Investing General Discussion

Kiroy said:

I have no idea how the bonds market works but isn't it a self correcting problem if the rise is china dumping and not some other factor? They dump, rate goes up, everyone else buys cause why the hell not.

I see a lot of punditry saying it's rising because "muh instability", which is it?

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How it will cause problems is that the T bond rates go up when people sell/dump them, because of how T bonds work. This becomes an issue because when the US needs to issue new debt, or refinance existing debt, it has to sell bonds on the bond market. When it does it has to pay interest on those bonds high enough that people buy that new debt rather than existing bonds which might be trading at a higher rate.

So China is trying to make the upcoming need for the US to refinance the bulk of the national debt as expensive for us as possible. Push that rate up too high and more of the US budget has to go to servicing the debt, which means either even larger deficits, or cuts in spending elsewhere.

What we have to realize is that we're engaging in not just a "tariff war" but a wholescale economic conflict with China, and this has been a "cold economic war" for a while, but it's heating up. Tariffs are part of it, Bond rates are part of it, Do Chinese companies get to keep trading their stock on American exchanges, etc... (There are a lot of economic fronts to fight on) And who gets to be the default reserve currency will be the end prize of it, because just as we have enjoyed the perk, whoever is the default reserve currency gets a lot of leeway in the world.

Sanrith Descartes said:

They are selling them, someone is buying them. Are they selling them and taking non-dollar denominations for them? Are they just taking dollars for them and holding dollars?

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I have my suspicions.. and well... if you look over here....

Arden said:

Assuming the new reserve currency is attached to a country.

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See above as one alternative. And as much as many of us dream of the day of BTC being the default for reserves the fact that no country (or group of countries) controls it means they probably won't accept/embrace it for something for core to their survival.

Haus said:

I have my suspicions.. and well... if you look over here....
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See above as one alternative. And as much as many of us dream of the day of BTC being the default for reserves the fact that no country (or group of countries) controls it means they probably won't accept/embrace it for something for core to their survival.

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Yeah, but gold is illiquid. I understand that no reserve currency stays that forever, but what other super liquid currency is going to become the reserve? I remember a talk I heard a few months ago saying that most other "stable" currencies don't even have the required circulation amount to take on a quarter or even a half of the dollars that are in play right now. So the issue comes back to what China is going to do with all the money they are getting from the T bill sales. If the world is not going to use the yen or the ruble as a reserve currency (and they are not), then where is it flowing?

OU Ariakas said:

Yeah, but gold is illiquid. I understand that no reserve currency stays that forever, but what other super liquid currency is going to become the reserve? I remember a talk I heard a few months ago saying that most other "stable" currencies don't even have the required circulation amount to take on a quarter or even a half of the dollars that are in play right now. So the issue comes back to what China is going to do with all the money they are getting from the T bill sales. If the world is not going to use the yen or the ruble as a reserve currency (and they are not), then where is it flowing?

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You say gold is illiquid, but countries deal in gold reserves still to this day. It's just become unpegged from the currency valuation directly due to FIAT currency becoming en vogue. For instance : In China, they have a lot of gold in the ground, but don't have a lot of companies that are great at extracting it. They will allow external companies to come in and extract/refine gold. But there's one catch. They have to sell all gold they extract to the Chinese government (they get paid market value it seems). China has been accumulating gold for a while. They just might also be shifting their T bills into that as well now.

This would help them if the eventuality of a BRICS reserve currency comes to pass in the way it's been spoken of. Which would be as a reserve currency backed by as assortment of assets reserves.

Arden said:

You're absolutely correct on this. My only thought was it's possible nobody "chooses" it, and that it ends up kind of inadvertently being the only option because no one can agree on an alternative.

But yeah, gold certainly seems like the winner. That said, I don't know if gold would ultimately work out. Maybe it just becomes a temporary landing spot.

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Well, with a default reserve currency, we're getting back to the core of what "money" is. It just has to be something all parties involved agree has an intrinsic value representation as a proxy for things of value (be that goods, service, whatever). The market/world seems to agree that BTC (like gold) has a value. But also there are concerns about BTC that don't exist about gold. Such as "how valuable is your BTC if we're in a global conflict and the internet as we know it is fragmented into regional/continental networks?" But I'll try to keep my monetary policy philosophical ramblings from derailing this thread. heh

OTOH, I also want to know what the top of the stack being 6 figures deep means. I assume the outstanding sale offers are outnumbering matching buy orders by over 100k? Meaning there's a lot of selling demand, but no buyers at the moment, which would mean get ready for a price collapse? Blazin ?