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JULY 2020

U.S. Threatens To Default On Debt Payments, As Beijing Mulls Dumping Treasuries

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U.S. Threatens To Default On Debt Payments, As Beijing Mulls Dumping Treasuries

Image by Deloitte. Click to see full-size

Washington may default on its debt obligations to China, as a form of “punishment” for the COVID-19 pandemic.

In response, according to media reports, China – the second largest holder of US government debt – plans to throw a substantial amount of treasury bonds onto the market.

If this indeed happens, economists are confident that this will inflict a crushing blow to the entire US securities market and the dollar.

At the end of March, Senators Marsha Blackburn and Lindsay Graham demanded that Beijing be punished “for concealing information about the Wuhan outbreak that triggered a global health crisis.”

In their opinion, a portion of the US debt held in reserves of the Chinese Central Bank should be written off. To put it simply – this means defaulting on US securities.

“This is the third pandemic to come from China. They come from these wet markets where they have bats and monkeys with the virus, carrying the virus intermingled with the food supply. Yeah, I’d make China pay big time,” Graham said.

A bill was submitted to US Congress on the need for an international investigation into Beijing’s actions during the outbreak of coronavirus and the creation of a “compensation mechanism.”

Top government officials joined the campaign, and Donald Trump supported the idea.

However, as the Chinese media warned, Beijing will not be indebted.

The second largest foreign lender in the United States is ready to begin selling its bonds.

According to Hong Kong’s outlet, the South China Morning Post, perhaps this will happen in the coming months, depending on how the situation with compensation claims develops.

“White House officials have debated several measures to offset the cost of the coronavirus outbreak, including cancelling some or all of the nearly US$1.1 trillion debt that the United States government owes China.”

And this could be devastating for the US, when the US Treasury announced that it planned to borrow $3 trillion more in order to cope with the COVID-19 fallout.

“Debt cancellation is such a crazy idea that whoever offers it, whoever he is, should seriously think about his professional suitability,” said Cliff Tan, head of MUFG’s East Asia Global Market Analysis Department.

Therefore, experts are inclined to consider this a political ploy as part of the election campaign to re-elect Trump. Such a step “will completely destroy the source of financing the US budget deficit.”

As a result, the yield on treasuries will increase sharply, which will increase the cost of financing for both the US government and American companies and consumers. And this will happen at the time of the extreme weakness of the American economy, which has already promised the largest quarterly drop in history – up to 50% of GDP.

And Beijing has, more than once, said that US treasuries are risky, and that it would prefer reducing dollar reserves in favor for those in Japanese or South Korean currency.

Theoretically, Beijing can undertake a massive sale. And this will be a disaster: the value of the treasuries will collapse, panic will occur in the stock market, the dollar will collapse.

However, Chinese exports will rise in price due to the weakening of the US currency. In addition, the dumping of US treasury bonds will seriously limit the ability to manage the renminbi.

“China is capable of provoking the collapse of the dollar and financial markets by flooding them with American treasury bonds. Treasuries will depreciate and their profitability will increase sharply. A global financial catastrophe will also hit China,” says Iris Peng, chief economist on China at ING.

Meanwhile, the oil market is seeing oil prices fall, as there are fears of a second wave of COVID-19.

Europe’s Brent crude oil went down $1.11, or 3.6%, under $30, to $29.86. US West Texas Intermediate crude fell 92 cents, or 3.7 per cent, to $23.82.

The economic situation is bleak, with the first quarter of 2020 being bad for both Europe and the US, and the second quarter looking even worse.

The US economy contracted at an annualized rate of 4.8% in the first quarter, the sharpest decline since the global financial crisis more than a decade ago. The degree of decline for the entire quarter masks what happened at the end of the quarter. It is likely that the economy grew at a healthy rate in January, perhaps less so in February due to the impact of the disruption of Chinese supply chains, and then contracted sharply in March—but mostly in the second half of March. The latest report indicates that real GDP fell 9.0 percent from February to March.

Both exports and imports declined in the first quarter. However, there was an especially sharp 21.5% decline in exports of services. This reflects a decline in tourist revenue from overseas travelers involving air travel and hotels. Exports of goods fell only modestly. Imports of services fell at a rate of 29.8%, in part indicating that Americans were not traveling to other countries.

The European Union (EU) reported record-breaking Q1 GDP numbers. For the EU overall, real GDP fell 3.5% from the previous quarter, or at an annualized rate of 13.3 percent. In the 19-member Eurozone, real GDP fell 3.8%, or at an annualized rate of 14.4%. Thus, Europe’s economy shrank three times as fast as that of the United States (which was down 4.8% annualized in Q1), reflecting an earlier effort to suppress social interaction to stifle the spread of the virus.

