China Ditches US Bonds: How This Decision Affects You
Video Transcript
Subscribe To Big Money all right we’re in Phase 2 now the brics countries Brazil Russia India China and South Africa are trying to end their dependence on the US dollar and just a couple of weeks ago China sold a record amount of US debt they sold roughly 50 billion dollars worth of us bonds and the progress toward dollarization is now continuing so in today’s video I want to help explain one of the most interesting things that’s happening in the world today why it’s happening and how this will affect us and not just us but our children and our children’s children so with that said let’s get into it hi my name is Andre J hope you’re doing well come for the finance and stay for one of the most boring topics of all time macroeconomics so to spice things up cue the storytelling and initiate the dramatic music so when most people think about investing they mostly think about the stock market and when people think about the stock market they mostly think about individual people buying individual stocks but that’s just one of the characters of this universe when you zoom out you’ll notice that it’s a Multiverse made up of a lot of different assets and one of the biggest Assets in the world is the bond market and when you zoom out far enough you’ll notice it’s not just people buying up these assets it’s also entire countries now at the center of this Multiverse of characters is the US bond market because it’s seen as is one of the most stable and safest Investments anyone can ever make the global bond market is estimated to be worth roughly three times more than the global stock market part of the reason why this is is because stocks represent ownership in something and bonds represent the debt what’s crazy is we will always have more debt than ownership of stuff and this will be true for Infinity think about it like this if all the world ever had was this much money as long as the concept of borrowing money in exchange for paying interest is a concept that exists where would someone go to pay for the interest on a loan if this is all the money that exists it would be impossible we’d have to create more debt to pay for the debt that we’ve created and that’s IR ironically why this piece of fabric doesn’t represent ownership of stuff it represents an instrument of debt now the US has a debt level of over 34.7 trillion countries sell this debt AKA bonds and then people in foreign countries invest in them and for the US between 7 to8 trillion is owned by other foreign countries the US needs everyone including other countries to buy our us treasur IES because that’s how the United States borrows money to fuel its growth and it’s how we pay for money that we’ve borrowed in the past in an exchange we pay those other countries an interest rate or yield kind of like a dividend and if the US was a dividend stock it would be rated AAA a blue chip stock one of the best ones if not the best that exists today and that’s why countries around the world hold trillions and trillions of dollars of us debt what’s ironic is even though that’s debt to us to the countries that hold our debt that’s one of their assets it’s kind of a catch 22 either way all of that is slowly changing in China’s pulled back as a buyer Japan has pulled back as a buyer China and Japan have not over many many years been huge buyers so here’s how this affects the US economy one of the biggest buyers of US debt is China in fact they are still by today’s measure the second biggest holder of US Treasury bonds but in the first quarter of 2024 China sold about 50 billion worth of us treasuries bringing their Holdings down from $816 billion in December 2023 to 767 billion in March 2024 keep in mind that’s in just 3 months and this isn’t something new it’s been happening for a while now and you can see that the Chinese reserves of US Treasury bonds have been declining over the past decade to the point that they’re at a 14-year low right now now there’s a couple reasons behind why all of this is happening but one of the biggest reasons is because of tensions between the US and China and these problems go all the way back to 1949 that’s when the People’s Republic of China was first founded things started to improve in the 1970s when Nixon first visited China on behalf of the government of the People’s Republic of China has extended an invitation to President Nixon to visit China his visit shocked the world it was so unexpected The Washington Post wrote if Mr Nixon had revealed he was going to the Moon he could not have flabbergasted his world audience more and By 1979 we had official diplomatic ties fast forward to the 8S and the90s we saw a booming economic cooperation despite things like the tenan square but then in the 2000s things started to escalate when China asked for what any country wants more say in world events this has been long in the making you’ve heard many many speeches by me and talks by me and interviews where I talk about unfair Trade Practices but we have one particular problem and that’s China the 2010’s turned into a trade War under former president Donald Trump and tensions are still high today under President Joe Biden the US China trade War has reignited US President Joe Biden has slapped new tariffs on Chinese electric vehicles and we’re not talking about a 10 or 20% tariff here Biden has slapped a 100% tariff on Chinese EVS 100% we still have problems with trust over things like technology and censorship and human rights and Taiwan in the center of the spotlight and fast forward to 2024 and there’s still huge economic rivalry between these countries that’s why we’re seeing in the news that countries are redefining what it means to work together so they could challenge their depend dependence on the US dollar and potentially put an end to it and that’s why some people refer to this chart which shows the Dollar’s share of global Reserve currencies because it’s been on a slow decline ever since the US got off the gold standard I have directed secretary Conelly to suspend temporarily the convertibility of the dollar into gold or other Reserve assets except in amounts and conditions determined to be in the interest of monetary stability and in the best interest of the United States so that’s the problem and now let me show you the very real world consequence for ourselves our children and our children’s children and what it means if hypothetically countries around the world including China all started to dump their US Treasury bonds number one selling bonds at a global level would mean bond prices would go down and when bond prices go down interest rates typically go up and when interest rates go up not only does it put a strain on the banking system but but it makes it more expensive to borrow money which means anything that you need to