I don’t grasp basic economics. Can someone help me understand what Japan selling these US Treasuries would mean? Doesn’t someone else have to buy them?
When foreign countries buy those US Treasuries, basically they are as if the US borrowed money from those foreign countries (ie foreign country gives the US money and the US promises to pay interest over time on that money, and to give back that money in the end. In this case it is said that foreign country “bought” US debt). This helps keep the value of the US dollar where it is (in other words, highly desirable). If foreign countries stop buying those US Treasuries or — worse — start selling them, it is as if those countries are taking their money back. Because the dollar becomes less desirable in that scenario, then the US has to jack up interest rates to make the dollar attractive to buyers again. For the people on the street, this results in higher interest rates on loans, credit cards, and mortgages. Companies face higher costs to borrow money and some have to fire people and/or reduce/close business.
In short, Trump thinks that he has leverage on foreign nations by affecting how they trade with the USA, but he doesn’t realize that foreign nations have immense ability to wreck the dollar if they are forced to do so by no longer giving their money in exchange of US debt.
Japan holds a trillion dollars of US debt in the form of bonds. If they sell the bonds, it increases the supply and lowers demand so to be more attractive the bond interest rates must increase. If the interest rates increase it means that the US must pay more towards paying down the national debt that it currently does. That means US interest rates will increase and the average American will have to pay more in loan and mortgage payments than ever, causing people to abandon homes and cars, and the value of the US dollar will crash. This will lead to a new depression.
That’d be a reasonable tool. Unfortunately, we do not live in reasonable times.
Loooooooooool
This is the geoeconomic equivalent of using the canned sunshine. And I can’t say it’s not justified.
What a degenerate abasement of the levers of policy : “cards” and “big things”.
We reap what we sow.
So if I believe that the US won’t go bankrupt it might mean a good opportunity to buy US bonds at a high interest rates…
The problem is that the high interest rate would trigger the debt ceiling and the USA may actually default on its debt
Good luck finding a trillion dollars. This tool is also used by the EU, South Korea, Canada and China. Good luck finding 7 trillion dollars.
