[Steve_American]

On another site this question was asked. This was my reply with brainstorming ideas.
This is just a 1st list. I don't know if any of them are real problems.

1] The US now has a fiat dollar and this makes a huge difference.
2] Back before Nixon took the US off the gold standard, the US like all nations, had to protect its gold or dollar reserves by keeping its trade balanced or in a surplus. If it didn't foreigners could and would suck gold out of the nation. This was a very bad thing for any nation. All nations had to avoid this IIRC.
3] Now of course we have the fiat dollar. MMT says that deficit spending is a good thing because it allows all the public to save at the same time. Dollars created by banks when they make loans do not allow this because somebody went into debt to create those dollars. MMT says that as long as the deficit dollars stay in the US all is cool.
4] However, what happens when there is a trade deficit and so the dollars are leaving the US? I have not read anything by a professional MMTer on this point, except that one pointed out that the trade deficit means that the US is buying real stuff from China [say] and giving China dollars in exchange which China uses to buy a US Bond from someone or directly from the US Treasury. This means we got stuff and China got what some people have called a "worthless piece of paper" [but they were talking about US Bonds being held by the Soc. Sec. Trust Fund].
5] So, the question is basically --- Is it still bad [like it was with the gold standard] for a nation to allow its fiat currency to pile up in foreign hands? Can or will foreigners use those dollars to damage the US in some way at some time? I do not know. What do you think?

I'm just a layman and no expert. So, can only think out loud here.
a] Foreigners could hurt the US by buying stuff to create shortages in the US.
b] Foreigners could hurt the US by buying stock in companies to run up the price and then sell the stoc before it drops, making the price plunge. This would create an unstable stock market.
c] Foreigners could hurt the US by selling their bonds at a loss to make it harder for the US Treasury to sell bonds. Creating an unstable bond market.
d] Foreigners could hurt the US by buying farm land and not planting anything on it. Reducing the harvest and raising food prices in the uS.
e] Foreigners could hurt the US by buying companies and ordering them to dump a lot of pollution into American rivers and lakes to poison the water of America.

What do you-all think?

[Steve_American]

I totally understand that all of these actions would cost the nation using the US Bonds to attack America some of its money.

But, it would be a tiny amount compared to going to war, for example.

IIRC, China holds something like $1 trillion in US Bonds. Is this enough to do serious damage to America?

[Crantag]

I totally understand that all of these actions would cost the nation using the US Bonds to attack America some of its money.

But, it would be a tiny amount compared to going to war, for example.

IIRC, China holds something like $1 trillion in US Bonds. Is this enough to do serious damage to America?

China US treasury holdings were $1.18 trillion at the end of 2017. An argument which I heard years ago was that China could cause the US dollar to collapse with one word, 'sell'.

This point of view was ridiculed however by observers who said that China is dependent on the US export market, and so selling US treasuries would cause the Chinese economy to stall.

So it seems it's been an awkward symbiotic relationship, with the US buying Chinese goods with dollars, and the Chinese buying treasuries with the same dollars, thus propping up the value of the dollar. In a sense, China has subsidized US imports. China is still the US' biggest trading partner. But there is this trade war thing that some orange guy started recently.

I think it's a reasonable question how sustainable this relationship is. I think it has always been a reasonable question, but seems more reasonable in light of recent circumstances.

I don't expect any big momentous changes, but perhaps incremental changes. It is hard to say if China actually wants to replace the dollar with the CNY. They've been making some moves in that direction, but it's harder to say they are wanting to go all the way with it.

[One Degree]

Would not a bond drive such as WWII war bonds offset any sell off by China?

[Crantag]

Would not a bond drive such as WWII war bonds offset any sell off by China?

I don't really think a Chinese bond sell off is in the cards. But, I suppose that Chinese bond holdings is a matter worthy of consideration. At the very least, if relations were to degenerate far enough, it might feasibly be a piece of leverage, but probably not in a public way. But I think the practice of buying and holding the bonds is driven by pragmatism, in the respect that the bonds constitute a form of reserves; and given the volume of dollar-denominated trade, the Chinese are flush with a lot of greenbacks. I don't think pragmatically China wants to upset the apple cart. There moves will probably be in consideration of delicate circumstances. One particular item from Steve's brainstorm which I found interesting though was the potential ability of China to in effect nullify open market operations of the Fed in treasuries. That might be one potentiality worthy of consideration. Maybe. But I don't really know.

As a peripheral item. Bond yields are just under 3% currently (although if I'm not mistaken, given spot yields are fixed at the time of purchase). China holds well in excess of $1 trillion in bonds. So as just a rough calculation, what is 3% of $1 trillion?

$30 billion. Not really an insignificant sum, that.

[ThirdTerm]

The U.S. 10-year Treasury note is a loan to the U.S. government and its yield or rate of return is currently at 2.858%. Investing on U.S. Treasury bonds is preferable to simply putting your money in the bank, if you want to increase your portfolio value. I think China is just being a good investor as a country by buying up U.S. Treasury bonds because America is unlikely to default on its treasury obligations. Good investors always think about earning higher returns on their money. China also invested 8.9 trillion yen in Japanese securities in net terms in 2016.