Dollar Manipulation by China & Japan?


The two largest foreign holders of the US debt, China and Japan, reduced their holdings of US government bonds in November compared to October. While many are trying to say see, they are dumping US bonds, China reduced its holdings by 1% or $ 12.6 billion to $ 1,176.6 trillion and Japan reduced its positions by $10 billion to $ 1,084 trillion. I seriously doubt that the foreign US bondholders slightly reducing their holdings in November by 0.1% to $ 6,343 trillion qualifies as “dumping” dollar debt. What is taking place is politically attempting to help lower the dollar to ease trade friction with Trump.

The advice I use to provide to Japan to help reduce the trade friction was to buy gold in New York and sell it in London. The trade numbers could care less about the product actually being exported. It will reduce the trade deficit and make it appear that the US exports are rising. It is just an accounting ploy. Likewise, the booming exports of China were being manipulated by Chinese companies borrowing dollars in Hong Kong and then bringing that money into China and collecting 3 times that cost in interest. Headlines are always made on the numbers without understanding the accounting.

To ease trade friction, China and Japan will try to help push the dollar down to appease Trump. This time, their exports to the USA will decline in real terms between 2018 and 2020 as the world does move more into a recessionary phase marked by tighter consumer spending.

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