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In recent years, China has repeatedly purchased U.S. Treasury bonds on a large scale, becoming one of the world's largest holders of U.S. bonds. However, recent data show that China's U.S. bond holdings have decreased, and while still ranking second in the world, the total has declined significantly. This phenomenon raises widespread questions about why China invests its hard-earned money in U.S. Treasuries.
US dollar foreign exchange plays an important role in international trade and investment, and can be used for large transactions such as oil, natural gas, iron ore, grain and high-tech equipment, as well as for international investment mergers and acquisitions, helping to protect against external financial risks. However, China's economic rise has led to fewer imports and more exports, resulting in a trade surplus. In 2022, China's foreign exchange reserves hit a record high again, and these huge foreign exchange reserves are only on the books, and excess foreign exchange funds may be under pressure from depreciation.
In this case, although buying U.S. Treasuries may not bring huge interest income, it is still a relatively safe option compared to foreign exchange depreciation. However, the United States has taken a series of pressure measures against China, which has made it possible for China to reduce its holdings of US Treasuries on a large scale. Recently, the US Treasury Department released news that since the United States is facing the debt ceiling problem, Congress needs to take urgent action to avoid a US default, which may have a serious impact on the US economy and global financial markets.
The United States is currently facing a serious inflation problem, and the government has taken a series of measures, but these measures, together with the existing fiscal situation, may only last until early June 2023. If the debt ceiling is not resolved in time, the United States will be plunged into a deeper crisis.
The debt ceiling is the maximum amount of federal government borrowing set by Congress, including Social Security, Medicare, and military salaries. Under the current debt ceiling standard, which is $31.4 trillion at the end of 2021, the U.S. government's borrowing authority is close to exhaustion, potentially leading to technical defaults and the risk of a federal shutdown. The U.S. Treasury warned that a default would have a ripple effect across the globe, and the impact would not be limited to the United States.
As the U.S. national debt continues to grow, the two major parties face enormous challenges. As of October last year, the US government has accumulated more than $31 trillion in debt, while fiscal spending continues to expand, and the Federal Reserve is gradually raising interest rates, resulting in the continuous expansion of US national debt. Historically, to address debt defaults, the U.S. government had to reset the debt ceiling so that the Treasury could issue new debt to meet its payment obligations.
In 2021, the United States set the debt ceiling at $28.9 trillion, but this adjustment did not have a significant effect. Then in December, the U.S. government raised the debt ceiling again, to $31.4 trillion, an adjustment that eased the crisis somewhat.
Now, in 2023, a new U.S. Congress is formed, with Democrats controlling the Senate and Republicans controlling the House of Representatives, a political landscape that complicates the debt ceiling issue. Some U.S. politicians advocate deep cuts to the government budget to better negotiate a debt ceiling increase, but the White House has said it will not compromise, arguing that raising the debt ceiling is an unconditional task. Therefore, the United States will continue to suffer from huge debt pressures in the future.
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