Bitcoin Forum

the "nuclear option" :

Mr. China hits the sell button on his US treasury bills

just to find out they are worth zilch  ;D ;D ;D

coming soon . . .

What if early adopters sell their bitcoins?

Renminbi would go thru the roof wrecking china's export economy. I'm sure they can't wait to do it ;]

That is why the government is so focused on building the domestic economy and exporters are not getting the perks they used to.   When China is the largest economy in the world, it could destroy the US because of the US' own lack of fiscal responsibility.   Just by selling bonds....  The irony is that the US is amassing this debt by building its "defenses" to silly levels and thus creating the easiest way to attack them.
It could be a good novel.

And how exactly selling bonds would destroy US?

The US MUST (no choice) must refinance our debt (our ENTIRE debt) as bonds come due.   We used to issue mostly LONG duration debt (like 30 year bonds) but of late we have been rolling down the curve to get the lower interest rates to hid the real cost of the debt we have incurred (2 year bonds pay lower interest than 20 year bonds BUT ARE RISKIER TO THE ISSUER).   That means ON TOP of the $500 Billion to $1.2 T dollar deficits we are running and MUST be financed in the bond market we ALSO have to refinance all the bonds that are due each year.   So, if china JUST STOPPED BUYING, interest rates would skyrocket as the prices on the bonds would have to be lowered to incent others to buy them.   If China actually SOLD bonds on top of stopping their purchase, the US would basically be put in a death spiral.
There are tons of business cases about great companies that went bankrupt because they changed the duration on their debt to get a lower interest expense.

Except that US controls their currency. Fed can just buy as much bonds as needed. Additional bonus would be weaker dollar which would make manufacturing in US profitable again.

OR

US can just refuse to honor bonds held by Chinese. Even this is more likely than destruction of US.

Except that US controls their currency. Fed can just buy as much bonds as needed. Additional bonus would be weaker dollar which would make manufacturing in US profitable again.
OR
US can just refuse to honor bonds held by Chinese. Even this is more likely than destruction of US.
[/quote]
Unfortunately you are not correct on either point.   Concentrating your debt, and putting yourself in a position where you MUST borrow more money is very risky.  The "fed" cannot buy endless amounts of US debt.   Read up on it and think about where the Fed would come up with ANOTHER 4 Trillion from in the next two years.  The latter solution would basically make US interest rates go into the teens overnight.
US total Revenue is about $4T per year.   $17T of debt.   15% interest is not an option.  Hell, the US basically cannot pay HISTORICAL AVERAGE interest rates on its debt (6%).   Debt in 2016 will be $22T and the interest at 6% would leave no money to pay for any entitlement program.

Zimbabwe controlled its own currency also. The Fed is already the only remaining player of substance buying US bonds. It buys them with "money" it creates to buy them. The US is bankrupt in all but name. As for your second option, refusing to honor debt is called default - who would trust (trade with) a deadbeat after a default?

It's not that simple, Chinese holdings are not actual physical bonds but instead an electronic accounting mechanism maintained by the US Federal Reserve and PBOC (China central bank.)  If they truly wanted to sell all of them at once, the Fed could very easily alert U.S. gov't officials and place the bonds in "escrow" (insert whatever P.R. friendly spin you want here) and prevent them from tanking the market.

Look at the Federal Reserve's recent response to Germany requesting the return of its gold held in Federal Reserve vaults, they told them it would take them upwards of seven years to get their gold back.  There are many stalling tactics available to the Fed/US gov't to slow down a lot of these doomsday scenarios.

Definitely not that simple, as you say, and lots of subtexts one could focus on.

China started reducing its US debt purchases in 2011, and at the time spokespeople for their government expressed concern publicly about the American debt situation. Of course these things can get Byzantine behind the scenes, so public statements do not necessarily reveal intentions.

I agree about the stalling tactics available and they can pull new ones out of the hat at any time - people who were expecting QE3 might have been startled that it arrived as QE Infinity, for instance. However, many pundits are starting to claim that the stalling tactic bag of tricks is almost empty. Some are saying it will all blow up as early as this month when/if the price of paper gold decouples from the price of physical gold - something like the infamous German gold repatriation attempt, but with "normal" investors trying to take possession of physical gold that they own on paper - only to find IOUs in its place.

I wouldn't normally cite pundits because there's a pundit for every possible opinion. However, more and more of them seem to be singing in unison, so perhaps something big really is imminent. We'll find out, regardless. Feels good to have some BTC though, at least for now.

This might be a good time to check what odds the bookmakers in Britain are offering on these kinds of issues. They tend to be pretty good at what they do.

