Ever since the early stages of the US-China trade/tech/virus/cold war four years ago, there were frequent rumors — which eventually gave way to increasingly legitimate chatter — that China was looking to go full “nuclear option” by selling some or all of its $1+ trillion of US Treasury securities, which incidentally has not been too far off the mark: as the chart below shows, after peaking in 2013, Chinese holdings of US debt have been steadily declining (and not so steadily in the aftermath of the Chinese devaluation), and are currently near the lowest level in 8 years.
In any case, while Beijing has been gradually reducing its Treasury holdings it has never shocked the market with a major liquidation; and yet this ultimate threat has now found its way into China’s premier state-run English language news source Global Times.
And while not official policy, the fact that GT on Thursday has made a US Treasury dump front page news, citing top “state-linked experts”, is cause for concern (and certainly suggests that the Fed may soon have to step in with another massive QE to purchase whatever China has to sell).
The Beijing-backed publication writes today that “China may gradually reduce its holdings of US Treasury bonds to about $800 billion from the current level of more than $1 trillion, as the ballooning US federal deficit increases default risks and the Trump administration continues its blistering attack on China” citing unnamed experts.
The facts are familiar to anyone who has been following the Sino-US trade war amid the US descent into fiscal hell, which as we noted earlier this week will result in the US budget deficit hitting a record $3.3 trillion and a record 107% debt/GDP in just 2–3 years: as the Global Times reviews, in the first six months of this year alone the world’s second-largest holder of US debts dumped some $106 billion worth of US Treasury bonds (annualized), and is looking to continue trimming its holdings “systematically” — the publication states.
A key reason stated for the liquidation is that China is anxious over risks associated with the surging debt level in the US, which is expected to actually exceed the size of the economy in 2021, which would be a first since the end of World War II. What’s worse is that as the CBO has shown, what happens over the next 3 decades is even more insane.
Source: Tyler Durden | ZeroHedge
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