In 2014-16, China held $1.3 trillion in US debt. Now it owns less than half of that. Japan owns more American dept than the Chinese do currently. They have leveraged their debt in a controlled manner, to offset the effects of US tariffs. Now instead of getting American dollars for goods that China sells to the US, they just get the American dollars without having to sell anything. Just collect on the bonds as they come due. It is a trick I am sure the other countries, including Canada, have up their sleeves.
Whatever the American population pays in the tariffs (sales tax) on imported goods, the more they have to borrow from the rest of the world. It might LOOK like a windfall for the American treasury, but in the end the American economy just isn’t generating the manufacturing wealth to pay the tax. Eventually, the American companies will revolt against this tax, and demand compensation. That will be even more money the US treasury will have to borrow.
For all the posters worried about American default on bond payments, please note that Americans still own around 75% of the American debt.
Feels like a bad choice.
Does seem weird to keep propping up a country that’s actively fighting a trade war with us, encouraging separatism in Alberta, and openly discussing an invasion.
Why are we buying debt of a country headed into a recession/depression and massive inflation?
Because we know they’ll pay it one way or another, their recession/inflation is irrelevant
A trump never pays his debts.
He hasn’t taken over the Federal reserve, YET. If the fed loses independence and trump takes over (which he clearly wants) all bets are off.
A trump never pays his debts.
What “a trump” does is not important, even the shittiest demagogues out there still rarely default on treasury and public debt like this. What’s way more likely is that they’ll fuck up the entire economy to pay off these debts, and use that as an excuse to cut the tiniest amount of public services and social welfare they accomplished in the last 20 years.
A default on public debt would impact Trump personally. On those matters you can bet that he works hard to cover his ass.
You’re assuming he actually give a fuck about any of that. He’s going to be in the office for three more years. He doesn’t need to worry about reelections. He’s going to spend that time making as much cash for his family and friends as he can, but any means he can. He absolutely doesn’t care if he trashes the whole economy in the process.
You understand that the value of the bonds goes down and we lose money when US currency gets devalued right?
If USD is devalued over time we’ll make bank in other ways, so not concerned about that. What’s more likely is higher inflation would demand higher bond yields, which means bonds are cheaper and Canada should buy even more of them. It does mean that current bonds lose value but if we hold them to term doesn’t matter much
This logic is dangerously complacent and ignores the actual mechanics of how economies fail. You’re assuming a smooth devaluation of the USD that conveniently boosts other assets, but that is not a guaranteed or even likely outcome at this point. An economic crash can lead to a rapid devaluation triggering a severe loss of confidence in US debt, not just higher yields on new bonds.
If inflation spirals then the Fed would be forced to hike interest rates aggressively to defend the currency, which would crush economic growth and likely trigger a recession. The idea that holding bonds to maturity makes losses irrelevant is a fundamental misunderstanding. Those losses represent destroyed capital and a massive opportunity cost. The government would be locking in negative real returns for decades while its debt servicing costs explode on new issuance. Canada buying more cheaper bonds in that scenario is like catching a falling knife. It’s not exactly a clever investment strategy. We’d be doubling down on a failing asset as the underlying economy and fiscal position deteriorate. It’s a recipe for a stagflationary crisis.
Let’s not forget that the interest on this debt is all coming back to Canada, making Canada stronger.
That completely misses the destructive power of inflation and currency devaluation. The interest payments are nominally coming back to Canada, but their real value is what actually matters. If the US dollar is losing purchasing power faster than the bond’s interest rate, then Canada is experiencing a negative real return. We are getting paid back in dollars that buy less which is the opposite of getting stronger. What we’re seeing here is a classic transfer of wealth from the creditor to the debtor with Canada subsidizing US fiscal policy by accepting a steady erosion of its investment’s true worth.
Then one would expect the bond rate to climb, but it is staying relatively constant between 4% and 5%, When it comes to paying for imports of American product, that interest cushions the blow. We end up buying American product with their own money.
Your focus on the current bond overlooks the market’s forward looking nature. Yields are stable because they reflect a consensus that the Fed will eventually cut rates to avoid a recession which is a precarious assumption. The moment inflation proves stickier than expected or the US debt trajectory worsens, we could see a violent repricing happening. It would lead to a bond vigilante reaction where yields spike suddenly and crater the value of existing holdings.
The whole idea that interest payments cushion import costs only works if the Canadian dollar doesn’t weaken alongside or faster than the USD in a crisis, and that is not at all guaranteed. When a crisis hits, all assets correlated with the US including our bond portfolio would suffer together. Meanwhile, the only sector of the US economy that’s doing well are the tech stocks, and that’s just a handful of companies passing IOU notes around in a circle. The rest of the economy is showing deep imbalances with weak consumer savings, shrinking industrial output, and persistent inflation in services.
The US is funding massive deficits in a high interest rate environment, and that can’t go on forever. The war on Iran could act as a catalyst for the whole house of cards to come crashing down because it’s driving the price of energy through the roof. The resulting economic crash in the US could be far worse than 2008, and at that point we’d be left holding the bag.
I am not sure who ‘we’ is that is ‘holding the bag’. And I am not sure that you are not still stuck in the last century.
