BIDENOMICS CHINA

1/ Here is a thread on why recent record sales by the Chinese of US Treasuries might be one of the first signs of a major fiscal crisis in the US. There is a lot of confusion about how this would work so let's go through it step by step. 2/ What matters here is not overall US government debt but rather the balance of payments. If a country runs a trade deficit this must be offset by financial inflows on the financial account to maintain equilibrium. 3/ The United States runs a consistent, large trade deficit. As predicted - because it is a necessity - this trade deficit must be matched with financial inflows. Let's look at what those inflows are. 4/ Here we see that the most important component by a very large amount as 'Debt Securities' that are 'Long Term'. In 2023 $924bn were issued and $103bn bought, meaning net issuance of around $821bn. 5/ These are the key balancing item that allows the US to run its trade deficit. What are they? A lot of them are Treasury bonds. 6/ It used to be that these bonds were bought by China and other governments/central banks. These were stable buyers because it was part of their trade strategy - prop up the US trade deficit to sell more exports. Now increasingly they are bought by private foreign investors https://threadreaderapp.com/thread/1792111533662601531.html