What if China Sells all of its U.S. Treasuries?

Here’s another common one from the Ask Cullen page:

Question: Cullen, what would happen if China dumped all it’s US dollar denominated bonds?”

Answer:  Someone else would own them. :-)

That’s like saying “what if Vanguard dumped all of its XOM shares?” Well, someone else would own them. Vanguard would sell their XOM shares and obtain cash and someone else would get rid of their cash and own (Exxon) XOM shares.

Vanguard owns about 5% of all outstanding XOM shares so it’s a huge amount. And if they were a forced liquidator or worried liquidator then it could put some pressure on prices. But it wouldn’t change the fundamentals of XOM. And so any major price deviations would be largely unwarranted.

If China decided to unload their holdings of U.S. Treasuries in a low inflation environment then my guess is that savvy bond traders would gladly scoop them up and exchange their paper dollars for something that generates a real return.  China would be left holding a bunch of dead presidents that just sit their collecting dust and losing purchasing power.  So what?

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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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