Given that the decline in GDP in France, Spain, and Italy was worse than in Europe as a whole, it can be inferred that the decline in Germany and other Northern European countries was not as bad. This makes sense given that the worst outbreak and the earliest lockdowns took place in Southern Europe.

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  • d’Artagnan

    US is a bankrupt failed banana republic and now acting as one too.

    • Jens Holm

      You not even has a language for western economy. Much like muslims would insist in it s forbidden to visit Mecca.

      Democrasy is same thing. You dont understand it, because You have no language for it.

      • LR captain

        Democracy has an official language starting in Rome and Greece, It is language of debates, speeches, rallies. The art of negation.

        Mastering the language of Democracy allows you to get people to agree with you, allows for people who you turned your back on to understand that is was for the greater good.

        • Harry Smith

          At my point, the main word in democracy is Ostracism. Without it democracy is just an oxymoron.

          • Jens Holm

            Well, I see the democrasies are quite succesfull.

        • Jens Holm

          Its not.

          • LR captain

            it also spelled Democracy not democrasy

          • Black Waters

            No, it’s DemoCrazy, because you have to be fucking crazy to believe that the U.S is a democracy.

          • LR captain

            no the US is a popularity contest

  • Ma_Laoshi

    Are cowboy movies popular in Zhongnanhai? You really want to wait until the other guy draws first? Do you realize what you’re dealing with? If Mr. Xi doesn’t like Westerns, then maybe Margin Call is more his taste? “Sell it all. Today.” Kick the dog while he’s down.

    • BMWA1

      Glitch is that China uses its treasuries to finance OBOR.

      • Harry Smith

        I think it’s more about USA market is the biggest market for Chinese goods, at the moment.

        • Ma_Laoshi

          All valid, so the total picture is, well, more complex than I’m qualified for. And yet, this is exactly the mind trick the US plays on the world: that by exporting the fruits of their labor to Uncle Sam, the world can trade itself to riches–consisting of made-up debt instruments the Dark Throne has no intention of ever repaying. Someone should be the first to speak the truth about what the emperor is wearing.

          • Jens Holm

            Yes its complicated. But I allow me to add its not about trade. Its about producing things for Yourself and others to improve living standards and for that matter, what that is.

            Its also very much about who get the benefit for going to school, educate, skills and hard work.

            But Your focus might need changes too. The EU has the same GDP level as USA, so You has to ass them and us.

            And several others are doing fine in the system and China are affiliated and not as much a contrast as so many descriebe.

          • Harry Smith

            They don’t have emperor. Just director of sales.

        • Jens Holm

          Of course its about markets. It was the same for the old Marshall help to so many countries in the world after WW1.

          If people dont produce things, they make no money and therefore cant buy, what You produce.

          USA has to re invent themselves or slowly will decline. Many here also forget its not pnly bad China improves. Its not only about taking the cake as ME Muhammed, Engels economics write and hope for.

          The Chinese also makes the cake to share bigger I like that sompared with how poor most of the Chinese was kept by their systems.

          • Harry Smith

            Did they ever told you in the school that Marshall plan was initiated in 1948 after WW2 not WW1?

          • Jens Holm

            Because Europe and Germany DID NOT have a Marshall plan after WW1, We got Hitler, Mussolini, Franco and others .

            Much as You can read but are not able to relate and compare even in World War seize:(

    • Jens Holm

      So the system shoulkd be an eye for a foot or what. Putting in cows in Your version doesnt improve that impression.

      USA mainly good for my part of the world compared with the one, You seemes to represent.

      My guess would be that if the chinese realy took over more, we would get some fresh air here, because Your complaint but be in chines and about the chinese, bacuse You deny any needed changes.

  • abuqahwa

    Every since US President Ronald Reagan discovered that US budget deficits meant zilch as the US could just binge and borrow its way to monetary heaven, the US has racked up debts well past the point of even being able to pay the interest due, without having to borrow more and more, i.e. sell bonds to the rest of the world. Post 2008 fiscal crisis US just created money out of thin air by selling bonds to itself via the so-called “quantitative easing ” (85 BILLION a month given to banks !) and still this insane Ponzi scheme continues as long as the USD is recognized as a hard currency and used worldwide for trade. Well maybe, just maybe, their hour has struck – too many countries, not just China, are realizing how risky USD holdings (T-Bonds or currency) are (apart from US Govt outright seizures of foreign accounts e.g. Libya,Iran,Venezuela,). Go ahead Trump : Default on your debts and see the whole ridiculous fiscal house of cards collapse, finally !

