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Either they spent euro reserves or bought euros with dollars so that's kinda irrelevant. This thread kicked off with an incorrect belief that Japan had leverag

by jordanb 2mo ago

Either they spent euro reserves or bought euros with dollars so that's kinda irrelevant. This thread kicked off with an incorrect belief that Japan had leverage over the US with some threat to spend reserves. That leverage doesn't really exist because it can not have any more effect on the American fiscal position than the one the Treasury just took. In fact the Treasury is helping Japan maintain a stronger fiscal position by not forcing them to liquidate reserves to protect the yen. Instead the Treasury is using it's own balance sheet to protect the yen which is bonkers from a monetary "america first" perspective and it only makes sense within the context of the Trump administration protecting the Takaichi government from a crisis caused by Trump's war in Iran.

don_esteban 2mo ago
We are going in circles. Anybody with large enough holding of US treasuries has leverage over the US: Large selling of those treasures will raise the yield on them, which is the last thing the US in its current situation needs. Of course, such selling will crash the treasuries, incurring huge losses to the seller. Still, hoping/pretending there is no leverage is closing your eyes to the reality. Reciprocally, US has capability to screw over such large holders by inflating itself out of debt, leaving them holding worthless paper/bits. That's why China has been carefully riding itself out of treasuries for years.
- jordanb 2mo ago
  > Anybody with large enough holding of US treasuries has leverage over the US: Large selling of those treasures will raise the yield on them, which is the last thing the US in its current situation needs. No Japan or China or anyone else who owns treasuries can not control the yield on the US Treasuries because that is controlled by the Fed. The Fed has near infinite power to intervene to make the treasury yields be what they want. If a country had a lot of US reserves they could increase the supply of dollars on the international markets through a lot of selling. But this is essentially what the US treasury is doing by using dollars to buy yen (with an extra step through Euros to make it more politically palatable) Your mistake is assuming that the dollar supply and the treasury yield isn't a slider that can be zipped back and forth by the Fed.
  - don_esteban 2mo ago
    > No Japan or China or anyone else who owns treasuries can not control the yield on the US Treasuries because that is controlled by the Fed. The Fed has near infinite power to intervene to make the treasury yields be what they want. No. The yield is determined by what the buyers demand. The Fed can distort the market by buying treasures themselves. But that is not near infinite power. It fuels inflation and reduces credibility -> investors demand higher yields anyway. It can use other tricks (like 'leaked' Besson's memo), but those also have their limits.
    - jordanb 2mo ago
      > The yield is determined by what the buyers demand Your mistake is misunderstanding the power central banks have in managing these assets. The Fed can make the yield whatever it wants. The Fed potentially has reasons to let the yield be high but it's a choice. > The Fed can distort the market by buying treasures themselves What you call "distorting the market" the Fed would call something like "setting the parameters of the market". Regardless if you're ideologically opposed to the Fed actively managing the market for treasuries. The fact is that they can, and they do. > inflation and reduces credibility So you admit that the Fed has this power but they just choose not to exercise it? In any case, the Treasury's actions "fuels inflation" every bit as much as any intervention the Fed might take in the bond market.
      - don_esteban 2mo ago
        To me it seems that you are ideologically opposed to anybody having the leverage over Fed, and believe Fed has overpowered magic. There is no point repeating what maxglute wrote above. > So you admit that the Fed has this power but they just choose not to exercise it? Fed has the ability to buy as much treasuries as it wants. However, the power of that ability is limited, especially in situation like we are now, with rising inflation, high debt and dubious US credibility.
        jordanb 2mo ago
        By the way the final thing you appear to not be understanding is that the Treasury had to borrow money to buy those yen. What do you think gets issued when the US Treasury borrows money?
don_esteban 2mo ago
Hm, maybe this is your misunderstanding: - the fiscal position (the amount of debt the US owes) does not change by Japan selling the US treasures to other (non US) party - but the party that bought the treasures from Japan will not be buying them from US, hence diminishing the demand for them, therefore raising the yield
- jordanb 2mo ago
  * Japan liquidating its reserves to protect the Yen and its effect on US treasury yield or anything else can easily be undone by the Fed, if so desired. With an impact on the Fed's balance sheet for sure, but at a cost to Japan of liquidating its reserves * Instead the US Treasury intervened to protect the Yen, allowing Japan to maintain its reserves while there still ended up being balance sheet consequences for the US

