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Text | Xi Zhi Xu A
Editor|Xizhi Xu A
preface
In just four months, the United States issued nearly $900 billion in treasury bonds, and there is no problem with this behavior as long as it is compliant, but the United States does not allow us to issue treasury bonds.
U.S. Treasury bonds
What is a national debt? In layman's terms, U.S. Treasuries can be thought of as an IOU that the government borrows money from people. Governments issue bonds that promise purchasers (such as individuals, institutions, or other countries) the return of the principal within a specific period of time and pay interest in return for borrowing.
By issuing U.S. Treasuries, it is essentially borrowing from the world. After a bipartisan consensus in the U.S. and raising the debt ceiling, many knew that the U.S. would increase the money supply again, but may not have anticipated the current pace of money printing in the U.S. In just two weeks in late May, the Biden administration has issued about $600 billion in U.S. debt, bringing the total U.S. Treasury debt to $32 trillion, surpassing the previous $31.4 trillion.
According to Wall Street reports, the Biden administration will issue another $850 billion in U.S. bonds in November this year, and the U.S. debt will reach $1.1 trillion before the end of this year.
In fact, the United States has long been burdened with huge debts. According to data from relevant institutions, as of 2019, the total size of the US national debt has exceeded 22.5 trillion US dollars, accounting for about 105% of US gross domestic product (GDP). This sheer size of the debt means that the average U.S. citizen bears about $68,000 in government debt. It can be said that the debt is piling up and weighing on the head of the United States.
By the end of 2020, the US national debt had reached $26 trillion. It is expected that the new $3.5 trillion of national debt will bring the US Treasury debt to exceed the $30 trillion mark by the end of 2021.
Such a huge debt is like a ticking time bomb, constantly touching the nerves of the US leadership. Unfortunately, the Biden administration has gone to further exacerbate the US debt problem for the benefit of its own party, like putting another hole in an already leaky ship.
Although the United States itself is constantly in debt, it tirelessly meddles in China's affairs, even loudly denying that China is not allowed to borrow money. Recently, U.S. Treasury Secretary Janet Yellen openly declared that China was "not eligible" for World Bank loans. However, we are all aware that the real intention behind Yellen's remarks is to use US financial influence to deliberately limit China's economic development.
China's counteraction
In fact, this argument is ridiculous. The United States is heavily indebted and tries to put the name of a developed country on China, with the sole aim of depriving China of the trade and economic preferences that it is entitled to as a developing country.
As a developing country, China deserves to enjoy the advantages offered by international organizations, including low-interest loans from the World Bank. However, the United States is unhappy with this and has repeatedly played up China's status as a developing country. Now, Yellen has once again come forward to make a statement, which clearly shows that the Biden administration has no willingness to compromise, and they are still trying to solve the problem by putting pressure on international organizations.
The United States uses the so-called values issue to concoct public opinion, only to undermine China's foreign cooperation by provoking ideological differences. This is a typical malicious act, and the United States uses its position of inferiority to suppress China. However, such despicable tactics can only reveal the inner jealousy and weakness of the United States, and no matter how much they try to limit, China will firmly follow its own development path and will not be interfered with by any force.
In the face of the wrong remarks of the US side trying to harm China's national interests, China will never sit idly by. At a regular press conference, Chinese Foreign Ministry spokesman Wang Wenbin refuted these remarks by the United States one by one.
First of all, international banks are multilateral financial institutions, not alone for the United States, secondly, China has always adhered to international principles and cooperated with developing countries, on the contrary, the United States is the party that interferes with the market, manipulating the debts of relevant countries, resulting in turmoil in the global financial market.
On the contrary, it was the unprecedented interest rate hike by the United States that made the debt problems of the countries concerned worse, causing further shocks in global financial markets. The logic of Wang Wenbin's statement is very rigorous and powerful, and the US side obviously cannot directly respond to China's rebuttal.
History of the U.S.-China financial war
In fact, the origins of U.S. Treasuries can be traced back to the Revolutionary War, when the U.S. government issued bonds to finance the war, marking the emergence of the early U.S. Treasury market. By combining the analysis of world history and the history of US Treasury issuance, we can divide the development of US Treasury bonds into three stages: before World War I, between the beginning of World War I and the end of World War II, and from the end of World War II to the present.
In fact, the national debt is not the root of the problem, the root of the problem lies in the hegemonic position of the United States. The hegemony of capital of the United States plays an important role in the financial field and dominates the "rules of the game" of the international capital market. The United States enjoys the dividends of these rules, but does not bear the corresponding responsibilities. In the financial sector, there are frequent chaos such as capital kidnapping politics and obstruction of regulation, which has repeatedly troubled the global financial system.
