Define “more and more”.
A flood of the bond market is often referred to as the nuclear option of the trade war, and some also call it the Achilles’ heel of the US, whose expectation is something like this:
U.S. bond prices are falling because of oversupply, raising the cost of US debt, American businesses, and citizens, the USD crashing, Wall Street collapsing, and the US falling into a severe recession.
I find this unconvincing,because it paints a picture of market mechanics without informed other market participants and central banks.The other market participants would know that China is behind the flood, so a mass panic is quite unlikely on its own, and in doubt, the US central bank itself buys enough of the bonds to stabilize the market. That would be the American version of Draghi’s whatever it takes, or simply a new round of QE as it was in 2008.
The question would also arise as to what means china is replacing US notes (bonds), now that it does not hold this enormous basis of hard currency without reason, but needs it, for example, to manage the value of the yuan and to enter into contracts with trading partners and foreign Investors 鈥?which China increasingly wants to attract 鈥?are closing in hard currency.The USD is also the dominant foreign exchange reserve because countries of other stable currencies do not sell bonds (i.e. borrow) in the same amount. The euro, for example, is too fragmented due to a lack of joint borrowing. The stable north does not make enough debts, so the negative interest rates of German and other bonds are also a reflection of the supply and demand ratio, and the South is so afraid of it, especially when the risk warning lamps start to flash globally.
I do not believe that China will orchestrate a flood, because the damage on the Chinese side would be enormous, perhaps even greater than on the US side.Of course, everyone, including us in Europe, would. suffer from an increased risk assessment of financial markets.
The impact of the whole thing on the trade war would be absolutely incalculable, which would then probably take off even more and the effects will also arrive in the industry and eventually prevail.Some people are already calling it the new Cold War.
By the way, China is better off sitting out the Trump problem and providing fine-tuned responses to Trump’s punitive tariffs.Counter-tariffs, rare earths that are being dismantled in China and other things, will be more of a means of choice in time for the election campaign, as long as you pursue politics to stretch the whole thing in time. The Chinese government may be critical, but it is not a narcissistic, ego-driven, potentially self-destructive mango-hit. More or less small bites, sold US bonds, will be directed more as a warning shot at Donnieboy.