
Japan surpasses China as largest foreign holder of US Treasurys - hker
https://www.cnbc.com/2019/08/15/japan-surpasses-china-as-largest-foreign-holder-of-us-treasurys.html
======
largbae
As I understand it, other countries' "belief in our debt" has little to do
with their treasury holding levels. All countries that net export products to
the US tend to end up owning T-bills proportionate to their export surplus.
This is because their banks end up with a bunch of US-Dollar-denominated cash
from exchanges by the exporting companies, and getting a return of even 1.5%
(our 2-year interest rate) is better than 0% on cash.

The treasury level rising and falling is not usually intentional or by itself
sinister, merely a byproduct of a fluctuating export surplus.

This article has a nice illustration of the process:

[https://www.theatlantic.com/business/archive/2011/03/infogra...](https://www.theatlantic.com/business/archive/2011/03/infographic-
how-china-manipulates-its-currency/73201/)

[https://www.theatlantic.com/business/archive/2011/03/infogra...](https://www.theatlantic.com/business/archive/2011/03/infographic-
how-china-manipulates-its-currency/73201/)

~~~
qroshan
They can always sell dollars in foreign exchange for other currencies, local
currencies or gold or bitcoin.

The reason they hold $ is a 'belief in our currency won't inflate' (by
monetizing debt) which implies 'belief in our debt' If China is a net exporter
to Argentina or Venezuela, rest assured they are selling those currencies as
fast as they can

~~~
joe_the_user
It's not a belief our currency won't inflate, it's a belief our currency won't
inflate or lose value any more than other vehicles.

Note that even gold "inflates" through the production of gold mines - and gold
miners produce more as the price of gold (in dollars or equivalents) rises so
mining serves as a check on the relative value of gold.

~~~
roenxi
Well sorta. In real terms, the price of gold is anchored to the amount of
energy required to mine a kilo of gold with a sustainable margin. That
quantity doesn't change very much (in real terms) over time.

Compare that to, say, American dollars, where we expect at some point
(hopefully not in the next few decades) the government will lose its
discipline and allow the dollar's value to drop to 0, its true marginal cost
of production. My memory is the vast majority of governments have cracked on
that score, sooner or later.

Really it reflects a belief in the as-observed-in-the-market marginal cost to
produce, which is easier to think about than inflation. It also explains
bitcoin and shows how important the large pool of mining power is.

~~~
MarkMc
> That quantity doesn't change very much (in real terms) over time.

That may have been generally true for the last 6000 years, but I doubt it will
be true over the next 100 years; once asteroid mining becomes remotely viable
then the price of gold will plummet.

~~~
oblio
Remember, we were supposed to have flying cars in 2000. I'd bet against viable
asteroid mining for the next few centuries...

~~~
cthalupa
This isn't a good comparison. The technological ability for us to have flying
cars has long since been there - VTOL vehicles have existed for some time now.
We could easily create drones that could carry people, etc.

But flying cars have never been practical because of the human element and the
lack of physical constraints that could readily be placed on their control.
Plus, people realized that as ugly as a highway is, sky highways are a hell of
a lot worse. The idea became less and less popular, and now there's no real
demand for anything of the sort.

There's plenty of demand for precious metals. And the technology for asteroid
mining, even largely automated, already exists. It's a matter of driving the
costs down enough to make if profitable, or waiting until supply drys up
enough that even if the costs remain relatively stable that it will still make
money.

We already see a lot of progress and promise in launch costs being driven
down. There's ambition within these companies to expand farther and do more.
The technology is getting to the point where there's little question on
whether it will happen, barring some sort of extinction of modern society type
event, it's just a matter of how soon.

I don't necessarily expect asteroid mining to happen on any large scale in my
lifetime, but, I also wouldn't be surprised at all if it does. In 100-150
years? I'd be surprised if it hadn't.

------
SllX
Near as I can tell, and I’ve checked on this infrequently over the past few
years, Japan’s holding of US debt have always been within spitting distance of
China’s, where spitting distance is a few hundred billion give or take. So the
news in itself isn’t surprising.

