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In May this year (2024), on the Sixth Avenue sign in Manhattan, New York, the figure of the US national debt has reached 34.7 trillion US dollars, which is close to the 35 trillion juncture.
Unlike the rapidly expanding scale of US bonds, China has continued to sell US bonds in recent years.
In the first two months of this year, China has reduced its holdings of $41.2 billion in U.S. debt.
The mainland's total holdings of U.S. debt fell to its lowest level since 2009.
China's continued reduction of holdings of U.S. bonds has undoubtedly further exacerbated the market risks of U.S. bonds, which are already low liquidity and high yields to maturity, and also made the largest receiver of U.S. bonds unable to sit still.
Who are the big dealers behind the U.S. Treasury bonds?
The soaring total volume of U.S. debt
U.S. bonds, that is, bonds publicly issued to the market by the U.S. federal government, are one of the means for the U.S. government to raise funds, expand fiscal spending, and alleviate the pressure on fiscal deficits, and are also a major portrayal of the hegemony of the U.S. dollar.
The history of changes in the U.S. debt is, from a certain point of view, the history of the development and transformation of the U.S. economy.
During the Cold War, in order to compete with the Soviet Union, the United States was still an industrial country based on industry.
During this period, the United States also had relatively prudent fiscal policy and was very cautious about government deficits.
This has kept the U.S. federal government's debt ratio at a relatively low level.
Until the collapse of the Soviet Union in 1991, the size of the U.S. debt was only 3.6 trillion US dollars, compared with 6.1 trillion US dollars of GDP that year, accounting for less than 6%.
But as the prospect of victory or defeat in the Cold War between the United States and the Soviet Union became more and more apparent, the United States, as the victor, gradually began to let itself go.
In fact, as early as Reagan came to power (1981-1989), a hurricane of "neoliberalism" was set off in the United States.
As a result, American society has begun to move away from reality to fiction.
The ultimate consequence is that the real industry in the United States continues to shrink and move out.
And the proportion of social resources invested in virtual finance is increasing.
This shift has made the U.S. fiscal policy more aggressive, and the federal government's fiscal spending has continued to deteriorate.
Why is the U.S. caught in a debt trap?
On the one hand, of course, after the collapse of the Soviet Union, the invincible Americans began to indulge in the joy and enjoyment of victory, the economy turned from real to virtual, the government became more and more arrogant and lascivious, and the fiscal deficit inevitably expanded.
On the other hand, the United States, after the defeat of the Soviet Union, became a place of global wealth.
This allows the United States to issue U.S. bonds at very low interest rates all the time.
At the time, the United States did not immediately feel the pressure of rising debt.
A set of data can prove it.
In the 25 years from 1997 to the first fiscal year of 2022, the scale of U.S. debt soared from 5.5 trillion to 30.4 trillion, an increase of more than 450%.
In the same period, the total interest on U.S. bonds increased by only hundreds of billions of dollars, an increase of only 73%.
In addition, the subprime mortgage crisis in the United States in 2008 became another turning point that accelerated the expansion of the US debt.
In order to save the economy, the Fed embarked on an unprecedented "QE policy" (quantitative easing).
That is, to inject liquidity into the market by aggressively widening the size of the deficit and increasing the issuance of U.S. bonds.
This move has brought the US economy out of the trough temporarily.
At the same time, the "MMT theory" was also emerging in the United States.
This emerging economic theory, which takes "domestic debt is not debt" as the underlying core logic, has provided a theoretical basis for the expansion of US debt, and has once again accelerated the expansion of US debt.
After several rounds of accelerated factors, the scale of US debt has reached an alarming speed.
According to Wall Street data, the size of U.S. debt has been climbing rapidly in the past few months at a rate of $1 trillion per 100 days, $10 billion per day, and more than $4.16 per hour.
As of May 6 this year, the scale of U.S. debt has reached an unprecedented 34.7 trillion.
The crisis of the U.S. debt can be seen.
Japan to be slaughtered
While the scale of U.S. bonds is expanding rapidly, in addition to the rapidly increasing interest, another question has gradually emerged in front of the U.S. government: Who will buy such a huge amount of U.S. bonds?
For a long time, China has been the largest creditor of the United States overseas, and it is the largest overseas receiver of US bonds.
However, as China's national strength continues to increase, the rising China has gradually become a partner of the United States and transformed into its biggest competitor, and various repressions and restrictions on China have followed.
Especially after Trump took office in 2016, the United States took the initiative to provoke a trade war, a technology war and a public opinion war against China, completely treating China as a competitor, which also caused Sino-US relations to fall to a freezing point.
Against this backdrop, China's approach to the United States will inevitably shift, and its attitude toward U.S. debt will also undergo a major change.
In recent years, China has continued to reduce its holdings of U.S. bonds, and as of February this year, the mainland's holdings of U.S. bonds were only $775 billion, the lowest since 2009.
So, while China is reducing its holdings of U.S. bonds, who has become a keyboard warrior?
Probably the answer for most people is, Japan and the United Kingdom.
