What does a TRUMP presidency look like?

[Valmy]

Don't be friends with us.

But Trump already betrayed the Kurds in his first term. So it wasn't like they wouldn't have seen this coming.

[Jacob]

The Swedish pension fund Alecta has sold off ~$7.5B Euro worth of US Treasuries.

In isolation it's probably not much, but if it's the beginning of a trend then... well, then it's the beginning of a trend.

Actually, I'm curious. There's been talk of Europe collectively dumping US treasuries in one go and that that would be a big knock to the US economy (putting it into a massive recession, inflation, and/ or a depression).

What's the outlook if holders of US treasuries start selling them in a less co-ordinated fashion but still wanting to get rid of them over time? What's the likely impact on the US economy? On the world economy?

[The Minsky Moment]

Jacob: the short answer is not much; longer answer is it depends.

There are over 30 trillion in US Treasuries outstanding. Average daily trading volume is around 1 trillion.

So a dump of 7.5 billion is no big deal.  It's not insignificant but the market can absorb it.  Even a bigger dump can be handled and the Fed is available to backstop.

Less than 1/3 of the Treasuries outstanding are in foreign hands.*  Japan is the biggest holder, followed by the UK and the PRC.  Europe ex the UK doesn't have huge holdings, even in the aggregate. Probably less than 2 trillion. Probably a bit over 2 trillion with the UK and inching towards 3 if you add Canada.

A gradual sell off of 2-3 trillion would represent less than 10 percent of total outstanding. Would that be enough to crash the market?  Probably not, ASSUMING other buyers would pick up the slack.  The question would be if a Euro sell off, combined with other factors, would be a triggering factor for a broader market re-evaluation. That is possible but it depends on lots of other considerations.


*US treasuries in "domestic hands" may include US funds and institutions holding the bonds in the US but for the benefit of foreign nationals.

[Baron von Schtinkenbutt]

I read a post on Reddit from someone who claims to be a bond trader speculating that, in the event of a European selloff, the Fed would basically hand out free money to US banks specifically to pick up the slack.  On one hand, that sounds dicey to me.  On the other, a lot of modern finance at that level sounds dicey to me, yet it works somehow.  What do you think on that?

[Zanza]

You can do that for a while, but it will normally lead to higher inflation, which in turn increases interest on the debt, which in turn means you need to "print" more. If you continue down that road, you end up with hyperinflation.

[Jacob]

Jacob: the short answer is not much; longer answer is it depends.

There are over 30 trillion in US Treasuries outstanding. Average daily trading volume is around 1 trillion.

So a dump of 7.5 billion is no big deal.  It's not insignificant but the market can absorb it.  Even a bigger dump can be handled and the Fed is available to backstop.

Less than 1/3 of the Treasuries outstanding are in foreign hands.*  Japan is the biggest holder, followed by the UK and the PRC.  Europe ex the UK doesn't have huge holdings, even in the aggregate. Probably less than 2 trillion. Probably a bit over 2 trillion with the UK and inching towards 3 if you add Canada.

A gradual sell off of 2-3 trillion would represent less than 10 percent of total outstanding. Would that be enough to crash the market?  Probably not, ASSUMING other buyers would pick up the slack.  The question would be if a Euro sell off, combined with other factors, would be a triggering factor for a broader market re-evaluation. That is possible but it depends on lots of other considerations.


*US treasuries in "domestic hands" may include US funds and institutions holding the bonds in the US but for the benefit of foreign nationals.

Thanks for the explanation

[HVC]

European powers really need to get their hands on the Epstein files.

[The Minsky Moment]

I read a post on Reddit from someone who claims to be a bond trader speculating that, in the event of a European selloff, the Fed would basically hand out free money to US banks specifically to pick up the slack. 

Free money not exactly, but they could act as the buyer of last resort.  That can work to smooth the market in the event of a quick sell off but only for a time.  If the Treasury market doesn't settle down, then it would be a serious problem for the USA.  As Zanza points out, Fed purchases inject liquidity into the banking system and thus can be inflationary if made on sufficient scale.  The US would become a "normal" high debt nation, having to decide between austerity, default, and inflation.