get a loan the monthly payments go way way up that includes higher mortgages in rents more expensive auto loans higher student loans and higher interest rates on credit cards number two higher interest rates also affect the federal budget and the national deficit which directly impacts social programs that people rely on day-to-day that could also lead to higher taxes to make up for the higher interest payment problem three the value of the dollar itself would be affected because it would undermine the perception that it’s a good World Reserve currency if people don’t want to buy our debt the dollar would become worth less and that makes Imports more expensive and that also means whenever you travel for vacation overseas that becomes more expensive too problem four IAS and 401ks could go down in value because this event would shock the entire stock market it would make for a pretty bad time to retire because since nothing like that has ever happened in the past the stock market would have nothing to compare it with which means the stock market would become a roller coaster AKA extremely volatile problem five would be inflation because a weaker dollar would mean it’s more expensive to get products overseas that might make people panic and buy more stuff today which would lead the Federal Reserve to increase interest rates even more to slow inflation down and problem number six it could create a global recession which is very scary now the good news is not everyone agrees that this is happening some people say this is a huge exaggeration so let me show you the other argument and the data that says the dollar isn’t going anywhere you know that saying that goes like if you borrow a little bit of money from the bank and you don’t pay them back then you’re going to be in trouble but if you borrow billions from the bank and you don’t pay it back then that bank’s in trouble well in this case the US is the bank and the world owns our debt which is why in this case China doesn’t need to dump its us treasuries because that would crash the value of their own Investments so let me just show you how powerful the dollar still actually is and this is directly from a study by the Council of Foreign Relations the world holds roughly 59% of its foreign exchange reserves in dollars that’s in comparison to only 20% for the Euro and only 3% for the Chinese remen be and the dollar is used in 88% sent to Foreign Exchange transactions according to the Atlantic Council now even though China might be getting rid of some of its dollars and some of its us treasuries 73 other central banks around the world are leaving the Chinese Yuan and buying more gold and dollars instead in fact in a survey of global investment managers when they were asked what they were planning to do over the next 1 to two years with the kind of currencies they were holding the US dollar had by far the most positive responses with 18% saying they’d be adding to the US dollar which was three times higher than what it was last year the Euro came in second place at only 7% at the same time 12% of them said they’d be decreasing their Holdings of Chinese currencies that’s also why when you look at the strength of the US dollar as measured by something called the dxy or Dixie index the dollar has been on a relatively strong Trend upwards over the last few years and part of the reason why is interest rates are high right now and that’s attractive to foreign Capital which is why other countries buy our debt now with that comes a different problem like could we lower interest rates or are we just too busy getting other people to buy our debt right now that’s a separate video but the point is maybe the dollar isn’t going anywhere now up to this point in the video I’ve shown you objective numbers facts backed by studies and data but none of this was my opinion so if you made it this far into the video here is what I think I think the world has been moving away from the dollar extremely slowly and this has been true for decades where I think the world disagrees is how fast it’s moving away from it and what the consequences actually are I don’t know for sure but this could be just a cycle there were moments for example when the dollar was stronger as a result of higher interest rates like it is right now and there were also moments when it was weaker like when we got off the gold standard so it could just be a time thing now now as far as how bad things could get some economists actually say that less dollar dominance on a global level is actually a good thing because it makes the us more competitive when we sell products overseas and that makes the stock market actually go up so there are real economic advantages but most economists do agree that the US needs to hold the world Reserve currency status to get the most benefit the reality is nothing comes even close to the Dollar by the numbers but where I think it’s bad is when the US weaponizes the dollar against other countries by imposing sanctions because it makes other countries just want to get off the dollar even faster and when the world becomes uncertain it buys gold it buys Bitcoin and it holds US Dollars and treasury bonds so maybe in my lifetime I’ll see the dollar become less dominant on a global level but will I see the dollar become replaced by another currency I don’t think so at least not in my my lifetime but if something does challenge the dollar it might be the Euro but I don’t think it’s going to be the Yuan or the joint bricks currency because I don’t think those countries fully trust each other either even China with its huge economy has its own problems that makes other countries not want to adopt the Yuan yet so whatever change is happening is happening extremely slowly so I’m just crossing my fingers that our leadership doesn’t mess this up but I do think it’s really important to pay attention to so good job for making making it this far into a very boring macroeconomics video I’d love to hear your thoughts about this because it’s so complicated and sometimes I get so confused but I have a lot of fun trying to decode this stuff so if you have any thoughts let me know and as always I hope you have a wonderful rest of your day smash the like button subscribe if you haven’t already don’t forget to grab your free stocks links are down below and they go track them automatically with a spreadsheet link Down Below in my patreon thank you so much for watching this video I’d love to see you back here on Monday and Friday sometimes a Wednesday I’ll see you soon bye-byeUS Financial News
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Comments (41)
It’s not an asset for other countries. It’s a delusion of asset. The US is even worse than a bank, which issues dollars more than what people deposit, and if every country goes for its assets, then the US have nothing to give.
