This could have serious implications for the US. Here is why:
With a lot of supply, the price of treasuries will go down, so the US government will be forced to offer higher yields for the newly issued debt to sell. This will:
- increase the servicing cost of the $19T debt (will cause the debt to increase even faster).
- cause a drop in the stock market, as more cautious investors (retirees, etc), enticed by increased yields, reduce their stock market exposure
It all depends on how many treasuries China wants to sell.
>cause a drop in the stock market, as more cautious investors (retirees, etc), enticed by increased yields, reduce their stock market exposure
You've committed a fallacy: the overall stock market exposure cannot be reduced because those more cautious investors, moving their dollars to treasuries, have to sell the stock to someone else.
With a lot of supply, the price of treasuries will go down, so the US government will be forced to offer higher yields for the newly issued debt to sell. This will:
- increase the servicing cost of the $19T debt (will cause the debt to increase even faster).
- cause a drop in the stock market, as more cautious investors (retirees, etc), enticed by increased yields, reduce their stock market exposure
It all depends on how many treasuries China wants to sell.