn't have said anything. This is not the same magnitude by any means as China selling off treasuries, but it demonstrates what I'm talking about here, that it is becoming distressingly rational realpolitik to hurt yourself if it hurts someone else more. A BRICS ally taking a bit of damage (not even a lot necessarily, I mean, the expected value of that investment wasn't that high anyhow, but they just conclusively nuked it) in order to topple a Global Systemically Important Bank in the West might just suit them fine.
      - 4y ago