That is to say, I think it would be a mistake to read much into this. The
largest share of Federal debt is held domestically, really the lion’s share.
China and Japan are generally within the trillion dollar range, and are always
#1 and #2 foreign holders of US debt.

~~~
arcticbull
To my knowledge China has intentionally be reducing its holding of US
treasuries as part of the ongoing trade... kerfuffle. Yes, China and Japan are
usually close, but this delta was closed not because Japan bought more T-bills
but because China sold theirs off over the last few months, and is continuing
to do so. They're down to the lowest level of holdings since 2017. [1,2,3]

To your point the majority is held domestically but this does create pressure
on the instruments at the margins and raises the cost of borrowing both now
and over time. Some of that is being masked now by the flight of capital to
safety, particularly domestically, over concerns of the same recession.

Less buyers of T-bills raises interest rates, which in turn raises the cost of
borrowing money, which in turn pushes down equities. I doubt the Chinese could
sell off their T-bills any faster without risking de-valuing their holdings.
With that said, I doubt their holdings go up until this trade war ends, if
ever, and this will prove problematic once the dust settles. A worst-case
scenario for the US is higher interest rates [wiping out current bond
investors] combined with lower equities [wiping out current stock investors].
This yields inflation and removes the levers of economic control from the
federal reserve -- it could be devastating.

[1] (May) [https://www.bloomberg.com/news/articles/2019-05-15/china-
s-u...](https://www.bloomberg.com/news/articles/2019-05-15/china-s-u-s-
treasury-holdings-post-first-decline-since-november)

[2] (June) [https://www.bloomberg.com/news/articles/2019-06-17/china-
cut...](https://www.bloomberg.com/news/articles/2019-06-17/china-cuts-u-s-
treasury-holdings-to-two-year-low-amid-trade-war)

[3] (July)
[https://www.scmp.com/business/companies/article/3018924/chin...](https://www.scmp.com/business/companies/article/3018924/chinas-
may-holdings-us-treasuries-dip-third-straight-month-two)

~~~
panarky
_> raises the cost of borrowing_

Long-term interest rates are lower now than in recorded history.

 _> flight of capital to safety, particularly domestically_

Is there any evidence that domestic demand is stronger than foreign demand?

 _> over concerns of the same recession_

Europe is much closer to recession than the US. Maybe they're the marginal
buyers of US bonds and driving down rates?

German manufacturing just fell off a cliff. European banks are in crisis.
European bonds have negative rates from 3 months to 30 years, while US bonds
still have a positive yield. The dollar is strengthening.

 _> A worst-case scenario for the US is higher interest rates_

This is a bizarre conclusion given dramatic and relentless _reductions_ in US
rates, and _negative_ rates in Europe and Japan.

I'd say the worst-case scenario is if rates go negative in the US and
policymakers lose the ability to stimulate in response to recession. Zero and
negative rates push the pension crisis into catastrophe. Then US and global
economies turn deflationary at the same time. Very difficult problem to fix.

~~~
navigatesol
> _Europe is much closer to recession than the US. Maybe they 're the marginal
> buyers of US bonds and driving down rates?_

Makes sense, since the majority of their debt now has negative yields.

------
datumy
I believe the real reason why China is no longer the largest holder is that,
China SPENDS tons of dollars she earns/holds on one-belt-one-road projects. US
and western countries are super unhappy about that, as China effectively de-
weaponize dollars. China is supposed to earn/hold US paper money and never to
spend it. Just my 2cents.

~~~
runeks
Owning a piece of infrastructure definitely seems more valuable than owning a
foreign government bond. But I don’t see how this “de-weaponizes” the US
Dollar.

------
40acres
Most U.S Treasuries are held by American citizens, it's why fiscal hawks are
always ranting that defecit spending "bankrupts our kids", foreign holdings
are insignificant in the grand scheme, and as noted the largest holders are
all allies.

~~~
chibg10
What does this have to do with anything? The problem with too much US debt is
that we have to make interest payments on that debt, which now makes up ~10%
of the annual budget (or about $400B/yr). That's expensive and going to get
worse if we continue borrowing at unsustainable rates. It's also going to get
a lot worse if investors start to worry the US might default on its debts and
demand higher yields on return.

I'm not sure why you think it matters whether China or Europe is holding the
debt.

~~~
arcticbull
> What does this have to do with anything? The problem with too much US debt
> is that we have to make interest payments on that debt, which now makes up
> ~10% of the annual budget (or about $400B/yr).

That may matter to you as an individual but governments get to print money.
It's like if I issued IOUs denominated in Steve's Funbucks that I'm the sole
issuer of, and those IOU holders lived across the ocean and also I had half
the world's armed forces at my disposal. Then when things went sideways I
fired up the Epson and paid you off. As it turns out inflation is not directly
connected to the issuance of new money, although it does contribute. Balancing
a federal checkbook isn't the same as your home finances.

I'm not saying you should go to town and print a ton of money and that nothing
would happen, I'm saying it can play a role and isn't directly equatable to
small-scale finance.

(Edit) further, borrowing to create economic activity is not zero sum. If you
borrow 100K and create a business worth $1M, and reap the tax returns, it
doesn’t matter how much you owe. If I borrow $1T and create a $5T economy, I
doubt the kids will mind. This is in part why the money supply increases over
time — to reflect the new scope of the economy.

The only material risk of taking on debt is that you need to create returns in
excess of your interest payments.

~~~
perl4ever
It seems to me that "half the world's armed forces" is a _result_ of being
able to print money, not a cause.

