I just finished reading a new white paper about US debt held by foreign banks and governments. Hair-raising, eye-opening, piss yourself shit. I dread delivering this news to my clients.
Here's the short version-
For the last 60+ years, since the US$ has been the only currency that can be used to buy oil, and thus has been the de facto reserve currency of the world, the US has been able to export domestic inflation to developing countries. They send us oil, copper, iPhones, clothing, TVs, and Barbie dolls, and we send them pieces of paper with dead presidents on them.
Now, with economic weakness, inflation, and uncertainty dominating the news, these countries are beginning to wonder if those pieces of paper are actually a good trade. No country (since the majority of these dollars are held in the form of US Treasuries by foreign governments) wants to see their investment lose value, but many of them are starting to think that divesting themselves of these assets might be wise. No currency- the yen and euro have their own major issues, the pound, Canadian dollar, Swiss franc and Aussie dollar are too small, and the yuan isn't "ready for primetime"- can be seen as a safe haven.
It has become a game of economic and political chicken. Biden was in China this week to reassure them the US was still A-OK, but reports leaking out are that it was not a pleasant visit. Since China is the biggest player, they have the most to lose, but they have their finger on the trigger to dump hard and heavy if Japan or the UK (the #2&3 US debt holders) blink, and may pre-empt them if they sense a change. The Jackson Hole meeting this weekend was apparently the most tense in history.
Okay, final analysis- slow, backdoor divestment is taking place by all foreign holders (do you think Apple and Google stock has been rising because they're great companies?) and all of them are starting to get itchy and twitchy about being left "holding the bag" and a massive liquidation of debt could happen any day. They know it will be harmful to their own economies, but have to balance that with knowing that continuing to hold the debt when other countries are selling will be worse.
What does this mean? The US$ is in deep shit, and a massive debt dump would paralyze the US economy- imported goods would rise in price 3-10x overnight, mass shortages of tech goods, imported cars, and non-domestic foods...fuck, I don't even want to think about it anymore.
I'm taking a Valium (or 3) and going to bed. If I don't then I'll never sleep and I've got to catch a plane at noon.