China Reduces Holdings of US debt

[snafu]

What are the repercussions if China continues to reduce it's holdings of US debt? $24 billion sold today with $900 B acknowledged.

[kork13]

I saw that this afternoon and couldn't help but groan... First and foremost in my mind is that the US Dollar is going to take a bit of a nose-dive. China selling its holdings floods the market with dollars, which in turn devalues the dollar. That has some pretty far-reaching effects. Exchange rates (already abysmal) get worse. Prices on imported goods go up, which in turn can cause domestic prices to go up as well. Stocks of companies that are: foreign-held, foreign-denominated, or hold foreign assets will also go down. Again, this can in turn lead to domestic downturns.

I've learned (particularly since moving to Japan, where the exchange rate is everything) that the value of the dollar is inextricably tied to almost every facet of our economy. Unless we close the economic borders, a weaker dollar spells a weaker economy.

There's also the side-argument that this could be an intentional move by China to weaken our nation's economy further in a strategic-level political/military/sociological play. However, that debate is probably better suited for other (conspiracy-focused) forums.

[maat55]

I saw that this afternoon and couldn't help but groan... First and foremost in my mind is that the US Dollar is going to take a bit of a nose-dive. China selling its holdings floods the market with dollars, which in turn devalues the dollar. That has some pretty far-reaching effects. Exchange rates (already abysmal) get worse. Prices on imported goods go up, which in turn can cause domestic prices to go up as well. Stocks of companies that are: foreign-held, foreign-denominated, or hold foreign assets will also go down. Again, this can in turn lead to domestic downturns.

I've learned (particularly since moving to Japan, where the exchange rate is everything) that the value of the dollar is inextricably tied to almost every facet of our economy. Unless we close the economic borders, a weaker dollar spells a weaker economy.

There's also the side-argument that this could be an intentional move by China to weaken our nation's economy further in a strategic-level political/military/sociological play. However, that debate is probably better suited for other (conspiracy-focused) forums.

I think China is walking a tight rope. They want to sell off dollar holdings because they fear its demise, but they know it hurts their ability to sell us their products. IMO, they are slowly attempting to replace their dollar holdings with gold.

[wincrasher]

They are just diversifying and trying to get more yield.

They can't and won't do a huge sell-off because it will hurt the value of their holdings.

If they sell slowly over time, it may put pressure on the US to raise interest rates, which is something they would like.

Regardless, others are happy to buy what China is selling.

[cptacek]

Whenever I see the dollar going down, I do a silent cautious cheer because crop prices will go up (prices on goods we export go up when the dollar goes down). But then I know gas prices will go up too. Hopefully the crop prices go up, we can lock some of that in with a price contract, then the dollar will go back up so we don't have to pay so much for fuel

[curtis.lesa]

it will be interesting to watch dollar movement going forward.