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Financial risks to the United States are becoming more pronounced. On March 17, Silicon Valley Bank announced that it had filed for bankruptcy protection, a news that shocked global financial markets. Silicon Valley Bank used to be the 16th largest bank in the United States, but it collapsed in less than 40 hours.
The bank was named America's Best Bank in 2023, however, from March 9, executives began cashing out on a large scale until the 11th declared bankruptcy. U.S. Treasury Secretary Janet Yellen acknowledged that the Fed's constant interest rate hikes led to the depreciation of the assets of financial companies that hold U.S. Treasuries, which eventually led to the collapse of Silicon Valley banks.
Although the Federal Reserve and the Federal Deposit Insurance Corporation have promised to pay full for the loss of deposits by Silicon Valley bank customers, it does not imply funding for financial corporations. The reason is that the U.S. Treasury is facing serious problems.
The U.S. national debt has been depreciating and has reached a staggering $31.36 trillion, close to 36 percent of U.S. gross domestic product. Beyond $0.04 trillion, the U.S. legal debt ceiling would be reached. This would mean that the United States could no longer print dollars or issue Treasury bonds, and all financial plans would go down the drain.
The United States has tried to offset old debt by issuing new debt, but such practices are actually equivalent to paying off one credit card to another, sooner or later overdrawing the Fed's room to raise interest rates. Either way, the U.S. debt default crisis is a foregone conclusion. Whether or not this crisis turns into one depends on the actions of the United States itself, and the last financial crisis only postponed the problem.
While countries in the international monetary system and countries holding large amounts of U.S. Treasuries will help the U.S. weather the storm, who will ultimately bear the huge bubble? This is a problem that cannot be ignored.
Therefore, when the United States asked Chinese companies to be included in the pre-delisting list, Chinese companies did not hesitate to announce their withdrawal from the US market. A series of enterprises such as PetroChina, Sinopec, Chinese Life, China Tourism, China Aluminum, and Shanghai Petrochemical have all withdrawn. According to the regulations, delisted companies must buy back shares, which requires a large amount of foreign exchange. China holds just $1.3 trillion in U.S. Treasuries, so it began a massive sell-off of U.S. bonds.
The US debt ceiling has caused crises many times. Since the U.S. Congress first set the debt ceiling in 1917, the United States has faced the debt ceiling problem many times, usually by the government announcing that the ceiling will be adjusted according to the country's economic conditions, and senior officials meeting to decide to raise the ceiling. This time is no exception, with Treasury Secretary Janet Yellen planning to raise the debt ceiling again.
The Republican Party and the Democratic Party in the United States have been in power alternately, and the two parties are vying for power. Republicans tend to boost U.S. national power and solve the fiscal crisis, and have proposed plans to prioritize some debt repayments, with China among the priorities. However, Yellen believes that this approach is extremely risky because the renminbi's growing position in the international market poses a huge challenge to the United States.
China's holdings of U.S. Treasuries are huge, and if repaid to China, it will deal a huge blow to the U.S. economic order and social security system. The United States is facing a debt default crisis, even European countries close to the United States have sold their US government bonds, and the international confidence crisis of the United States is becoming increasingly serious.
After the outbreak of the Russian-Ukrainian conflict, the United States and other countries directly froze Russian bonds, which made it clear to countries that the United States could indeed do it if it did not admit it. Therefore, Russia gave up the US national debt, which other countries can only recognize, otherwise who will bear the price of this bubble?
These additional bonds are equivalent to the US printing dollars on a large scale again, a move taken by the two countries holding the most US Treasuries, exacerbating the US currency problem. Countries around the world are watching America's moves closely as they choose between keeping the dollar and protecting themselves.
Chinese use of the international trading currency of the RMB is growing, the euro monetary system is re-emerging, and the competitors of the US dollar are actively preparing. The bipartisan struggle in the United States is fiercely contested, but at the cost that the United States is overdrawing its future economy to win the support of more voters.
Yet, despite such an urgent crisis facing the United States, elites are
Yet, despite such an urgent crisis facing the United States, elites seem to ignore this reality as part of a fiscal game. For them, their own interests are the primary concern, and they seem to care less about the catastrophe that the US debt ceiling problem may cause or the US economic order. They seek only their wealth and power.
These elites seem to have a gambler mentality that even if something goes wrong, they won't have to bear the consequences. They seem to believe that there will always be a risk-free solution that can pass on the currency problem to other countries.
However, this debt-shifting strategy has become increasingly difficult to implement in recent years, and many countries that could have helped the U.S. ease its currency problems have begun to dump U.S. Treasuries. These former "leek" countries are also no longer willing to be cut.
What is the strategy of China and Japan, the two countries with the most U.S. Treasuries? China began a massive sell-off of U.S. Treasuries in March 2022 and has reduced its holdings from more than $1.3 trillion to $859.4 billion by January alone. Japan also began selling U.S. Treasuries in April, adding $12.6 billion in June under pressure from the United States, but this did not change Japan's resolve, followed by a large number of U.S. Treasuries in July and August. The United States had to issue a warning to barely halt Japan's sell-off. Today, however, Japan holds only $1.1202 trillion in total U.S. Treasuries.
This not only represents an accelerated de-dollarization plan in Japan, but also means that the currency problem in the United States will become more serious. The returned U.S. Treasuries are in fact equivalent to freshly printed paper money, and the United States is now under pressure from the two largest holders to sell their debts at the same time, even if the US economy is mature, it is difficult to cope easily.
At the same time, countries around the world are watching the movements of the United States closely as they weigh the pros and cons between supporting the dollar and protecting themselves
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