A question for all the posters who are gleeful this is happening to China.
What do you think will happen to the USA dollar and the stock market in the USA if the central bank of China is forced to dump on the market all of this financial “paper” denominated in US dollars?
Oh stop. I’m making fun of all the doom and gloomers who said China would take over the world. In reality, we have hard product and they have paper. If a real war broke out, we could declare their paper as just that.
You're asking what would happen if China sold all its T-bills for sale today at a huge loss? Let me know if it happens; that kind of buying opportunity is something that few can see in a lifetime.
Real life on planet Earth though, debt holders know how to cut losses with unloading debt. Many of the notes are already redeemable directly with the Treasury Dept. at full value. The rest can go slow with no loss or fast at bargain prices. It's not really a new story here.
Interest rates will spike.
The rest of the "funded by helicopter money"-based industries and businesses in the U.S. will collapse.
The dollar will fall.
The yuan will rise.
The arbitrage offshoring of jobs to BRIC will come to a screeching halt.
China will suffer massive unemployment *and* inflation (paradoxically, since there is not enough of a middle class in China to afford the goods they produce for export, nor enough of an infrastructure in terms of existing homeowners, etc., to have a need for all of the items they are producing for the U.S.).
And China will either revert to Communism or Fascism, and seek military expansionism to seek to distract the populace from the failures of their dictators.
Look out Russia, Austalia, and (god forbid, and due to its land and fresh water) Canada.
Cheers!
Let’s put things in perspective here. The 10 year note is the most heavily traded of our treasuries, so they likely have most of their holdings there, with some 30 year bonds and some 5 years.
Even the 10 year trades maybe 1 million contracts a day. At night (when China is awake), liquidity is far lower...I’d say we generally see <100,000 10 years trade from the open at 5:30pm until 5 or 6am. They’re $100,000 contracts, so a trillion dollars is 10 MILLION contracts.
Even if they tried to unload 100,000 contracts a day, they’d shove things way out of line and take a bath on their fire sale. And they’d have to do it for 100 days to liquidate 10 million contracts...so the first day or two small time traders would probably get steamrolled.
But it would become very obvious who was doing it, and every one of the major US banks (Merrill, Goldman, etc) would take notice, not to mention their European equivalents. Having the market find out that you hold a very large position and are trying to get out of it is very very bad, because they’ll start attacking your position.
If China tried putting ridiculously big offer orders in, the market just wouldn’t pay up into them. On top of that, institutions would pull their bids, so China would have to sell small amounts at a time, paying down into lower and lower bids. They would lose far more money than they ever would holding their position through the highest interest rates (lowest prices) the 10 year note could ever hit.
The truth is the Chinese will never openly put this “paper” in the market...not a lot of it anyway...its just a question of value...the more they openly put, the less they will get. You forget that the Chinese still have something to lose here...