Eventually you pay the piper but this game can go on for quite some time.  You have to look no further than Japan to see this playing out in real time.  Japan has the highest debt/GDP in the developed world, a similar ZIRP, and are trying everything in their power to debase the Yen.  The Japanese central bank also purchases the majority of their debt.

I'm not condoning these monetary policies, they are irresponsible and will hurt future generations but if you think the US will be the first to go, you're badly mistaken.  Japan will likely be first (especially with their demographics), then the Euro nations.

But what if they have way more gold than the market expects?  They can let everyone take delivery here and then really crash gold.

(They being anyone you want... China, the Fed, whatever)

I doubt so, given that the yield for 10 year bonds is going up a lot.  About 2.10% when up 600 basis points compared to two weeks ago.

I am a Chinese. Do not worry. Mr.China has to solve its own problems first.

Now China is isolated into different classes and the liquidity between classes is very low.

I do not know how many of you believe a student with a bachelor degree earns less than a Chinese immigrant worker.

This year, there are 7 million students graduated from universities but few of them can get a job.

The tendency may continue for the coming year.

Do not be afraid of "The Rise of China". China has so many problems and we have to solve them first.

It depends on the location, in Shanghai, the salary and living expenses are extremely high, comparable to Hong Kong.

Why would China want to rock the boat? $3tn in forex reserves is not that big a deal. Growing an economy with a GDP of $7tn is.

America has assets. Namely California.

Who knows? The gold bugs don't think gold is where it is supposed to be though, and I don't see a flaw in their argument. Here's Addison Wiggin in a recent newsletter:

--- snip

"... the main reason central banks are in business -- to benefit their biggest and most powerful member banks.

And what's beneficial to U.S. and European banks is gold leasing. Commercial and investment banks lease gold from a central bank at bargain rates -- usually less than 1% a year. Then they sell that gold into the private market and plow the proceeds into... well, anything that yields more than 1%. It's a sweet deal if you're a banker.

"But then the gold is gone, right?" Yes. If the central bank wants its gold back from the commercial and investment banks, those banks would have to buy gold on the open market -- driving up the price. That's a bad deal if you're a banker.

So usually, there's a tacit understanding: Central banks don't ask for their gold back, and the commercial and investment banks roll over their gold leases. As long as they're earning more than 1%, the debt service is easy peasy.

But if a central bank asks for its gold back, it's game over.

"They can get away with [the leasing]," Sprott explains, "because on their financial statements, the one line they have for gold says 'gold and gold receivables.' A receivable is not real gold, physical gold... and we don't get a breakdown between the receivables and the physical. They've not provided that."

Look below and you can see the guile central bankers use to concede their gold "holdings" is not limited to bars in a vault. (diagram omitted for brevity - it shows 'weasel words' like 'gold, including gold swapped or on loan' for most central banks' asset statements).

"It would not lend much credence to central bank credibility," Sprott writes, "if they admitted they were leasing their gold reserves to 'bullion bank' intermediaries who were then turning around and selling their gold to China, for example.

"But the numbers strongly suggest that that is exactly what has happened. The central banks' gold is likely gone, and the bullion banks that sold it have no realistic chance of getting it back."

--- end snip

Given the recent fiasco when Germany attempted to repatriate its gold, I'm inclined to believe that kind of article. However there are lots of shadowy hands playing shadowy games - no way to be sure yet how it will unfold.

I would guess it will all collapse almost simultaneously, regardless of which is nominally the first. I agree that Japan "should" be first, from their financial and demographic numbers and from Abe's risky disastrous "arrow" policies, not to mention their Fukushima situation, but financial matters are so intertwined now - financial Archduke Ferdinand effect, I imagine.

On the other hand, I've been expecting "it" to blow for many years, and it all keeps lurching on. Faced with that dilemma, Bill Bonner quipped "just because something is inevitable does not mean it is imminent."

Meanwhile, we've got BTC.

They won't, their economy relies on the USA's economy too much.

It's funny to think about California as an asset when you consider how far in the hole their state government is.

China runs a current account surplus (exports capital), the US runs a current account deficit (imports capital). That means china has to recycle its surplus overseas and the US has to fund their deficit from overseas. Only if the US current account deficit declines will net foreign purchases fall, or only if foreign purchases of dollar assets reduce will the US current account deficit decline. These are accounting identities, a current account surplus = net foreign claims = a corresponding current account deficit. i.e. it’s probably a good not a bad thing for the US if china wasn’t buying as many treasuries.

Considering CA.gov has effectively seceded from the union with all its Constitutional violations despite ratifying it... in a better world, all CA.gov land, buildings, and property would be seized and sold at federal auction, and the CA government itself would be imprisoned and/or ejected from the U.S., citizenship revoked.