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> 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

by 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
        You still have your blinders on. Where did I say that the treasure had to borrow money? It creates money out of thin air. What I implied is that creating too much money raises inflation and reduces its credibility, i.e. it can't do it in an unlimited manner.
        jordanb 2mo ago
        You never said the Treasury has to borrow this money. I'm saying the Treasury has to borrow this money. The Treasury does not have the ability to "create money out of thin air." That is not how any of this works. The treasury, when it buys something, does so either by using tax receipts or by issuing bonds. The tax receipts are spent. The Treasury is issuing bonds. The Fed could create money and use it to buy Treasury bonds on the open market, as part of its Open Market Activities to manage interest rates (which is exactly what it would do if the Japanese sold US treasuries) Ironically, the law actually forbids the Fed from buying bonds directly from the treasury, so the treasury has to float the bonds and then have the Fed buy them off the open market if it chooses to do so. So again you can see how insane this move by the US Treasury is.
maxglute 2mo ago
Yield is determined by market demand, overwhelmingly by institutional (central banks) who were marginal buyers, i.e. when USD was geopolitically safe, countries/central banks would buy without question for liquidity which artificially lowered rates. Now US fucked around with USD geopolitics, institutional buyers crowding to gold/commodities leaving private buyers (hedge funds etc) to fill demand hole, and private buyers demand higher yields because they buy for returns not liquidity. This why US debt servicing exploding - FED selling to more discerning market buyers and less to unquestioning institutional buyers. Where PRC comes in is they have large amount of USD reserves (and shadow USD from trade) used to parallel lend to governments (BRI etc) which replaces marginal FED USD demand with recycled PRC USD supply, which forces FEDS to find more market buyers, by increasing rates further to clear auctions. Every USD from PRC reserves that goes towards bilateral lending is one not bought from FED that has be be replaced by market buyer at higher yields. Net effect is PRC has functional influence over US treasury yield. Now fed has infinite power to move slider to compete on yield... but in practice that slider can only go the direction that makes US debt servicing more onerous. PRC leverage (JP limited geopolitically) = FED has little power to reverse debt trap but some power to go broke faster. Some power because at some point of $$$ brrrt printing buyers will realize US may not be able to honor commitments and price risk accordingly.

by jordanb 2mo ago

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
      You still have your blinders on. Where did I say that the treasure had to borrow money? It creates money out of thin air. What I implied is that creating too much money raises inflation and reduces its credibility, i.e. it can't do it in an unlimited manner.
      - jordanb 2mo ago
        You never said the Treasury has to borrow this money. I'm saying the Treasury has to borrow this money. The Treasury does not have the ability to "create money out of thin air." That is not how any of this works. The treasury, when it buys something, does so either by using tax receipts or by issuing bonds. The tax receipts are spent. The Treasury is issuing bonds. The Fed could create money and use it to buy Treasury bonds on the open market, as part of its Open Market Activities to manage interest rates (which is exactly what it would do if the Japanese sold US treasuries) Ironically, the law actually forbids the Fed from buying bonds directly from the treasury, so the treasury has to float the bonds and then have the Fed buy them off the open market if it chooses to do so. So again you can see how insane this move by the US Treasury is.

maxglute 2mo ago

Yield is determined by market demand, overwhelmingly by institutional (central banks) who were marginal buyers, i.e. when USD was geopolitically safe, countries/central banks would buy without question for liquidity which artificially lowered rates. Now US fucked around with USD geopolitics, institutional buyers crowding to gold/commodities leaving private buyers (hedge funds etc) to fill demand hole, and private buyers demand higher yields because they buy for returns not liquidity. This why US debt servicing exploding - FED selling to more discerning market buyers and less to unquestioning institutional buyers. Where PRC comes in is they have large amount of USD reserves (and shadow USD from trade) used to parallel lend to governments (BRI etc) which replaces marginal FED USD demand with recycled PRC USD supply, which forces FEDS to find more market buyers, by increasing rates further to clear auctions. Every USD from PRC reserves that goes towards bilateral lending is one not bought from FED that has be be replaced by market buyer at higher yields. Net effect is PRC has functional influence over US treasury yield. Now fed has infinite power to move slider to compete on yield... but in practice that slider can only go the direction that makes US debt servicing more onerous. PRC leverage (JP limited geopolitically) = FED has little power to reverse debt trap but some power to go broke faster. Some power because at some point of $$$ brrrt printing buyers will realize US may not be able to honor commitments and price risk accordingly.