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Bill Gross Asks The $64 Trillion Question: Is China Dumping Treasurys?
For months, we’ve been at pains to explain to anyone and everyone listening that China is dumping US paper at a record pace.
As we detailed on Tuesday evening, the new FX regime (i.e. the system in place since the dramatic August 11 yuan devaluation) is costing China dearly in terms of FX reserves.
The reason: the new, more "market-based" regime is ironically requiring more intervention than the previous system and this has led directly to the liquidation of more than $100 billion in USTs in the past two weeks alone (by SocGen’s math), which means that incredibly, Beijing has sold more US paper in the past two weeks than it had previously sold all year!
And as SocGen, and now Zero Hedge readers, are acutely aware, this will only continue, as a stable currency requires either "complete FX flexibility or zero FX flexibility" and because China is stuck somewhere in between, the UST firesale is set to continue unabated.
Now, the world has awoken, and indeed Bill Gross is out asking the $64 trillion question:
Gross: China selling long Treasuries ????
— Janus Capital (@JanusCapital) August 26, 2015
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Not to worry, Yellen can soak them up like a sponge.
Just like her tampons back in the day....
China's demographics are horrific with a declining 0-64yr old population through at least 2050!!! (according to OECD) and all net population growth for the next 15yrs is in the 65+yr/old segment living far longer than previous generations (but with no income or sources to pay for this but their adult children...how most Asian cultures do it since there's no social safety net). China is predicted to officially become Japan 2.0 in 2030 when their population is set to peak and start declining!!!
Couple that with the perhaps the greatest credit bubble in history (+1400% in 14 years) primarily plowed into a (now crashing) housing bubble. Chinese credit is set to contract significantly as the housing market is in free fall...obviously, the impact on consumption of all this is really huge. Please remember Chinese hold most of their "retirement" assets in real estate...so you can imagine the economic pain as the housing market collapses.
Welcome to check all the details at the links below.
World population and demographics...
http://bit.ly/1Uboboy
China demographics and credit...
http://bit.ly/1h9mmMS
But interestingly, the Chinese government and PBOC appears to have given up on trying to prop up its stock market (despite domestic jawboning bout short sellers) and is massively selling off US treasuries and has been a net seller since July '11 (the debt ceiling debacle) on record trade surplus with US?!? God forbid, the Chinese seem to be allowing a “market” to decide prices? This, combined with massive gold holding hikes by the PBOC, truly has set up the Yuan for a major revaluation…but up, not down. Very bold moves by China…maybe somebody is thinking this thing through!?!
It will be the Fed’s turn to decide if it will change the covert market support into overt market support as we hit 1867 again…and if they do signal rate hikes pushed out and perhaps even broach QE5,6,7 “if market forces warrant”, the dollars value could nosedive (and PM’s the flipside of that coin). If they don’t, look out below for markets but the dollar could be salvaged to live another day?!?
Seems so much up for grabs here and now. Still, due to negative demographics, debt, and derivatives, unlikely the Fed will allow the acute pain and depression that would ensue if “market forces” were allowed to set prices (not to mention the accountability of the Fed, .gov, and wall st. for getting us soooo deep in a Ponzi that has run out of new customers). Seems very prescient moments dead ahead…of course I could be all wrong
My wife's parents in China might never die. The mother is in her late 70's and her father is in his late 80's. Both get up at 4 AM to exercise, then they take a nap, then they eat vegetables and fruit. After that they walk, visit neighbors and eat a meal at 6 PM of veggies, fruit and some fish then hit the sack for another night's sleep. I'm in damn good shape and they can walk me into the ground. Her father's hair is still jet black and her mother insists she doesn't color her hair either. Millions of elderly Chinese live like this.
What do you think the minimum number of calories a day they would need to survive? And I'm talking the BARE minimum here. Round figure.
Yes
I'd wager they eat about 1000 calories/day. Maybe 1200 if they splurge on a sweet potato while they are out walking in the park. I'd be meaner than hell if I only got to eat that much.
I agree...and they dance in the streets at night all togther and sometimes during the day. It's pretty cool. They do seem to live along time despite all their hardships and pollution. I climbed one of their not-too-steep mountains and went slowly as some of these old Chinese breezed past me! Genetic? Diet? Attitude? Combo?
They weren't even wearing a fit bit wrapped around their arm to tell them when to move their ass!
It's paradoxical!!
I am a old white guy - NYC - born and raised and my diet is the same - fruits and vegetables Very little meat - plus swimming every day
I think the demographic explosion over 65 is way underestimated
When I watch the younger crowd I am amazed what they eat
"... minimum number of calories a day they would need to survive?"
