The United States has always been the most indebted country in the world. Up to now, the scale of the United States’ debt has reached 30.5 trillion US dollars.

The “creditors” of the United States mainly include domestic private investors, American companies, fund institutions and central banks around the world.

First, China sells U.S. debt again

Until June 2019, China was the largest holder of U.S. debt. However, after 2020, Japan increased its holdings of bonds by $58.9 billion, surpassing China to become the largest holder of U.S. debt.

There are three main reasons why China holds U.S. debt. The first is that U.S. debt is more secure. Therefore, the country will invest in US debt as a stable investment product.

Second, U.S. bond yields are stable.

In order to obtain investment from other countries, the United States raised its own bond yields. The interest on US bonds is around 5.5%, and even if it is affected by inflation, the yield will be guaranteed at around 3%.

Finally, the liquidity of U.S. bonds is relatively high. The U.S. dollar is the only common currency in the world, and the import and export of commodities need to be exchanged in U.S. dollars.

Buying U.S. bonds can not only prevent the Chinese central bank from being squeezed, but also convert U.S. bonds into dollars at any time when needed.

However, from December last year to March this year, China sold a total of $31.3 billion in U.S. debt. Just some time ago, there was news that China once again sold $46.2 billion in U.S. debt.

China’s holdings of U.S. debt have fallen to $1 trillion. So, why is China selling U.S. bonds in a short period of time?

The main reasons for selling U.S. debt

In fact, the main reason for China to sell U.S. debt is related to U.S. inflation and the Fed’s continued interest rate hikes.

If the Fed continues to raise interest rates, the interest rate for holding U.S. Treasuries in the future will be higher than the current interest rate for holding U.S. Treasuries.

In order to obtain higher yields, various countries will choose to sell U.S. Treasuries and re-buy them at some point in the future.

In addition, the reduction of US debt is also to reduce the impact of US inflation on China. Inflation in the U.S. will depreciate the dollar, causing China to spend more on U.S. products.

If things go on like this, import trade will decrease and export trade will increase, which will have an impact on China’s import trade.

Finally, it is to reduce the risk of U.S. debt default. At present, the total amount of U.S. debt is 130% of U.S. GDP.

If the U.S. continues to accumulate high debt, once the economy is in crisis, the property safety of creditor countries and creditors will be lost.

Judging from the current state of the United States, once it defaults, the money of various countries cannot be recovered, which leads to the collective selling of US bonds by countries around the world.

At present, it is very difficult to pay off the huge debt in the United States in the short term. Only by continuously developing the economy can we pay off the debt as soon as possible.

So if China sells a lot of U.S. debt, what impact will it have on the U.S. economy? What kind of impact will it have on China?

3. The impact of selling U.S. debt on the United States and China

Appropriately reducing U.S. debt holdings can not only ensure China’s interests, but also play a role in stabilizing the global economy.

If a large number of U.S. bonds are sold, it will not only have a serious impact on the United States, but also have a very serious negative impact on China.

China is currently the second largest debt holder of the United States. If a large number of U.S. debts are sold, other countries that hold U.S. debts will sell U.S. debts one after another, which will affect the hegemony of the U.S. dollar.

In order to ease the economy, the Fed will once again use the method of printing money and raising interest rates to deal with it. This will lead to a more serious economic crisis in the United States, which will affect the global economy.

For China, if a large number of U.S. bonds are sold, the dollar will continue to depreciate, resulting in an appreciation of the renminbi. It’s not a good thing for the people of the country.

This would lead to disruption in China’s markets, which would have an impact on China’s economy.

Whether a country buys or sells U.S. bonds is for the country’s economic considerations, so it is necessary to adjust the holdings of U.S. bonds according to the actual situation

In general, the main reason why various countries are currently selling U.S. debt is to worry about the risk that the United States will default on its debts and freeze funds in other countries.

In addition, in order to reduce the impact of the US economic crisis on their own countries, it is also the main reason for countries to sell US debt.

The United States uses the hegemony of the dollar to impose restrictions on other countries. At present, Russia has begun to implement “de-dollarization” to avoid US restrictions.

If this situation continues in the United States, more and more countries will adopt “de-dollarization” to reduce the impact on the US economy.

So what do you think about the phenomenon of various countries selling U.S. debt?