Comment by JumpCrisscross
2 months ago
> attack is not on dollar circulation / liquidity but cost of treasury
No real way this can work between similarly-sized trading economies. Worst case, a couple central bankers' weekends would be ruined.
> PRC recycle surplus USD into BRI finance, said USD doesn't return to US treasury to buy bonds
How? PRC sends dollars into BRICS. What do they do with the dollars? If they aren't sitting on them, they're contributing to the dollar economy.
The PRC financing using dollars would be nuts because it puts their sovereign financing into American hands.
> PRC parallel dollar bond lending COMPETES with US treasury bond lending
Not in any meaningful way. (There aren't that many indisctiminate buyers of international debt anymore. Put another way, most Treasury buyers have and will never buy any Chinese paper and vice versa.)
> US treasury had to find other buyers to fill ~600 billions (and raising) of USD bonds that PRC no longer holds. Filling hole that size = finding more price sensitive buyers
Not really. You fire up the Fed. If it's China that's doing it, that's national security. Hell, sanction the accounts the dollars are going into.
> but 100 billion here and there and soon we are talking about real money
Have you traded Treasuries in an instituional setting? You're talking about the size of a single desk's intraday exposure.
>Worst case
Or you know, a few basis points increase in interest rate that adds up to 100s of billions of new debt obligations a year (now more than defense), but it's America, no one loses sleep over that.
>they do with the dollars
Sign PRC development contracts, which = PRC products. Not US treasury. Dollars circulating =/= dollars going into treasury to finance US solvency.
>meaningful way...
>aren't that many indiscriminate...
>single desk's intraday exposure
Churn =/= net absorption, liquidity =/= funding, which is 2T new issuance per year to cover deficit right now (speed =/= volume of plumbing). The exact vulnerability is not many indiscriminate buyers... and losing a whale like PBOC that was one of them, and their 100s of billions has outsized effect as marginal buyer that closed auction regardless of price. Now they've been replaced by price sensitive buyers which means FEDS raise rates to attract non indiscriminate buyers who buy for yield/valuation not storage to close auctions. Meanwhile PRC lending out their USD which further decrease demand for treasury. Instead of exorbitant privilege of cheap debt, treasury payouts closer and closer to market rate because indiscriminate price takers like PRC out. Structural cost of capital increases when debt velocity and refinancing reach fiscal trap levels.
>using dollars would be nuts
>national security
I mean it's happening, lots of PRC loans / shadow lending / swaplines backed up by their dollars, because it's better for PRC use them to further PRC interests than subsidize US debt. What's national security crisis? PRC not using dollars to buy treasury? AKA US going to announce to world surplus USD now must be mandatory recycled/loaned to US gov or be sanctioned? Are they going to sanction countries for buying PRC tractors and end up increasing USD risk premium even more? The virtue of mechanism is PRC is sustaining US dollar system (which Trumps seems to like, i.e. threaten to sanction countries who goes off), but incrementally stripping dollar strength into liability. There's shit all US can do about it without looking even more delulu and making system worse (granted for everyone). US/Trump still gets to see the privilege of dollar liquidity/churn/circulation, but now they have to pay through the nose for it because PRC marginal buyer not there to keep interest floor down.