  • shylockracy

    Chinese elites have played the game on the ones that hooked them on Opium Wars and humiliating “concessions” for too long. It’s to a certain point understandable that Mao took advantage of the China-Soviet conflict to attract Western Ziocorporate investment and tech transfers from before the time Kissinger sent Nixon as a emisary for globalist elitism in an “opening” China but that should be history by now. The London-Washington-Vatican Zioterrorist elite won’t accept the rise of a superpower that doesn’t take into account their interests in the Middle East, Latin America, Africa, etc. as a top priority so China has to either make even more “concessions” and join the US-led Zioterrorists as a junior partner or prepare for war. It’s disgraceful to be holding “treasuries” from the same kind of bankster scum that financed the Opium wars and profiteered from its narcotrafficking and China’s junkies.

  • Jens Holm

    I wonder why USA keep Trump.

    • LR captain

      scape goat

      • Jens Holm

        Maybee. Much like Hillary was seen as worse.

        • Ivan Freely

          There’s speculation that Hillary could return to replace Biden. I would laugh my ass off if she did.

          • Jens Holm

            Ha ha. Russians might like it. They mainly collapsed because none could be Presidents unless they have participated in WW2.

            Whats the name ? Gerontology?

            I saw Biden on TV sunday. Much like a senile. Hard times for USA and they are not able to find better. They are 330 mio.

  • AJ

    Dollar wouldnt collapse even if China slowly offloads all its treasuries, the Fed will buy them, they are the lender & buyer of last resort

    • Harry Smith

      Yep. The dollar system is strong because of mutual financial obligations between G7. USA can print dollars as much as they want while USD is the most used currency in the world economy. The only thing that can ruin US dollar monopoly in nowadays is some internal USA mega disaster.

      • Icarus Tanović

        Such are all Saudis oilfields in flame…

        • Jens Holm

          No way.

          There are no lack of oil and energy. USA itself can start up thracking again with needs.

          Alternatives for replacements are there too.

          But we can see a slow declining of the dollar. Mone here will allow the Western Economics to collapse and even non cointrolled parts of it.

          China is the big problem here. They can buy parts of us cheep but we are forbidden by them to buy parts of the very chinese production system.

          So the only way for USA and fx EU now is to coomplicate the world by taxing Chinese products even they are ordered byourselves.

          The chinese product by several reasons are too cheep.

          Another thing also is reforms are needed in many parts of the world. When things grow too old, they cant do the jobs.

          For USA its my reflexion that USA next time will get a Biden, but they need a Sanders and in severakl sectors.

          As many says: You easy can see amy good ideas and solutions, but making them come through is the dificult part.

          Its the same for war. Its easy to make war and therefore never any honorable thing. The difficult thing is to make peace.

  • Traiano Welcome

    I’d take all those treasuries and trade them for gold (not sure if they’re even worth gold though …).

  • Raptar Driver

    They should have done that a long time ago, it might be a little late now?

  • RichardD

    A determination has to made as to exactly what the Jew world order omnicide plan for humanity consists of. And who the Jew, Zionist and their omnicidal collaborators are. So that a purge of Jew world order omnicidalists from governments and commerce can be conducted. Both in NATO countries, and in SCO and other countries if they’re present there as well.

    There’s a saying that never let a crisis go to waste. This is usually applied to bad people doing bad things. But it also applies to good people using the crisis to correct problems. NATO committing economic suicide isn’t necessarily a bad thing. If the collateral damage doesn’t do more harm than good, and it can be used to stop the NATO Zionist global hegemony forever war against humanity. And allow the SCO and partners to expand global economic market share to facilitate economic expansion and poverty elimination in the developing sector. That is currently being systemically impaired by the NATO Zionist forever war and related economic subversion.

    The goal needs to be not reducing global population to 500,000 or zero. But extending lifespans and developing the 7.5 billion human resource potential that we have. And putting the transportation capability in place to travel between solar systems so that we become an interstellar extraterrestrial species ourselves.

  • RichardD

    – It’s Official! Benjamin Netanyahu Proposes Mark of The Beast, Calls For All Children To Be Microchipped First

    This follows Bill & Melinda Gates filing patents for similar systems –

    https://www.newswars.com/its-official-benjamin-netanyahu-proposes-mark-of-the-beast-calls-for-all-children-to-be-microchipped-first/

  • nick1111

    Trump is a goddamn idiot

  • pp

    China is just a paper tiger before the USA :D.USA will crush dog eaters(Chinese) :D

    • cechas vodobenikov

      lol—if China is a tiger, Americans r cotton candy little kittens, revelling in their own urine

      • Jens Holm

        And pandemiocs are made by pandas too…

  • cechas vodobenikov

    the cowardly Americans r stupid,,but not this stupid—their fake economy can be shattered by China in 1 day—of course Russia already divested themselves of nearly all amerikan treasuries—we know amerikanr fake people that cannot be trusted….the US economy produces nearly zip—amerikans cannot compete—this is why they impose sanctions, tariffs and invade or financilize civilized peoples—without theft the US would become 4th world in 2 years

    • Jens Holm

      You have no idea about Western Economics at all. I wrote why yesterday.