~~~
SimbaOnSteroids
Chicken or the egg right? Pre WWII we were hit with a massive depression like
everyone else. As the war effort ramped up and the rest of the industrialized
world was taking it on the chin we conveniently got to reap the economic
benefits of having a totally mobilized workforce, without, y'know, all our
manufacturing hubs getting Dresden'd. Surprise suprise, we win the war and
don't incur heavy infrastructure damage AND get the benefit of a suddenly
energized economy, so we do what we do and keep the party going. Stick our
noses in Korea, get in a massive arms race with the Soviet Union, fight a
couple proxy wars with the Soviets. Well turns out the Soviets are light
weights and can't hold their liquor and bow out early. Now we're the only ones
with a ginormous army and can subsequently print our own money. We got away
with it because everyone that we kept close were highly incentivized not to
call us on it, on account of the soviet's nasty habit of rollin up to a place
and makin it the quality of life equivalent of an Andy Dick comedy special.

~~~
selimthegrim
Andy Dick got clocked by some random guy on Bourbon St the other day who
calmly picked up his water bottle he’d put down on the way out - a clear sign
of SVR training

------
anm89
Treasurys? Is that a valid spelling? I always assumed it was treasuries.But
I'm assuming they didn't forget to prrof the headline?

~~~
geofft
Answered in
[https://news.ycombinator.com/item?id=20721467](https://news.ycombinator.com/item?id=20721467)
\- seems to be their house style, cf. [https://www.cnbc.com/us-
treasurys/](https://www.cnbc.com/us-treasurys/)

~~~
JumpCrisscross
It’s a proper noun. Treasurys are lots of bonds. One with treasuries has, I
don’t know, chests of silver?

------
spectramax
I am not familiar with Treasuries, I'd appreciate some insight into what this
means "China has been a less aggressive buyer of the U.S. sovereign debt". How
is it possible to "hold" (buy) another country's debt?

~~~
codesushi42
_" China has been a less aggressive buyer of the U.S. sovereign debt"_

It means China is dumping US debt. Which will mean a surge in interest rates,
a weaker US dollar, and in a nightmare scenario, hyperinflation.

~~~
_0ffh
> It means China is dumping US debt. Which will mean a surge in interest
> rates, a weaker US dollar, and in a nightmare scenario, hyperinflation.

But then again, the popular wisdom seems to be that a weak currency supports
exports. So I don't know that this is clearly a bad thing. Hyperinflation I
would peg to be usually caused by a break down of the domestic market.

~~~
wolco
A weak currency means more exports but higher import prices. Add the
additional tariff coming soon means anything from China will get more
expensive. Perhaps this forces Trump to drop them.. it could backfire and
create a local industry that will compete against China.

~~~
whatshisface
If you believe Trump, then the creation of a tarrif-protected local industry
would constitute "front-firing."

------
peter303
They are small players compared to the Social Security Trust Fund and the
Federal Reserve Quantitative Easement holdings. Both of those total six times
Japan or China.

------
marcosdumay
China seems to be having a huge capital flight. It has just removed the peg on
their currency price, what is a large giveaway. It's perfectly natural that
foreign currency reserves stop increasing or even decrease.

------
rayanami
People who are more in the know - is this likely to be part of a long-term
trend or is this a short term reaction to recent US-China relations?

------
Bud
Headline should be "Treasuries". What the heck, CNBC. You're a financial
network. You can't spell "treasuries"?

~~~
sb057
[https://www.cnbc.com/id/32462271](https://www.cnbc.com/id/32462271)

>The short answer is that the "misspelling" is on purpose, done to
differentiate Treasury bonds from the plural for the Department of Treasury,
though I'm not sure why you'd ever need to pluralize that. In any event, a
number of business news organizations, including CNBC, use the "Treasurys"
spelling.

~~~
Bud
That makes no sense at all. There is no plural for the "Department of [sic]
Treasury", which, btw, is called the Department of THE Treasury.

So if it's done on purpose, that's even more idiotic.

~~~
somebodythere
Colloquially known as the US Treasury, which could conceivably be pluralized
as Treasuries.

Some other reasons for the alternative spelling:

In many style guides, proper nouns ending in -y are pluralized as -ys, not as
-ies. For example, Casey plural would be Caseys, not Casies. Treasury,
referring to the type of institution is not on its own a proper noun, but
"Treasury", the name of the security emitted by the US Treasury, might be.

Another reason for the alternative spelling is in financial settings, the
plural of Treasury (notes, bonds, etc.) is abbreviated as Tsys. Treasurys is a
reasonable "backronym" for that.

~~~
Bud
"Might be"? Yes, I suppose.

Is? No.

"treasuries" is the long-accepted spelling here.

