To Whom Can China Sell It’s Bonds?

There are die hard fans, then then there’s my ever loyal reader Kevin who wrote in comment to my recent blog:

KevinM :

I think you’re wrong about China, Preston. After all, to whom can they *sell* their U.S. holdings? I think that China came (back) to a world power too late, and they chose (or could not see properly) short-term profit via their economic alliance with the U.S. over long-term stability. It would seem now that their only choice is to hold on tight to their Little Red Books and hope that everything doesn’t come crashing down around *their* heads, as it surely must around ours. (Although I still maintain that we are headed to war, since that will be the only way out of this mess…)

China can attempt to sell it’s bonds to whomever wants them, and when it turns out that China has far more US bonds to sell than there are buyers for them, then the value of US Treasuries will plummet. At that point, the US would see its currency fall precipitously and it would be unable to see any more US Treasuries to fund its ongoing deficits. From that point forward, the US would have to fund the operation of its government through taxation or cut back its spending.

Many argue that China would never do this because why would China seek to devalue its own investment. That’s a separate matter. I was merely pointing out in my last blog that if China were interested in creating chaos and destroying the value of the dollar, as did the diabolical villains in Goldfinger, then all it would have to do is sell its bonds. Now, I’d like to point out that an investment that is valueless if you go to sell it is really valueless period. Suppose I sold you a piece of art that I said was worth millions. Come to find out, you could never sell it and recoup even a fraction of that. You could carry it on your personal financial statement as an asset (as many banks are now doing) but the truth is that you got a bad deal and will have to take the loss sooner or later.

China is in the same position. They got a bad deal in buying are bonds and, now that they have them, there’s no way they are going to be able to avoid taking a loss. The longer they carry them, the more the US will use the opportunity to sell even more bonds to the world market and inflate away the value of what the bonds are worth. The sooner China moves to sell them, the more it could hope to profit. That’s why I feel a collapse of the dollar is inevitable. Andrew Gause and other conspiracy theorists see the invisible hand of the illuminati behind it all and he assures us that the dollar will not collapse because it is currently the preferred currency of the Illuminati.

Personally, I’m not much of a conspiracy theorist. So I don’t put much stock into the idea that the Illuminati who control the Fed also control the Chinese and will continue to prop up the dollar so that they can use it keep us in slavery. But I suppose we should take some comfort in knowing that, if the Illuminati are out there, that they want to keep the dollar valuable. Now, failing that, you’re left with the nations of the world holding a lot of bonds that are worth far less than they paid for them and will lose even more value if any one of them should come out and liquidate them on the open market. That’s scenario where the first party to take a lose will lose far less than the last person who tries to cash out- an unstable situation that is bound to collapse at some point.