Most knowledgeable people acknowledge that the Chinese economy is closing in, if not already passing, the American economy. But then they assume it is somewhere around a 50-50 split of the world economy. Well, it is not a 50-50 split, it is not even a 40-40 split. It is more like a 25-25 split, with the other 50% divided among, as Carney called them, middle economies. But those middle economies, as Carney also pointed out, (although not directly) control around half of the global GDP, twice as large as either the American or the Chinese economy individually. That is the New World Order. At the end of last century, all of the economic indicator pie charts had America with 80% or better of the charts, the rest of the world 20% or less. Now, America has 30% or less of the same charts, rest of the world 70% or better. The previous ‘Rules’ were all about keeping America on top. Those rules are no longer keeping America on top, so America is ignoring them. America is trying to make the new rules, in order to stay on top, without realizing that America is now far, far from the top, and just is not in any position to enforce these new rules. The rest of the world is ignoring these new American rules just like America is ignoring the old rules. The more they ignore America’s rules and make their own, the more America suffers by the non-enforcement of the American rules. Americans absolutely refuse to play by anyone else’s rules, and so they are just being left out of the game. The rest of the world is getting away with it today, when they could not get away with it last century, because of that 70-30 reversal. America just does not have the economic clout it had last century. Instead, the rest of the world now has that clout. And it is not just about China, it is about every other country. America has no hope of ever being on top again… The house of cards has been tumbling down in America for decades, it was just covered up by false propaganda while the really big money fled the US for greater pastures.
I am not sure if you are following what China is doing, but it is a lesson for all nations. Just a little while ago (20120-2016), it had around $1.3 trillion in American treasury bills. Now it has around half of that. Even Japan has more American debt that China does. In other words, China cashed in the debt holdings as it came due without buying more. That is a lot of money that America gave to China, that China used to offset the impact of American tariffs. Instead of Americans buying Chinese goods and sending money to China, Americans just sent China the money instead, no purchase necessary.
So as America falls, those countries that have driven up their share of the US debt can now follow China’s lead. Take their money out of America by cashing in the bonds without buying more. That is around $3.8 trillion that is flowing out of America without them buying a single thing. At the turn of the century, Americans not buying anything from the rest of the world would have caused economic collapse in those countries. Today, those countries can sell to the rest of the 75% of world GDP without selling a thing to America. That is some cushion.
Carney was not the first, but he was certainly arguably the most influential, world statesman that finally pronounced ‘The King has no Clothes’. When the dust settles, I suspect America will end up splitting in at least two, if not three or more, parts, if history has anything to say about it. Failed states inevitably end up in pieces. Then, countries that are holding US debt can take payment in assets (land), not money. After all, it is these other countries that are now making the rules.
We as in the working class in Canada. That’s who always pays the bill when there’s an economic crash.
I generally agree with what you’re saying regarding the US and China. However, I’d note that the actual split is between G7 and BRICS, and BRICS have already surpassed G7 in terms of PPP measure. BRICS represents the Global South, and it happens to be where majority of human population is, where the resources are, and where most of the industry is. Majority of Global South economies economies are aligned with China now.
What Carney appears to be focusing on are former vassal states that were under the tutelage of the US. Now that the hegemon is fading, the vassals are in trouble. What Carney seems to be trying to do is to rally Europe and Australia to form a bloc without the US, but one that’s not directly aligned with the Global South.
And of course GDP alone is not useful measure of anything. The quality of development matters. Western economies are focused on stuff like software industry and service economy. They’re not producing things people actually need to live. China is where all the manufacturing happens. They’re the ones who build solar panels, EVs, and high speed rail that developing world needs. That’s what makes China such a key economy for the world.
I also expect that the US is headed for collapse, and it’s likely going to be far worse than what happened to USSR. That said, it’s not at all clear that countries that hold US debt will be able to claw anything back once that happens. For one, the US is still full of nukes, so whatever states emerge out of it eventually will be nuclear powers.
The problem for Canada is more immediate though. Our economy is heavily dependent on the US right now. And unless we diversify and become more self sufficient, then we will be dragged down along with the US. Unless Canada takes steps to insulate itself then it will become one of these failed states itself when the western order finally collapses.
BRICS is more showmanship than substance. A photo op. India doesn’t have its own act together, never mind trying to work with another country. Frankly, India appears to want to be enemies with other countries, ANY other country, than to work co-cooperatively. Brazil and Saudi Arabia will go whichever direction the wind blows. And speaking of India, I think the nukes in India and Pakistan will prove to be the most unstabling.
I think the Venezuela situation will finally convince Brazil that it needs to start taking a proactive stance in South American politics, and not just stand by and watch America slowly creep southwards.
But my attention is all on Europe. The EU seems to be finally coming together, and the European Union nations can no longer be treated as separate entities, any more than California (same GDP as France) can be considered a separate entity. Actually, is is more likely that California WILL become a separate entity, while France becomes more integrated into the EU. Europe is finally getting over their collective PTSD from the two wars, and is now starting to think about living in the world again, instead of depending on the US for subsistence.
BRICS is more showmanship than substance.
Yeah, that’s just completely false. The whole point of BRICS, and what actually makes it effective unlike G7, is that it’s not an ideological alliance. It’s a framework for countries to do trade. And trade within BRICS has been exploding.
Meanwhile, the EU is very clearly dying at this point. Energy prices were already sending European industry into a terminal decline, and Iran war has put the whole thing into an overdrive. Not to mention the fertilizer crisis during the planting season which could easily result in food shortages by fall. GDP is a completely meaningless metric because the quality of development is what matters. European countries do not produce things their people need to live. And what’s actually happening in Europe right now is that nationalist parties like AfD, RN, and Reform are dominating their politics. All these parties are extremely nationalist, and they are openly hostile to the whole idea of EU. The liberal center in Europe is collapsing along with the standard of living.
