August 10, 2022

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China’s move: This is how US debt is spent

China’s ownership of US debt has fallen by 9% in a year, control of Beijing has fallen below the trillion-dollar mark for the first time since 2010, and the trend is declining significantly. When we talk about the separation of the West and China, we talk a lot about the aspect associated with the choice of the United States and Europe to separate industrial value chains in critical sectors, less than the likely responses of the People’s Republic. His maneuver on US debt is the same answer: the latter Dedicated Treasury Debt Report It showed that China’s share of censored stars and tapes fell to $981 billion in May from $1 trillion in April. Japan, the number one holder of foreign debt in the United States, has also reduced its holdings, but to a lesser degree: they fell by 4% from May 2021 to May 2022 to settle at $1.21 trillion.

For many observers, in all likelihood, China unofficially owns more than a trillion dollars in Treasuries, the official share of which must be added to those owned through the work of intermediaries. Part of the debt held by Belgium, the eighth holder of $268 billion in US bonds, will be attributed to Beijing. But what matters is the political and symbolic data. First, in the era of Joe Biden is accelerating the trend of separation Two giants separated by the Pacific Ocean That even the Trump-era trade tug of war has made him so reckless: it shows how much competitive dynamism has now been cleared through customs.

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Second, China is gradually relinquishing its role as a “guarantor” of the utopian trade relationship with the United States, and maneuvering that began in 2009, with Barack Obama’s approval, to serve as a driver and catalyst for the global economy. In essence, during the Great Recession, China helped accelerate public spending and stimulate domestic demand, while buying debt from major Western countries to prop up their economies and rescue themselves from the effects of the crisis, with advanced economies being their main buyers. products. Today, this is no longer the case.

This leads us to the third point: domestic needs that motivate China to focus on defending the national economy and the yuan by favoring a draw over the secure annuity guaranteed by US T-Bonds year after year. Because of the new uncertainties and shutdowns, the Chinese economy suffered a major slowdown at the start of 2022. In China, “we’ve seen whole economic sectors that have actually stopped,” he said. Talk to Market Watch Gennadiy Goldberg of TD Securities. Now, Goldberg said, “China is gradually coming in with US Treasuries to defend its currency, the yuan, which has lost its value” as the dollar has also gotten stronger due to the global chaos unleashed by the war in Ukraine and its consequences. What China really wants to do is manage some of the pace of this currency depreciation. One way they do this is by selling dollars and buying yuan to “defend the stock exchange while anticipating the Fed’s restrictive maneuvers that will make it inconvenient to hold US Treasuries and delay every possible move to defending the yuan exchange.”

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On this front, the Federal Reserve is poised to act emphatically against inflation and the potential impact it will have on the star-and-strip economy, planning a narrow path to rate hikes and monetary containment for the end of 2022 and 2023. But today, more than ever, the problem may be, for Washington, A crisis of distrust for all those who, in the world, invest in American debt, considering it a guarantee comparable to the possession of gold: the United States, structurally, cannot fail as a guarantor of globalization and its mechanisms and will not fail even after this stage of the global crisis. But the fact that China is leading the decoupling signals that even the number one partner and competitor of the US economy is beginning to doubt the US’s ability to ensure the rules of the game, from free trade to exchange rate stability. And he wants to transfer his resources to others. The crisis of confidence caused by industrial decoupling also led to this: Chinese financing of US debt was a real basis for the coexistence of the two giants in recent years. If it fails, the domino effect can amplify the climate of generalized economic war that pervades the world order. With serious consequences for all players on the field.