No, this is not a realistic scenario and it’s probably a very bad idea for Europe than it is for the U.S.
If Europe decides to sell all U.S. treasures, and that’s a big if, in the short term it will hurt the U.S. economy like higher mortgage rates, borrowing costs, etc. But buyers will ultimately absorb these bonds over time. It may take a little while but eventually they will be absorbed.
On the other hand, Europe will lose a significant asset value since Europe would receive dollars for its bonds, but the plunging market value of those bonds would mean fewer dollars for each bond sold, hurting its own reserves.
Owning U.S. bonds should not be viewed as a potential weapon against the U.S. This is akin to saying I own a lot of something so to protect myself against an enemy I’m going to sell all of it. All you’re doing is flooding the market with something that’s now worthless and you’re not going to make any money off it.
dicksy_cup on
They would take massive unnecessary losses as supply floods the market and demand doesn’t move. Why would they do that when they’re doing just fine with the interest and currency diversification they’re receiving today?
Longjumping-Ad8775 on
I don’t think that they would want to take loses on their treasuries. The better strategy for them is to not rollover their treasuries that come do and to pull the money out of the country.
If they did a big dump of their treasuries, it would be a lot of chaos. The value of their treasuries would go down, so they would take a loss. The value of treasuries in general would go down, so my treasuries would be less valuable. I’m a buy and hold guy, so it would effect me much. Because the value of treasuries would go down, the value of treasuries at auction would go down, which would necessitate a higher interest rate. That affects US borrowing costs. It is chaos.
3 Comments
No, this is not a realistic scenario and it’s probably a very bad idea for Europe than it is for the U.S.
If Europe decides to sell all U.S. treasures, and that’s a big if, in the short term it will hurt the U.S. economy like higher mortgage rates, borrowing costs, etc. But buyers will ultimately absorb these bonds over time. It may take a little while but eventually they will be absorbed.
On the other hand, Europe will lose a significant asset value since Europe would receive dollars for its bonds, but the plunging market value of those bonds would mean fewer dollars for each bond sold, hurting its own reserves.
Owning U.S. bonds should not be viewed as a potential weapon against the U.S. This is akin to saying I own a lot of something so to protect myself against an enemy I’m going to sell all of it. All you’re doing is flooding the market with something that’s now worthless and you’re not going to make any money off it.
They would take massive unnecessary losses as supply floods the market and demand doesn’t move. Why would they do that when they’re doing just fine with the interest and currency diversification they’re receiving today?
I don’t think that they would want to take loses on their treasuries. The better strategy for them is to not rollover their treasuries that come do and to pull the money out of the country.
If they did a big dump of their treasuries, it would be a lot of chaos. The value of their treasuries would go down, so they would take a loss. The value of treasuries in general would go down, so my treasuries would be less valuable. I’m a buy and hold guy, so it would effect me much. Because the value of treasuries would go down, the value of treasuries at auction would go down, which would necessitate a higher interest rate. That affects US borrowing costs. It is chaos.