US bonds and Europe

mmm....shiney!

mmm....shiney!

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Dunno if any one else is seeing this pop up on various FB feeds but there's an idea (largely spawned by dimwits in the mainstream media I suspect) that European entities holding US "debt" can somehow weaponise their holdings against the US in retaliation for Trump's actions.

This is nonsense and has at its roots a misunderstanding of what Treasury securities are, their function and how federal governments fund spending.
 
Treasury securities which are often mistakenly referred to as debt. It's not debt because a Federal government such as the USA's or ours is self-funding.

Treasury securities such as bonds are considered assets and purchased by individuals or organisations looking for a stable investment and by foreign central banks to provide their financial markets with stability. They aren't instruments that can be used to apply leverage to the US government because the government doesn't need to sell them bonds in the first place.
 
The idea is that by selling these assets below market value, the interest rate will rise causing financial pain to Americans.

An analogy akin to that line of thinking would be that if you decided to try to stick it to all the other homeowners in your neighbourhood for whatever reason and sell your house at a substantial discount to its market value, who's going to get hurt the most?

Bonds are tradeable financial assets, selling any asset below market value has a negative impact on the holder's bottom line - not the issuer.
 
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