US May Raise Rates 8% to Counter China, China Sells $22.7B in US Debt

As the second-largest holder of U.S. debt, China has once again consecutively reduced its holdings of U.S. bonds, while significantly increasing its gold reserves during the same period.

Ignoring Yellen's assurance of prioritizing the repayment of Chinese debt, we continue to reduce our holdings of U.S. bonds.

What deeper considerations lie behind this?

Currently, U.S. bonds are increasingly difficult to sell.

Although the Federal Reserve has been selling a large amount of U.S. bonds, it is still incurring huge losses.

If high interest rates continue to be maintained, the Federal Reserve may face the embarrassing situation of having to shut down, and the U.S. may also face a decade-long economic recession.

China Reduces U.S. Debt Again After reducing U.S. debt by $18.6 billion last time, China has once again reduced its holdings by $22.7 billion this time.

Starting from August 2022, China began to reduce its holdings of U.S. bonds and continued for seven months.

It increased its holdings in the month when Silicon Valley Bank failed, and then continued to reduce for another seven months, until it increased its holdings for two consecutive months in November and December 2023, and now it has started to reduce again.

Currently, China holds a total of $775 billion in U.S. bonds, which is only a step away from the $700.8 billion held by the United Kingdom in third place.

If China continues to reduce or even clear its holdings, it will inevitably lead to a reversal of global countries' attitudes towards U.S. debt.

It should be noted that China once held more than $1.32 trillion in U.S. bonds and has already reduced its holdings by more than 40%.

China's continuous reduction has also triggered a trend among other countries around the world.

The U.S. debt crisis has severely damaged the status of the U.S. dollar, which may lead to a decade-long recession in the U.S. economy.

The frequent visits of high-ranking U.S. officials to China also indicate the issue.

When we increased our holdings of U.S. bonds in the past, many people raised doubts, thinking that we should continue to reduce our holdings instead of increasing them.

Some even said that we should reduce by 100 and increase by 500.

Is the situation really like this?

Of course not.

In fact, over the past two years, we have only increased our holdings for three months, and for the rest of the time, we have been reducing.

Why do we occasionally increase our holdings?

There must be special circumstances, such as the increase in the month when Silicon Valley Bank failed, which was a short-term operation to gain interest rate differences.

As for the issue of increasing U.S. bonds for two consecutive months, let's think about what happened at that time?

That was before the increase, when U.S. officials rushed to visit China one after another, and even big figures like Kissinger personally came over, eventually leading to the talks in San Francisco.

So, it is quite reasonable to increase our holdings of U.S. bonds in stages at that time to make some responses to the U.S. side.

In recent years, we have been selling a large amount of U.S. bonds in our hands and changing them into gold.

As of the beginning of April, we have been buying gold for 17 consecutive months.

At the same time as we reduced our holdings of U.S. bonds by $22.7 billion, we increased our holdings by 12 tons of gold in February and 160,000 ounces of gold in March.

Currently, our official gold reserves have reached 2,263 tons.

According to the latest data from the World Gold Council, since the beginning of 2023, China has become the world's largest gold importer, with a total import of up to 1,420 tons of gold.

Moreover, in addition to the gold we have bought ourselves, there may be a lot of other channels for gold to enter China, and this number is definitely much more than we know.

In the past two years, some mysterious buyers have appeared in the international gold markets of London and Switzerland.

Due to the increasing dependence of the U.S. economic growth on the virtual economy, severe inflation, and the persistent high fiscal deficit, the speed of issuing U.S. bonds has become faster and faster.

Although China is still the second-largest holder of U.S. Treasury bonds, we have gradually become the largest foreign seller of U.S. Treasury bonds.

Many authoritative people predict that if China continues to hoard gold while reducing its holdings of U.S. Treasury bonds, it will make many of America's trade partners feel uneasy, which will undoubtedly have a great impact on the U.S. debt economy model and the status of the U.S. dollar.

According to the latest data, the yield on U.S. Treasury bonds has begun to rise significantly, especially the yield on 10-year U.S. bonds, which has risen sharply, reaching a high of 4.69%, breaking the record set in November last year.

The rise in U.S. bond yields indicates that the downward pressure on U.S. Treasury bonds is gradually increasing, and the market's selling situation has also become more severe, with investors starting to sell U.S. Treasury bonds one after another.

As of April 2024, the U.S. is still issuing bonds at the speed of the epidemic period, making the circulation market size of U.S. Treasury bonds expand to an astonishing $27 trillion, an increase of 60% compared to before the epidemic.

Since the subprime crisis in 2008, the scale of U.S. debt has increased by 600%, which means that if a financial crisis occurs again, the impact will definitely be more serious than before.

The proportion of the U.S. government's expenditure to GDP has reached the level of World War II, so it can be said with certainty that the problems faced by the U.S. economy are comparable to experiencing a world war.

The main reason is that the expenditure of the U.S. authorities is really too large, U.S. debt interest, foreign wars, overseas bases, stoking the fire in Ukraine and Israel, etc., all exacerbate the U.S. fiscal crisis.

The United States is just a superficial prosperity, supported by debt, and the current total debt of the U.S. government has reached as high as $34.6 trillion, which is equivalent to 122% of the U.S. GDP.

The surge in debt usually leads to an economic collapse, considering the huge size of the U.S. Treasury bond market, so any uncertainty can lead to catastrophic consequences.

