WHAT IF CHINA SELL USA TREASURIES???
Friday the 10th of May, Trump administration enforced a 25% tariff hike on Chinese exports to the USA. On the 13th of May 2019 the Chinese retaliated against the 25% tariff on USA exports to China, but there is a $6 Trillion Nuclear bomb that the Chinese can detonate at anytime.
Currently China owns over $6.2 Trillion of USA treasuries, recorded in 2018, which is a large portion of the massive $22 Trillion debt that the USA holds. As a result of this, it can literary lead to one hell of a shock to the global markets.
What will be the implications?
I don’t think there is a better explanation, but it will be Armageddon. If China sell of it’s USA debt, immediately the Dollar will weaken, if not plunge to record lows. Inflation in the USA will skyrocket and the federal reserve will have no alternative but to increase interest rates aggressively to control inflationary pressures. The weakness in the Dollar can translate to an inflationary recession in months which can be a repeat of the late 1970’s. In addition the weaker Dollar can also sink global economies as most countries use US Dollars as their reserve currency. Moreover global traders will also start to dump the dollar due to its deplete value for a medium of exchange.
To the contrary, the Renminbi will increase drastically in value which will make life hell for Chinese exports, as a weak currency help with competitive advantage. Large exporting firms in China will find it difficult to sell goods to the USA and to other parts of the world, due to stronger Renminbi. All out WAR can’t be ignored, if China sells USA treasuries. However the best possible hedge for the weak Dollar is the precious metal,” Gold”.
All the best and good luck with trading.
Let’s hope it doesn’t occur!