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Comment by cmcaleer | Hacker News Reader

It's as much a gun to adversaries' heads if they hold lots of your bonds (China used to hold over $1T in USTs) so they would have an interest in not having that blow up by not annoying the US so much they refuse to pay foreign bonds.

It's also kind of neat as a financial MAD instrument, because China obviously can't just get everyone to go into their brokerage and market sell a trillion in USTs so they get a lever to pressure the US with but they can't go nuclear without also vaporising their own value. So it works as a melting ice block on which diplomacy is forced on both sides.

The death of the UST as a reserve instrument would be a catastrophically bad loss, the only silver lining is that the melting ice block might still be enough by the end of this admin that the new admin might have enough to stand on to rebuild it should they realise the value of it.

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After the US Dollar with Luke Gromen

https://youtu.be/OOW-oSruO80?t=4072

Luke's key point lands at about 1:08:27–1:08:33, where he says that instead of selling treasuries outright (which would draw attention from the American embassy), China can use them as collateral — and the American banks are happy to take it. He then lists what China gets in return: "I'll take Pereus. I'll take that oil field. I'll take that copper mine. I'll take all that gold." He then adds that this works because the incentives align on both sides — the Chinese want to understate their strength, the Americans want to overstate theirs, and the American banks are happy to accept dollar collateral without asking too many questions.

Damn that’s actually a crazy thing to think about but makes perfect sense. Thanks for sharing

Aren't these things just legal fictions that only exist because/as long as the US government allows it?

Yes, after Ukraine war started, there are instances of companies's stakes being sold for 1$ only. So yes it is all legal fiction but we have to operate according to that fiction in peacetime world order setup we are in.

> It's as much a gun to adversaries' heads if they hold lots of your bonds (China used to hold over $1T in USTs)

There is a complicated dynamic at play to consider there. Treasuries and the strength of the dollar only matter to wrt international trade, for both China and the US. You have to ask yourself if the value of the dollar went to 0 for that use case, who would be in a worse position, the one that sells dollars to support consumption, or the one that buys them as a tool for trade with 3rd parties?

They can also just not roll them over. That takes time, but it's a good % of holdings each year.

> by not annoying the US so much they refuse to pay foreign bonds.

The problem with this is that a country can only refuse to pay their foreign bonds once. But the buyer can always dump them and scoop them up later for cheap when shit hits the fan.

Hi from Argentina!

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