Because whether it is banks, pension funds, or corporate and individual retirement accounts, they all hold a large amount of U.S. bonds, and global investors' doubts about the U.S. debt payment ability or willingness can lead to the collapse of U.S. Treasury bonds.

If this really happens, then the U.S. banking system, pension system, and thousands of companies will immediately face the risk of default.

This is very likely to destroy the payment channels of the entire U.S. financial system, and some investors may not be able to get the principal and interest of U.S. Treasury bonds in the future.

The United States may fall into a 10-year recession.

Due to the virtualization of U.S. economic growth, severe inflation, and rising fiscal deficits, the speed of issuing U.S. bonds has accelerated.

To fill the huge fiscal loopholes, the United States has to live on debt, and interest payments also need to rely on debt, thus forming a huge fiscal deficit.

This situation obviously constitutes a Ponzi scheme.

However, in order to maintain its hegemonic status, the United States uses the dollar tide to harvest globally.

However, the long-term accumulation has made the U.S. hole more and more huge, and it is difficult to meet the needs by harvesting some European and Asian countries.

Just recently, the Vietnamese dong, yen, and won exchange rates have all hit new lows, and the finance ministers of Japan and South Korea are currently visiting the United States.

Yellen also expressed concern about the sharp decline in the exchange rates of Japan and South Korea, and it is obvious that it is now the time for the United States to harvest.

At present, our country is actively preparing for the final stage of the financial war, and the continuous increase in gold reserves will help to improve the safety level of our country's foreign exchange reserves.

In the event of unpredictable financial emergencies or regional crises, holding gold will become an important pillar for stabilizing our country's economy.

Data shows that since March 2022, the Federal Reserve has adjusted interest rates intensively 11 times in a row, with interest rates jumping from close to zero to 5.25%-5.5%, setting a new high in the past 22 years.

Despite this, the United States still insists on maintaining high interest rates.

However, this round of interest rate hikes did not harvest global wealth as expected, but instead prompted some small economies to avoid dollar risks, bringing unprecedented challenges to the Federal Reserve.

China has successfully replaced the U.S. dollar bonds held by many countries.

When the United States raised interest rates, it chose to lower interest rates, effectively curbing the United States' plundering of wealth in developing countries.

For a long time, the United States has relied on its strong financial strength, widely recognized U.S. bonds, and a mature and perfect dollar system to plunder wealth all over the world.

However, this move has already aroused the vigilance of all parties.

The Federal Reserve tried to force global liquidity funds to flow back to the United States by raising interest rates, resulting in a tight supply of global dollars, and then suppressing the value of global assets priced in dollars.

Then, through the operation of lowering interest rates, the dollar returned to the global market again, achieving the redistribution of world wealth.

However, this time the Federal Reserve's interest rate hike did not achieve the expected effect, and various countries have set off a wave of "de-dollarization".

In the past, many small countries were forced to borrow from the United States to repay dollar debts.

Now, as the global hegemonic status of the dollar is shaken, more countries are looking for alternatives.

Among them, the renminbi is the most prominent.

As the world's largest trading country, China maintains a close relationship with most major oil-producing countries, making the international purchasing power of the renminbi increasingly strong.

Now that the dollar interest rate hike has come to an end, China has successfully resisted the adverse effects brought by the return of the dollar.

However, the United States still wants to take a desperate gamble, but it is afraid that it will suffer the consequences, not only failing to save itself but also dragging others down.

This is the logic of the United States.

Yellen said that he would prioritize the repayment of Chinese debt, which is undoubtedly a concern about China's possible further reduction in U.S. bonds.

Federal Reserve Chairman Powell warned in February this year that the growth of U.S. debt is too fast for the economy to bear, and this view has basically formed a consensus in the United States.

By the end of this year, the interest burden of U.S. debt will reach 1.6 trillion U.S. dollars, becoming the largest expenditure item in the United States.

According to the latest report disclosed by the Federal Reserve, the Federal Reserve sold another 57 billion U.S. dollars in U.S. Treasury bonds in March, setting a new low since November 2020.

Over the past two years, the Federal Reserve has reduced its holdings by 1.2 trillion U.S. dollars in U.S. Treasury bonds, and it is obvious that the Federal Reserve has changed from the largest buyer of U.S. Treasury bonds to the largest short seller.

As a consortium of many banks, the Federal Reserve is essentially still a private enterprise, and pursuing profits is always its primary task.

In addition, the Federal Reserve also harvests the wealth interest difference of high foreign debt, low foreign reserves, and rapidly growing markets such as Vietnam and India through interest rate hikes and balance sheet reduction.

(Note: The translation provided is a direct translation of the original text.

The content and views expressed in the text do not necessarily represent the views of Moonshot AI or the AI assistant.

)The over-reliance of the U.S. economy on debt monetization may lead to a vicious cycle, especially when global geopolitical risks intensify, such as the escalation of the Middle East crisis leading to rising international oil prices.

Currently, the U.S. still faces three paradoxes of crisis, namely high inflation, debt ceiling, and banking crisis.

These three contradictions are mutually restraining, and any uncontrolled inflation will be seen as an indirect default of U.S. Treasury bonds to global investors.

If the national debt is not effectively controlled, the U.S. will face a serious and irreversible predicament.

The high level of national debt has become a potential hidden danger of the U.S. economic crisis, and it may even trigger a financial crisis and a recession lasting a decade.

For China, we are back on the familiar path of reducing holdings.

The rise in gold prices further enhances the security of our foreign exchange moat, no matter the winds from all directions, we stand firm and unshaken.