What is the potential impact on the U.S financial markets (the debt and the equity markets)...
What is the potential impact on the U.S financial markets (the debt and the equity markets) and the economy if China decides to liquidate a significant portion of its U.S Treasury bill reserves?
Homework Answers
If China Decides to liquidate US Treasury bill then the capital
deficit will be created. The US funds its current account deficit
through capital account surplus.
The liquidity will be pumped out of the economy creating shortage
of liquidity leading to higher interest rates in the economy. The
Value of dollar would be impacted as supply of dollar will
increase. The debt market yields would increase and equity market
will crash due to lack of loanable funds.
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What is the potential impact on the U.S financial markets (the
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