by jordanb 2mo ago

don_esteban 2mo ago

We are going in circles. Anybody with large enough holding of US treasuries has leverage over the US: Large selling of those treasures will raise the yield on them, which is the last thing the US in its current situation needs. Of course, such selling will crash the treasuries, incurring huge losses to the seller. Still, hoping/pretending there is no leverage is closing your eyes to the reality. Reciprocally, US has capability to screw over such large holders by inflating itself out of debt, leaving them holding worthless paper/bits. That's why China has been carefully riding itself out of treasuries for years.

jordanb 2mo ago
> Anybody with large enough holding of US treasuries has leverage over the US: Large selling of those treasures will raise the yield on them, which is the last thing the US in its current situation needs. No Japan or China or anyone else who owns treasuries can not control the yield on the US Treasuries because that is controlled by the Fed. The Fed has near infinite power to intervene to make the treasury yields be what they want. If a country had a lot of US reserves they could increase the supply of dollars on the international markets through a lot of selling. But this is essentially what the US treasury is doing by using dollars to buy yen (with an extra step through Euros to make it more politically palatable) Your mistake is assuming that the dollar supply and the treasury yield isn't a slider that can be zipped back and forth by the Fed.
- don_esteban 2mo ago
  > No Japan or China or anyone else who owns treasuries can not control the yield on the US Treasuries because that is controlled by the Fed. The Fed has near infinite power to intervene to make the treasury yields be what they want. No. The yield is determined by what the buyers demand. The Fed can distort the market by buying treasures themselves. But that is not near infinite power. It fuels inflation and reduces credibility -> investors demand higher yields anyway. It can use other tricks (like 'leaked' Besson's memo), but those also have their limits.
  - jordanb 2mo ago
    > The yield is determined by what the buyers demand Your mistake is misunderstanding the power central banks have in managing these assets. The Fed can make the yield whatever it wants. The Fed potentially has reasons to let the yield be high but it's a choice. > The Fed can distort the market by buying treasures themselves What you call "distorting the market" the Fed would call something like "setting the parameters of the market". Regardless if you're ideologically opposed to the Fed actively managing the market for treasuries. The fact is that they can, and they do. > inflation and reduces credibility So you admit that the Fed has this power but they just choose not to exercise it? In any case, the Treasury's actions "fuels inflation" every bit as much as any intervention the Fed might take in the bond market.
    - don_esteban 2mo ago
      To me it seems that you are ideologically opposed to anybody having the leverage over Fed, and believe Fed has overpowered magic. There is no point repeating what maxglute wrote above. > So you admit that the Fed has this power but they just choose not to exercise it? Fed has the ability to buy as much treasuries as it wants. However, the power of that ability is limited, especially in situation like we are now, with rising inflation, high debt and dubious US credibility.
      - jordanb 2mo ago
        By the way the final thing you appear to not be understanding is that the Treasury had to borrow money to buy those yen. What do you think gets issued when the US Treasury borrows money?

don_esteban 2mo ago

Hm, maybe this is your misunderstanding: - the fiscal position (the amount of debt the US owes) does not change by Japan selling the US treasures to other (non US) party - but the party that bought the treasures from Japan will not be buying them from US, hence diminishing the demand for them, therefore raising the yield

jordanb 2mo ago
* Japan liquidating its reserves to protect the Yen and its effect on US treasury yield or anything else can easily be undone by the Fed, if so desired. With an impact on the Fed's balance sheet for sure, but at a cost to Japan of liquidating its reserves * Instead the US Treasury intervened to protect the Yen, allowing Japan to maintain its reserves while there still ended up being balance sheet consequences for the US