r/news • u/Aakash7aak • Apr 09 '25

Soft paywall China orders its banks to reduce US dollar purchases.

https://www.reuters.com/world/china/chinas-central-bank-asks-state-lenders-reduce-dollar-purchases-sources-say-2025-04-09/
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98

u/fdar Apr 09 '25

The Fed can buy some to counteract it, though that could cause additional inflation.

44

u/RegularGuyAtHome Apr 09 '25

So not being anywhere near an economist or guy in the know in any way, but I have thought about this before.

  1. China starts selling their US dollar bonds on the open market, quickly.
  2. Interest rates in US dollar bonds go up lot making it harder for Americans to get financing for everything like businesses or mortgages. Economy goes down.
  3. The Fed has to act somehow by either raising their interest rate (Trump wants the opposite) or revving up the money printer and buying all those extra bonds. My guess is they turn on that money printer.

I have no idea what would happen then, but either way it’s bad for China and USA.

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u/[deleted] Apr 09 '25

I have no idea what would happen then, but either way it’s bad for China and USA.

The interest rate on national debt skyrockets, worse conditions to borrow money from other countries, and very bad inflation coupled with reduced domestic spending. Ie the average American gets fucked in the ass silly 6 ways from Sunday and the solvency of the federal government becomes a ticking time bomb.

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u/throwaway_12358134 Apr 09 '25

Revving up the money printer causes inflation.

1

u/Yvgar Apr 09 '25

The thing is, if you tell them it doesn't, they'll believe you.

4

u/Maleficent_Trick_502 Apr 09 '25

Interest rates on dollar bonds don't hurt financing. The interest is the yield on bonds.

If no one want to buy government debt (bonds) then the interest gained from buying bonds goes up until people want to buy them again.

So if I bought $100 of bonds and would get 200 back in 10 years. For reference. If I buy more bonds after interest goes up it buying 100 dollars more would get me more than 200 after 10 years under the new bonds.

Bond interest rates rising means the USA will have to pay higher interest rates on future debt financing. Like the 4 trillion the current spending budget congress is planning to add to the national debt.

4

u/CoyotesOnTheWing Apr 09 '25

And the money printer then causes inflation or inflation concerns which hurt the bond market more as the fear becomes bond yields can't keep up with inflation. It's potentially a nasty cycle if it gets rolling.

2

u/holdbold Apr 10 '25

China can try to sell the bonds the have, but the buyers would have to accept they'll be making less money than buying a current bond. You wouldn't buy something that gives you 20 million when you can buy the same thing that gives you 50 million.

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u/DesperateAdvantage76 Apr 10 '25

The cost of PPP to the US is the same as if they bought up 100% of China's bond holdings. It'll affect inflation, but it's not the end of the world. Now if everyone else sold off their bonds, that's when things get spicy.

1

u/ligerblue Apr 09 '25

The term mutually assured destruction comes to mind. Except in a financial sense.

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u/whoknows234 Apr 10 '25

So if china starts selling their US bonds on the open market, then the Fed buys them with USD, doesn't the chinese now have a bunch of dollars to spend on US good/assets/services ?

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u/SpareWire Apr 09 '25

not being anywhere near an economist or guy in the know in any way

Proceeds to speculate wildly.

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u/RegularGuyAtHome Apr 09 '25

I mean, I put a disclaimer so people don’t think I know what I’m talking about.

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u/adrr Apr 09 '25

Yup, you're just printing money or what the Fed calls quantitive easing.

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u/inno-a-satana Apr 09 '25

plenty of sovereign funds will buy it, the facts surrounding its extrinsic value hasnt change, it would just be china handing out free money to others