Japan has continued to increase its holdings of U.S. bonds so far this year, and its total holdings have reached a record high of $1.16 trillion.
And Britain is not far behind.
As of February this year, its total holdings of U.S. bonds had exceeded the $700 billion mark, and it was only a matter of time before it surpassed China to become the second largest overseas buyer of U.S. bonds.
But is it really beneficial for Japan and the United Kingdom to take over U.S. bonds against the backdrop of the U.S. continuing to release water and the credibility of the U.S. dollar being greatly impacted?
As a "conjugated father and son" with the same roots as the United States, Britain is highly bound to the United States in terms of national interests.
It may be understandable to take over U.S. bonds, but Japan's large-scale holdings of U.S. bonds have undoubtedly become a "blood bag" for the United States to return blood.
In fact, Japan has become the worst country to be harvested by the United States in this long cycle of interest rate hikes that began with high inflation during the pandemic.
In just two years, the yen has plummeted from around 100 to 150+ today, almost halved.
As a result, Japan has experienced a foreign trade deficit for more than 10 consecutive months despite the continuous depreciation of the yen and the continuous enhancement of the competitiveness of commodity exports.
For an export-oriented country, it is undoubtedly a catastrophe.
In this case, the normal course of action of the Bank of Japan should be to use foreign exchange reserves and buy yen from the market with dollars to stabilize the exchange rate.
But what is a headache for the Bank of Japan is that about 90% of its $1.29 trillion foreign exchange reserves are held in US bonds.
As a result, if you want to save the market, you have to sell US bonds.
With Treasury yields high, such a massive sell-off would clearly touch Americans' interests.
Unfortunately, Japan is essentially a "colony" heavily controlled by the United States.
The country's choke points were controlled by the U.S. military, and the post-war political system was shaped by the Americans.
As for the Tokyo District Inspection, which is nicknamed the "Japan Branch of the CIA" by netizens, it is a sword of Damocles hanging over the heads of Japanese politicians and capitalists.
After all, Japan has become a lamb to be slaughtered on the table by the United States in order to restore blood.
But if we eat Japan, will we be able to alleviate the debt crisis of the United States?
Not necessarily!
The real receiver of U.S. bonds
Japan, the world's third-largest economy for many years, has a large enough plate, but even if it is eaten up by the United States, it will be difficult to solve the debt crisis of the United States.
This is because the United States itself is the biggest receiver of U.S. bonds.
In fact, the total amount of U.S. debt held by overseas buyers is only a few trillion dollars.
The bulk of U.S. bonds is actually in the United States, and the Federal Reserve is the largest market maker in the U.S. bond market.
The reason for the emergence of the miracle that the Americans themselves are the biggest receivers of US bonds is mainly due to two reasons.
First, it is determined by the logic of money printing in the United States.
What we often call watermarking money in the United States is essentially that the Federal Reserve prints new banknotes and then buys Treasury bonds issued by the U.S. government.
After receiving the dollars, the U.S. government will use the widening of the fiscal deficit to put the dollars into the market.
Therefore, in the process chain of U.S. bond expansion, it is inevitable that the Fed will buy U.S. bonds.
It is not surprising that the Fed has become the largest buyer of US Treasuries.
Second, for a long time, U.S. bonds have been the world's most stable and value-preserving financial investment projects, with stable returns and high market liquidity.
Therefore, such high-quality financial products naturally have to take care of buyers in the United States first.
As a result, most of the US bonds that the Fed has put into the secondary trading market have been bought by the Americans themselves.
But at this time and from time to time, the once U.S. debt is a sweet spot that people in the world are vying to buy.
But under the unbridled watermark of the United States, the value of dollar assets is no longer strong.
To add insult to injury, the credibility of the dollar has been greatly reduced by the fact that the United States has brazenly confiscated the overseas assets of the Russian government and even Russian capitalists in the Russia-Ukraine war.
Whether it is to hedge against the loss of US dollar reserves caused by the release of water, or the possibility that the US may directly grab assets, it has become the general trend for most countries in the world to reduce their holdings of US bonds.
As a consequence of the soaring size of the US debt, the interest paid by the US government each year has also skyrocketed.
In 2022, the U.S. government paid about $720 billion in interest, reaching $896 billion in 2023.
According to the U.S. government's own estimates, it will have to pay more than $115 million in interest in 2024.
What's even more terrifying is that the current overall interest rate on U.S. Treasuries is only 2.97%.
With the successive maturing of old U.S. bonds, under the current high interest rate of 5.5% in the United States, the interest rate on U.S. bonds will further increase in the future, reaching almost half of the annual fiscal revenue of the United States.
With such a lack of food, it is only a matter of time before the credibility of the US government goes bankrupt.
epilogue
To resolve the U.S. debt crisis, the U.S. can only stop the bleeding by reaping the global harvest through dollar hegemony.
But because of China, the United States has barely blown up any major economies in the past two years of interest rate hike cycles, which can only force the United States to take action against its own allies.
As Blinken put it, "It's not on the table, it's on the menu," and Japan may be the first victim to be sacrificed to the table by the United States.