One world Gov?
Bitcoin about make some magic happen
Very objective
If they sell bonds according to how markets are suppose to work…it should drive the price of bonds down = cheaper for players to buy bonds that china is tryinf to sell…plus the price drop makes yield go up…which would be awespme to be qble to buy bonds offering rates that haven't been seen since the 1980's.
Not boring at all!
For as long as human civilization existed we understood this and saw it at a bad thing and made it illegal
For as long as human civilization existed we understood this and saw it at a bad thing and made it illegal
Change is Brewing. the Dollar is about to witness BRICS's True plan "Sending this straight outta South Africa"
Great video
Stop USA government from using tax money to support Ukraine , Israel is the first step for a better future to all Americans
Appreciate you explaining it with great detail. Like your show!
Saudi Arabia just walked away from the Dollar – we are in very serious trouble.
funny thing wid briccs, India and West Taiwan is practically kicking and stabbing each other under the table because of that border dispute XD so to say they'd hold hands to sing kumbaya to take down the dollar is pretty far-fetched XD Not to mention West Taiwan has made enemies of the entire SEA region already by claiming the entire body of water below it. That definitely counts as a negative for governments to adopt their currency.
While you still trust the dollar China is moving. China sees the progress in terms of years and decades, the powers in the US only look to the next election. The dollar will eventually go the same way the pound did and will stop being the world reserve currency. When that happens the industries in the US will have to compete on a level playing field and they will fail. This is likely years out even decades away but it is coming.
To be honest, I am glad for China's decision.
USD makes USA strong because USA controls the money but with how BRICS acts as opposition, it makes USA think twice if they want to print money like there is no tomorrow.
Thank you Andrei. That was comforting. God bless you.
The downfall of a Big nation like America is always connect to Homosexuality. Once you promote Homosexuality you start beef with God Almighty.
I wouldnt doubt china is trying to bring in more money to prepare for war.
I’d rather invest in bitcoin than invest in bricks…. Dictatorship is what will keep them from making this successful
I agree with you the US dollar is not going away anytime soon. Otherwise the country ditching the USD will basically have to destroy their economy. They just want freedom to use their money to push their agenda without worrying about the US sanctions.
Question, who bough the China Bonds?
You earned my sub
The biggest Ponzi scheme there is !!
We ask usa to assure and guarantee its usa dollars notes and bonds paper debts bonds notes, assure and guarantee that we all can very easily exchange for 1ozs of pure solid gold coins or gold bars from usa central treasury bank for how many usa dollars now,,,,???…
If not sure usa paper dollars notes, and paper debts bonds notes,,,will becomes worthless and useless currency soon, ,,???….
the dollar will just be tokenized? they will use xrp for this the new dollar baked by gold!
If usa dont wants to assure and guarantee its usa dollars, ,,???…
For sure all nations dont trust usa paper bonds debts notes also,, ?
It is all plain responsible and reliable and trustworthy or not,,,???…at all ,,,,?…
hey pal just subscribed, lets go!
War and economics experts suggest that usa has to save usa now!!!!!…
How can usa keep on printing usa dollars to 500 trillions very very hugh financial debts crisis now,,,!!!!,,,,,,
We all begins to doubts on will usa able to payback usa very very hugh financial debts troubles now,,,!!!!…
We strongly recommend that usa today need to be responsible for usa overprinted dollars now,,,???…like we all can very easily exchange for 1ozs of pure solid gold coins or gold bars from usa central treasury bank for how many usa dollars,,,???…
Saudis just recently gave us the middle finger also.
Wow they mentioned Hollywood as a reference point. 70 years is more than excessive.
World doesnt need a currency llike dollar let all the countries sell and buy goods in their own currency.
🤔🤔🤔China is preparing itself for the storm called 'Trump,' and it is highly likely that after this storm of his presidency, the USA will lose its influence over the world. Once it is undone, there is no going back. You guys are doomed, my friend. The world is rising, and the chances of chaos are rising with it.🤔🤔🤔
Why is macro economics boring? I didn’t know that.
They only kept the dollar due to threats of 'freedom'
The weaponization of the dollar will be its downfall
Things change. Children and children’s children? C’mon. The sky is falling. Crypto is coming…. Aaaaah
The BRICS coalition wants the dollar to stay as reserve currency, this way they can benefit from it financially via their own gold backed currency while the dollar do all the hard work.
@ Andrei Jikh hope you produce more of such content, and how you explain business down to layman's term…keep it coming sir. =)
great… well done China! I watched many videos saying China has been collapsing and collapsing and collapsing… so it doesn't make any difference because China cannot afford US Bonds anyway
The only good world reserve currency at the moment is bitcoin 😉😉😉
Dollars are collapsing.