Ken Fisher: What Happens If China Dumps US Treasurys?
Ken Fisher argues that fears about China dumping US Treasuries are overblown, comparing it to similar unfounded fears about Japan in the 1990s. He emphasizes that China only holds 2% of total US Treasuries, the same as Japan, making any potential sell-off a minor threat.
Summary
Ken Fisher addresses the growing American phobia about China, specifically focusing on concerns about China potentially selling US Treasuries and causing a financial crisis. He draws a historical parallel to the 1990s when similar fears existed about Japan, which was actively buying American real estate and US Treasuries at the time. Those fears about Japan causing a crisis through Treasury sales never materialized. Fisher reveals that China currently owns only 2% of total US Treasuries, the same amount as Japan, questioning why China specifically generates such fear when Japan did not. He attributes this disparity to current 'China phobia.' Fisher explains that any country selling US Treasuries would likely be doing so to purchase treasuries from other countries, representing a change in preference rather than a fundamental shift away from treasury holdings altogether. He argues that the real factor affecting treasury rates is how US rates compare to other countries' comparable rates. Fisher emphasizes that US Treasuries represent such a significant portion of the global treasury market that it's difficult for any entity to completely avoid them. He concludes that these fears are greatly exaggerated and that even in the worst-case scenario, any negative impact on US Treasury rates would be minor.
Key Insights
- Fisher argues that America has developed a growing phobia about China over recent years, specifically regarding fears that China selling US treasuries could cause a crisis
- Fisher points out that in the 1990s, people had the same fears about Japan buying American real estate and US treasuries, but the predicted crisis from Japan selling treasuries never happened
- Fisher reveals that China owns exactly the same amount of US treasuries as Japan does today, which is only 2% of the total
- Fisher explains that when countries sell US treasuries, they typically do so to buy treasuries from other countries, representing a change of preference rather than abandoning treasury holdings altogether
- Fisher argues that it's difficult to completely avoid US treasuries globally because they constitute such an important part of the total global treasury market
Topics
Transcript
[0:00] So, it it's been years now uh as America's built a a growing phobia about China. And I don't want to get into whether the phobia about China is justified or not. That's not where I'm going. That fear of China selling US treasuries is deemed to be of some significance and problematic and could cause a crisis and other nonsense like that. The reality is [0:32] if you went back into the period of the 1990s, in those days you used to hear the same thing about Japan. At the time, uh, Japan was buying up American real estate and buying up US treasuries. And the notion was that they sold the US treasuries. Boy oh boy, wouldn't…
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