Then, there is the vexed question, which neither side would dare discuss publicly — namely, China has begun to sell its vast holdings of US Treasury bonds. The damage a Chinese selloff could do to financial markets, to Washington’s finances, and to the economy generally needs no explanation. For decades, the US was a major consumer but since Americans were running a trade deficit, they needed to borrow to support the purchase of Chinese imports and Beijing advanced that loan indirectly through its purchases of US Treasury bonds. But the matrix has changed. As it is, the demand for US bonds is not high, by any means — in fact, one of the most enthusiastic buyers of US bonds is the US Federal Reserve. This has been compared to something like having your own bakery and buying up most of your unsold bread at the end of the day so that a negative opinion of your sales does not form. The fact that Treasury Secretary Janet Yellen appeared in the front and centre of US-China relations is a signpost.

I just want to clarify this part because so many people from the left is still missing the point here.

The US government does not need to borrow from other countries to finance its spending. Other countries lend to the US because they don’t know what to do with their dollar surplus. This is a very important distinction to make because an incorrect understanding will lead to the wrong conclusion.

I highly recommend listening to this episode of RP Live interview with Michael Hudson:

Well, when laypeople, and when your audience goes to the bank, and they put a deposit in their savings account or their checking account, they don’t say “the bank is borrowing from me.” They think of themselves as saving. The United States doesn’t have to borrow a penny from foreign countries in euros or yen or pesos or any other currency.

But it does have a very different problem that has nothing to do with borrowing. The United States is running a huge balance of payments deficit. And since the Korean War, 1950, almost the entire balance of payments deficit has been military in character. So what happens is the United States spends these dollars abroad, throughout its 800 bases throughout the world.

These bases, all this costs money and they have to buy, they have to spend it locally. And the local recipients of this money, take the dollars and they remit them to their head offices in France or Germany or Japan or China. And the central banks of these countries say, ‘what are we going to do with all these dollar payments?’

Well there’s very little that they can do with them. And so the only thing they can do to keep safe with these payments is to deposit them in the United States. But they don’t want to deposit them in commercial banks because they could put it in Silicon Valley Bank and just be wiped out. So what they do is, they spend their dollars and their international financial reserves by buying Treasury bonds or Treasury bills.

And so the United States has to provide a vehicle for these countries to save all of the surplus dollars that the United States spends militarily. So the United States acts as a savings bank for foreign central banks that receive more dollars than they spend. And the active factor in all this is the US deficit pumps dollars into the economy, the dollars have to come back to the United States, and the United States accepts them as a deposit. And the deposit is a US Treasury obligation that’s held by them.

So it’s not that the US Treasury says “We have to go out and borrow money from you guys.” The problem is that these guys say, “Well, we have a surplus of dollars, we don’t want the dollars because we think you’re crooks. We’ve seen you just grab all of Russia’s savings. We’ve seen you tell England ‘grab all of Venezuela’s gold.’ You guys are pirates. We don’t want to hold dollars anymore. We want to de-dollarize.”

So, what they’re doing is winding down their dollar deposits here. They don’t want to hold their dollars in the United States because President Biden says, “the ‘yellow peril’ is our number one enemy.” So China says, “Well, if we’re their number one enemy, and he says it again and again and again, week after week, then they’re going to treat us like they treat Russia. We’d better get all our money out of the United States. We’d better de-dollarize, and we’d better work with Russia, Iran, and the BRICS countries to have some alternative way so that we don’t have to use the United States as a savings bank for these garbage dollars, they put military bases around us, where they say they’re going to bomb us if we don’t follow policies that President Biden’s advisors support.”

So, instead of borrowing from them, they’re trying to decouple, they’re trying to de-dollarize. The world is dividing into really two parts. The United States and Europe, which the head of the European Union, Borrell, calls “the garden.” And there’s the rest of the world, which he calls “the jungle.” Which shows the kind of racist character that the Anglo-Saxon and the white population has toward the global majority. Which is the term that President Putin and others have been using for the majority of people.

So anyway, I’ve diverged a little bit but we don’t borrow, other people have used us as a bank. Just as when you go to a bank, put money in your savings deposit, the bank doesn’t borrow from you, you’re lending money to the bank. Other countries are lending money to the United States.

Hudson is saying that the main threat to the US is not that the US has to borrow from other countries, but that other countries have now realized the necessity to de-couple and de-dollarize. However the success of this de-dollarization effort is predicated upon these other countries knowing how to do it properly.

So long as the BRI and BRICS NDB loans continue to be given out in dollar, all the talks about reducing US treasury holding is useless because the Fed can always purchase them - as Hudson said, it’s simply a vehicle to absorb the excess dollar spent overseas. If you don’t want to buy our treasuries, no big deal.

Debt cancellation is a big deal because it frees up the countries from having to earn dollars to repay their debt, one that will truly blunt the financial arm of US imperialism.

Hope this clarifies the matter to those who are still confused about how dollar hegemony works.