Showing posts with label Treasuries. Show all posts
Showing posts with label Treasuries. Show all posts

Friday, June 5, 2020

Why do people worry about China selling Treasuries?

Occasionally people worry about China "weaponizing" its US Treasuries by selling them.

Michael Pettis explains why it is not a concern and mentions that "the Federal Reserve could easily act to overcome any temporary volatility."

Based on recent Fed actions and a simple comparison of two numbers I think that it might be able to pretty easily overcome China selling its entire stash of Treasuries.

1. China's holdings as of March 2020 are below $1.1 trillion:

2. The Federal Reserve expanded its holdings of US Treasury securities by over $2 trillion in less than eight months (Release H.4.1). It held $2.12 trillion as of October 16, 2019 and $4.13 trillion as of June 3, 2020:
https://fred.stlouisfed.org/graph/?g=rbgV. 

Also, over that time interest rates on 10-year Treasuries have decreased from 1.75 percent to 0.77 percent:
https://fred.stlouisfed.org/graph/?g=rbhW.

Kalecki wrote "the rate of interest depends on banking policy, in particular that of the Central Bank. If this policy aims at maintaining the rate of interest at a certain level that may be easily achieved, however large the amount of Government borrowing." (Political Aspects of Full Employment, 1943).

To answer the question in the title of the post, I don't really know and we have bigger problems to worry about.