Unfortunately, the hegemony of capital has victimized ordinary people in the United States and investors around the world, and the financial oligarchy is the one who really benefits. During the recent banking crisis, investors who went all out found that Silicon Valley Bank executives had accurately sold stocks before the situation was revealed, cashing out precisely. According to SEC records, the CEO of Silicon Valley Bank sold shares of the bank for nearly $3.6 million less than two weeks before the bank closed.
In recent years, the US economy has been too virtual, and the government and enterprises have pursued capital operations, chased short-term profiteering, and ignored the development of the real economy and breakthroughs in innovation capabilities, resulting in the false prosperity of the capital market and the dilemma of the real economy becoming increasingly prominent. This contradiction is constantly intensifying, bringing increasing pressure to the capital market and the real economy. The U.S. Treasury is also issued in response to this increasing pressure.
Since China became the world's second largest economy in 2010, Sino-US relations have become the focus of academic research. Financial issues between China and the United States have always been an important issue in bilateral relations. Since 1949, Sino-US trade has gone through three phases: a period of total isolation (1950-1969) beginning with the imposition of a comprehensive embargo against China in November 1950, a limited recovery phase (1969-1976) beginning with the Nixon administration's announcement of a partial lifting of the ban on trade with China in July 1969, and a comprehensive development phase from 1977 when China moved toward reform and opening up. The comprehensive development stage was driven by China's pursuit of modern economic needs, and the United States and China partially put aside political difficulties and promoted the full normalization of bilateral relations, including economic and trade relations.
Unfortunately, the United States has never given up its legitimate interests in exploiting other countries, and the struggle between China and the United States for financial and political superiority has never stopped. The US-China trade war dates back to 2018. In March 2018, U.S. President Donald Trump announced tariffs of 25% and 10% on imported steel and aluminum products, and listed China as one of the main targets, triggering a trade dispute between China and the United States.
Then, in September 2018, the two countries continued to impose tariffs on each other, with the United States imposing a 10% tariff on Chinese goods worth more than $200 billion and subsequently raising the tariff to 25%.
However, in May 2019, the two sides disagreed in trade talks that eventually broke down, with the U.S. government announcing an additional 25% tariff on $200 billion worth of goods from China. It wasn't until December that the United States and China reached a phase one trade deal that put further tariff escalations on hold and began negotiations and consultations on agricultural products, intellectual property protection, exchange rates, and more.
At present, although the Sino-US trade situation has eased, trade tensions have not been completely resolved, and Sino-US economic and trade relations are still facing challenges.
China is the world's largest holder of U.S. bonds, and the Chinese government obtains safe and stable returns by purchasing U.S. Treasury bonds, a relatively stable investment in foreign exchange reserves. However, we cannot ignore the risks posed by the huge US Treasuries. To delve into the root causes of China's massive holdings of U.S. Treasuries and their impact on the Chinese economy, we need to take a deeper perspective. At present, the adverse impact of China's continued increase in US Treasuries is more pronounced than the favorable impact. Therefore, China needs to be prudent and gradual in its way to effectively avoid risks by slowly reducing its holdings of US Treasuries.
Today, China's economic development has slowed down, but it still maintains a steady growth rate. China is steadily entering the international financial market, and its status and voice are increasing day by day. The medium-high growth of China's economy has played an important role in promoting world economic growth, which cannot be ignored. However, we cannot ignore the volatility and shock caused by frequent and far-reaching international financial transactions around the world and the outbreak of financial crises around the world, which pose great challenges to China's financial security and stability.
China and the United States are the world's largest creditors and debtors of the United States, respectively, and the development of the US economy also has a profound impact on China's economic development, especially overseas trade. The size of US Treasury bonds held by China will affect the RMB exchange rate and the domestic economic development order. In the current international financial environment, how to deal with the risks and challenges brought by discordant factors in the world to China's economic growth has become an important topic for many scholars to think and study, especially in the era of economic downturn, how should we seek new breakthroughs in adversity and give play to China's due role and acceleration as a major country.
For a long time, the dollar's status as the global currency allowed the United States to cut off decades of economic benefits from countries around the world. Now, there is a trend of "de-dollarization" on a global scale. In the next decade or even decades, whether the dollar can continue to maintain its status as the global currency has become a huge question. In addition, the United States continues to issue large amounts of bonds, exceeding its capital strength, which is already showing signs of a Ponzi scheme.
In the context of the rapid changes in the current global political landscape and the escalating Sino-US economic and trade frictions, we need to maintain a prudent sense of distress and rational and objective economic thinking to reasonably view the potential impact and possible risks of China's holding of huge US Treasury bonds.