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A mass selloff of US bonds will mean that the US can’t sell any more - because the market is suddenly flooded with bonds at a ‘discount’. This means that the US

A mass selloff of US bonds will mean that the US can’t sell any more - because the market is suddenly flooded with bonds at a ‘discount’. This means that the US can’t take on any more debt (borrow money) Why would you pay the US $10 when you can get the same thing from France for $8? Or the US then has to issue bonds with massively inflated returns - i.e. pay a much higher interest rate.

drysine 9mo ago
>This means that the US can’t take on any more debt (borrow money) They can literally print them
kyboren 9mo ago
This idea of waging financial war on the US seems very en vogue in Europe right now, but I think it's terribly shortsighted. Here's how I think it would go down: 1. EU countries coordinate a mass selloff of US debt, somehow even coercing private holders into a fire sale. 2. US bond prices consequently fall. EU holders lose tons of money on the sell side. US and Asian buyers rush to buy and get a sweetheart deal and massive risk-free returns, which starts crashing the stock market. 3. The Fed intervenes. They conjure up dollars from nothing and buy the bonds EU holders are selling at some discount, maybe 95 cents on the dollar. Those new dollars go into those countries' and banks' Master accounts at the Fed. 4a. EU countries' and banks' Master accounts are frozen. Maybe some portion of the funds are released every week in order to allow an orderly flow of value without too much market distortion. Or maybe given the act of financial war, those funds remain frozen indefinitely. 4b. Alternatively, their Master accounts are not frozen. Now, presumably EU didn't sell all their bonds just to hold non-yielding dollars. So they'll go to the forex markets and buy up Euros, massively strengthening the Euro and fucking up their export-based economies. Maybe they buy gold, or EU sovereign debt, or ECB steps in with mad QE. EU bond yields crater. EU holders lose more money on the buy side as whatever assets they purchase get more expensive. Inflation ensues. 5. US is furious and retaliates with financial warfare of their own. Or perhaps kinetic warfare. The ringleaders of the fire sale end up blindfolded and earmuffed on a US warship. 6. EU is in a much worse position than before, lost a ton of money on each leg, likely had tons more frozen, has pernicious inflation and/or diminished exports, cut off from the dollar system making currency reserve management and forex difficult and costly. The US is also now furious and looking to impose additional costs on EU however and wherever it can.
- dybber 9mo ago
  EU has a much better tool ready, the anti coercion instrument. Party leaders in EU have been talking over the weekend about deploying it. https://en.wikipedia.org/wiki/Anti-Coercion_Instrument https://en.wikipedia.org/wiki/Anti-Coercion_Instrument
TurdF3rguson 9mo ago
On the other hand, China sold off most of theirs and nobody even noticed. I think you're exaggerating both how much EU holds and the potential effects of them selling it.
- someNameIG 9mo ago
  Deutsche Bank made a statement recently that Europe holds about double what the rest of the world does combined in US bonds and equity.
  - TurdF3rguson 9mo ago
    Sure but we were talking about just debt. Also the "rest of the world" is basically just China. I don't think it's a shocker that China isn't interested in betting on US companies.
    - rsynnott 9mo ago
      Nah, China only holds about 600bn these days. Besides European sovereign holdings, most of the rest would be non-sovereign.
      - TurdF3rguson 9mo ago
        Yup, that's my point. They sold off lots of debt and nobody noticed so EU doing the same won't matter.
        drysine 9mo ago
        >and nobody noticed You didn't notice. Look at the interest rate chart[1] [1] https://fiscaldata.treasury.gov/interest-expense-avg-interest-rates/ https://fiscaldata.treasury.gov/interest-expense-avg-interes...
  - youngtaff 9mo ago
    Europe holds $8 trillion out of 38 trillion… they can move the market

drysine 9mo ago

>This means that the US can’t take on any more debt (borrow money) They can literally print them

kyboren 9mo ago

This idea of waging financial war on the US seems very en vogue in Europe right now, but I think it's terribly shortsighted. Here's how I think it would go down: 1. EU countries coordinate a mass selloff of US debt, somehow even coercing private holders into a fire sale. 2. US bond prices consequently fall. EU holders lose tons of money on the sell side. US and Asian buyers rush to buy and get a sweetheart deal and massive risk-free returns, which starts crashing the stock market. 3. The Fed intervenes. They conjure up dollars from nothing and buy the bonds EU holders are selling at some discount, maybe 95 cents on the dollar. Those new dollars go into those countries' and banks' Master accounts at the Fed. 4a. EU countries' and banks' Master accounts are frozen. Maybe some portion of the funds are released every week in order to allow an orderly flow of value without too much market distortion. Or maybe given the act of financial war, those funds remain frozen indefinitely. 4b. Alternatively, their Master accounts are not frozen. Now, presumably EU didn't sell all their bonds just to hold non-yielding dollars. So they'll go to the forex markets and buy up Euros, massively strengthening the Euro and fucking up their export-based economies. Maybe they buy gold, or EU sovereign debt, or ECB steps in with mad QE. EU bond yields crater. EU holders lose more money on the buy side as whatever assets they purchase get more expensive. Inflation ensues. 5. US is furious and retaliates with financial warfare of their own. Or perhaps kinetic warfare. The ringleaders of the fire sale end up blindfolded and earmuffed on a US warship. 6. EU is in a much worse position than before, lost a ton of money on each leg, likely had tons more frozen, has pernicious inflation and/or diminished exports, cut off from the dollar system making currency reserve management and forex difficult and costly. The US is also now furious and looking to impose additional costs on EU however and wherever it can.

dybber 9mo ago
EU has a much better tool ready, the anti coercion instrument. Party leaders in EU have been talking over the weekend about deploying it. https://en.wikipedia.org/wiki/Anti-Coercion_Instrument https://en.wikipedia.org/wiki/Anti-Coercion_Instrument

TurdF3rguson 9mo ago

On the other hand, China sold off most of theirs and nobody even noticed. I think you're exaggerating both how much EU holds and the potential effects of them selling it.

someNameIG 9mo ago
Deutsche Bank made a statement recently that Europe holds about double what the rest of the world does combined in US bonds and equity.
- TurdF3rguson 9mo ago
  Sure but we were talking about just debt. Also the "rest of the world" is basically just China. I don't think it's a shocker that China isn't interested in betting on US companies.
  - rsynnott 9mo ago
    Nah, China only holds about 600bn these days. Besides European sovereign holdings, most of the rest would be non-sovereign.
    - TurdF3rguson 9mo ago
      Yup, that's my point. They sold off lots of debt and nobody noticed so EU doing the same won't matter.
      - drysine 9mo ago
        >and nobody noticed You didn't notice. Look at the interest rate chart[1] [1] https://fiscaldata.treasury.gov/interest-expense-avg-interest-rates/ https://fiscaldata.treasury.gov/interest-expense-avg-interes...
- youngtaff 9mo ago
  Europe holds $8 trillion out of 38 trillion… they can move the market