Very active: 18 calories per pound of body weight
Average active: 15 calories per pound of body weight
Relaxed: 12 calories per pound of body weight
Umm, no- I'd be gaining weight on 12 cals per lb per day, let alone "surviving".
Same circumstance in Italy with its huge elderly population.
Why do they live so long: the classic Mediterranean diet, walking, and a strong sense of familial and community ties.
All things the American is sadly lacking in.
if somebody is selling ...who is buying???
http://econimica.blogspot.com/2015/08/fed-never-intended-to-raise-rates-or.html
http://econimica.blogspot.com/2015/03/brics-blink-or-more-correctly-wink-and.html
http://econimica.blogspot.com/2015/03/treasury-buying-pyramid-ponzi-or-gdp.html
Needed something to handle the olestra leakage.
Dracula walks into a coffee shop and orders a cup of hot water.
The waitress brings cup of water to his table.
He pulls out a bloody tampon, drops in the water, and announces, "Tea time."
------
Considering it is Yellen's, enjoy the visual.
`ys is correct, Gross knows this. Bogus Tweet. who cares anyway, they are selling into a rising market, their selling is having 0 affect, they are happy as hell not getting screwed on the bid...
It's Goldman Sachs against China. Go China.
Take out Blankfein !!!!
That's LORD Blankfein to you.
$100 billion? Meh. What's that? Like 32 days worth of printing?
Truth. It will constitue actual 'dumping' when the volume in sale exceeds the volume in production. The ratios haven't been tipped yet.
edit: continual volume in sale.
How does it not?
It says SocGen estimates they dumped that much within 2 weeks.
The parent comment says that's 32 days of production.
That is why I added the edit. Continued, or sustained: should they maintain this figure next month, and the month after... this particular sale would mark the inversion point between UST generation & sale. If this is a one-off, then we haven't reached that point yet.
This is happening exactly as predicted by those who warned of China going to financial war with the US by dumping all their TSYs. I'm sure you agree. I mean, just look at those rates soar the last few days! We're up to almost 2.2% on the 10 year now. I'm sure the Fed will be crying uncle to the PBOC any day now.
They dumped 109 billion in two weeks, at least what can be accounted for. By all estimates they have 18 weeks to go at this pace. Happy New Year!
Ask yourself one vital question: Will other countries want to be without a chair at the end of musical U.S. Treasury chairs?
UST is now a hot potato
Good new for the collateral crisis
More reasons to justify a market crash, drive everyone into the safety of Treasuries, then close the doors forever.
My thoughts as well. Without turmoil and a need for perceived safety (as USTs still hold this title somehow), I'm not sure the global markets could absorb this type of liquidation (i.e., $100 billion) in such short order. So the action in the market begins to make more and more sense as the need to find a home for $100 billion of USTs in very short order could really only be handled by a limited number of parties on a global basis.
The Fed comes to mind (either directly or indirectly through their proxies operating around the globe, Belgium anyone) but if the Fed had to step in, this would be preceived as the next QE and severly undermine its already shakey credibility.
Emerging markets are a no go as they don't have near the resources available to manage this flow, especially with petroleum based reserves under severe pressure.
Europe and Japan, I suppose could step in but neither has a real balance sheet to work with and would expose these regions to holding even more USTs and the circle jerk cycle of everyone printing and buying each others debt (although both have readily available printing presses).
Could be that the derivative traders are still searching for high quality collateral to back their bets and have an appetite.
But shaking the equity markets a little to drive capital into USTs to make sure rates don't explode higher via large liquidations from foreign holders would appear to be a somewhat reasonable explanation.
Its one thing to have the Fed raise short-term rates by 5 to 25 basis points in the coming months (which is the current message). It would be something completely different if the rates on longer dated USTs was forced to be set by market conditions and driven much higher as a result of sellers and supply overwhelming the market. This would not only eventually crush equities but would hammer both residential and commercial real estate values, critical collateral for all bank balance sheets.
If the long end of the interest rate market is lost over the coming months, not due to an expanding/overheating economy but rather from a large supply/demand imbalance and the realization that there simply isn't enough cash flow/earnings to service the debt, then the final economic moment of truth is upon us, starting with the great reset and rebalancing beginning in the Summer of 2015.
Goal: have 401k participants and IRA holders begging for it in their own accounts.
So what happens once China dumps ALL her treasuries?
Will she in future demand payment in YUAN?
They're dumping to support their currency peg to the dollar. If/when they run out of TSYs to sell, they'll start devaluing the Yuan FER REELZ. Not 1% at a time. Big clumps and bunches.
Can't they do this slow bleed in conjunction with the dumping of TSYs? Because that is what they are doing.
