@LukeGromen What do i have to do to have a peaceful Sunday? You know that your incessant China and oil import thesis drives me crazy. I maintain that you are better than this but for whatever reason you are drawn back to it endlessly. The $ reserve status is a blessing to China

I'll never get this China oil thing of yours. Oil is not that high; neither price nor imports as % of china GDP. China can buy oil however they want to but the pricing of oil is global and will be set exactly the same way. We ain't changing the world because of oil.

I don't get your US entitlements issue. They're clearly too high; old folks have accrued an unsustainably high share of future GDP through dubious politics. But a weak $ and neg real rates make that unsustainable claim easier to meet today The rest is for the politics of tomorrow

Just seems obvious that we needed neg real rates; nothing cunning nor machiavellian by US authorities in the absence of a political solution. I mean if you could wave a magic wand and reset to a world of 3% real rates and 5% real GDP growth then great but it just isn't plausible.

You can't organise the economy in this manner to meet those claims without repressing GDP. To raise rates would simply exacerbate the problem by increasing the claim on a smaller economy which would buckle and fail. Is that it? Are you a secret anarchist like Guy Fawkes?

I just find your whole argument so backwards

OK, so you are worried that China might/should revolt and not buy Ts. That Ts and the need for foreign nations to buy them is unfair. China could of course achieve the same objective by buying gold or indeed Apple stock. Apple breached $2trn this week owing to 2 things

Its equity risk premium is resetting to almost zero and with the risk-free rate hovering around zero its valuation is becoming almost unbounded. You might say that in the present market environment that riskless businesses have become priceless? And second, it is very liquid.

Not as liquid as gold which in turn is not as liquid as Ts. China prefers to own the world's most liquid security. Ts sate the immense liquidity preferences of China; the country is a suppressed volatility machine. Vol has to stay suppressed to maintain the tenure of the CCP.

China buys Ts to massage the CNH. It is an unstable equilibrium. It fears a strong CNH and losing its surpluses. Endogenous growth via consumption too hard for fascist regimes. Capex much easier but exhausted - the delta on debt now overwhelms GDP growth. So CNH got to stay cheap

Ts are abundantly liquid. They can be sold in an emergency to keep that vol machine suppressed. The US Treasury market is the greatest gift that keeps giving to the CCP and other mercantilists.

Of course there was a unique and striking liquidity problem in March; almost without precedent. However, the Fed performed its reserve currency / central banking obligation and cleared the market by taking back those Ts from anyone that had a pressing need for liquidity.

I think this new Fed put implies that Ts could reprice negative - the put has an obvious value and it's unclear that the "penury" of neg nominal would subtract substantially from China's desire to hold near $ cash instruments. Ts are too cheap for China

Of course there must be a price limit that discourages mercantilists favouring Ts as a reserve asset but it's not obvious that we're anywhere close to such levels. And so I suspect the market and China et al to push T prices higher.

To conclude, the US offers china CA deficits, a very liquid risk-free market and a liquidity put. Turkeys don't vote for christmas and mercantilists will never vote for SDRs or a gold standard. Ame to that and I'm off to the beach...