Everyone and their dog does not want to be holding US$ now. China already has enough and is desperately trying to unload what they have in an orderly fashion so they can extract the best 'real value' they can from their holdings and turn it in to real stuff. Its not 1985 anymore…
Its not an official Gold backed yuan as such. Again that is 'dated' thinking. They are not taking US$ in exchange for Yuan to buy their physical from Shanghai. That way they do not get even more US$. They do no want them. The US can only get its debt down whatever the real figure actually is unless they get some seriously awesome inflation (aka monetization of debt as per textbook). When (not if) they get this the US$ will be devalued in one go or slide lower and they will get the necessary inflation (but at a large cost to their citizens and those holding US$ abroad).
China knows this. Everyone does. Everyone is holding US$ so its in every ones interest to try and not be the one standing without a chair when the music stops.
There is no decent GDP growth (real growth) any more and the recovery wasn't really one and everyone knows that. Its uncomfortable and not many know how this ends yet.
As they can't pay the debt back why would anyone want t bills now… the hope is gone. Only inflation will get debt down but that makes sovereigns/corporates/others holdings worth less in effect.
Either US defaults - unlikely or inflation/devaluation ? What would you choose.
What this experiment shows is that its about time people lived within their means and sovereigns too. Spend what you have and save a little and stop pulling heaps of future wealth forward today. Its simply not right. All the pumping of QE would have been better done in the fashion of large scale public works but that would have been a sensible decision.