They've devalued 4 times already in the last week or so. I'd have to say "yes", they can do it in conjunction. But they were modest moves. I'm talking a big 'ol 25%-er kinda move.
So if the unabated sale of treasuries will continue what does it mean for :
USD
China's stock market
World stock markets
Looks like the world is very nervous on ALL THREE FRONTS.
That makes a huge interconnection which is being aggravated by the US/SAUD oil price war. Commodities are now a dead cat bouncing.
This spiral is really going out of hand.
Even China does not know what it has started! (for whatever reason; maybe the one ZH suspects).
which commodity bounced?...the ones I watch left a dent in the pavement...
oil is trying to.
Bill Gross is Captain Obvious
the oblivious need a captain obvious.
no he is riding Tyler's coattails
So long rates will rise whether Fed raises the rate or not. Shucks Fed may as well raise the rates then and save credibility
Why would they be selling? Selling would strengthen the Yuan. Pretty sure they want it weaker...no?
They are trying to take the dollar out and convert their manufacturing economy into a consumer economy
Ok good luck with that.
it is easier than you think. see, china needs commodities and food. brazil and russia can produce and export lots of this in exchange for manifactured produsts. gold as a means of payment.
No worries!...
Japan or Brussels will be at the ready with the straw to slurp them up when they hit the floor!!!...
Here's another related question:
If the Fed can create unlimited $$
then what prevetns them from allowing their helpers to buy unlimited shares in the market?
In other words, can any crash be prevented (or created and then "fixed")?
Out of the frying pan for the dollar........
By time this fake shit party ends, all the more power to the rest of the world. I wonder how much Russia is shedding. At a time it was quite high as well, Thats what Cyprus was all about.
One question I have is if China is selling US treasuries, devaluing their currency and not really supporting their market where is the 100 billion going?
Gold?
Yep. You can count on it. Buying physical in record quantities.
We have been set up for quite a big conflict. Hopefully the China realises it can feed its population by trading with Brazil for food and commodities, and Russia for energy and commodities. use gold as the currency. defend its borders and keep from getting suckered by false flag.
and lets hope that people raised with idea that they are exceptional will realise they have been enforcers for mafia too long.
The first paragraph of your comment is possible. The second? No fucking way.
surely the self preservation instinct still may overide the conditioning.
Brazil air lift?
The last thing on the minds of chinese officials is feeding its population. They are in it for their skins first and foremost. The populace will just have to learn to live on one meal a day like in DPRK.
I can only guess what they will do. To me it seems quite reasonable idea trading needed goods with other countries. plenty of food, commodities that can be exchanged for manifactured goods. only thing lacking is money, which was and can be PM.
Bill Gross should be asking the other obvious question:
At what point does the U.S. consider these sales by China to be 'hostile acts'...? And how much more $$$Dumping until the political class starts calling for 'swift action' against these 'currency manipulators'...?
When China sells a US Treasury it gets US dollars back. This causes the US $ to go up in theory. (therefore they have not devalued their own currency, except in relation to the $'s they are holding). They cease to earn interest at that point, and they are no better off in the end. What would you say they'd do with that cash? Buy another currency? Buy bonds on a country's debt like Vietnam? Japan? Italy? Or buy a basket of non-correlated bonds? We know they are trying to devlue the Yuan, so maybe thry should buy Russian Rubles... b'cuse they are losing value very very fast-- that'll help them devalue.
According to the market @ 12:33 PST this news is EXCELLENT for everything but gold and silver. We are so phucked!
A breakdown of liquidation totals by day over the last 30 days should be very revealing.
Haven't you made enough money off of skimming other people's savings, Bill ?
How many people as as much better off for what you did for them with their money as you are better off for what you did for yourself with their money?
no, not at all!
they're merely giving them to Belgium to hold.
Belgium keeps selling them.
Does the Pope shit in the woods?
the real issue is not are they selling but who is buying, and if yellen is buying up the paper where is she getting that money, take away the bitchez credit card and then we'll see how damned almighty she is
Its funny in a way, pre crisis there was a lot of talk about the South China Sea leading the USA to war with China and how China could crash the US economy by dumping its dollars. NO NO NO! Cried the detractors, China would never do such a thing because it would destroy their own economy. I guess no-one considered what would happen if China's economy started sinking and began chucking dollars out left right and centre in an effort too stay afloat.
Its funny in a way, pre crisis there was a lot of talk about the South China Sea leading the USA to war with China and how China could crash the US economy by dumping its dollars. NO NO NO! Cried the detractors, China would never do such a thing because it would destroy their own economy. I guess no-one considered what would happen if China's economy started sinking and began chucking dollars out left right and centre in an effort too stay afloat.
Wow nobody could have seen that coming.