this post was submitted on 02 May 2025
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[–] clutchtwopointzero@lemmy.world 41 points 1 day ago* (last edited 1 day ago)

When foreign countries buy those US Treasuries, basically they are as if the US borrowed money from those foreign countries (ie foreign country gives the US money and the US promises to pay interest over time on that money, and to give back that money in the end. In this case it is said that foreign country "bought" US debt). This helps keep the value of the US dollar where it is (in other words, highly desirable). If foreign countries stop buying those US Treasuries or — worse — start selling them, it is as if those countries are taking their money back. Because the dollar becomes less desirable in that scenario, then the US has to jack up interest rates to make the dollar attractive to buyers again. For the people on the street, this results in higher interest rates on loans, credit cards, and mortgages. Companies face higher costs to borrow money and some have to fire people and/or reduce/close business.

In short, Trump thinks that he has leverage on foreign nations by affecting how they trade with the USA, but he doesn't realize that foreign nations have immense ability to wreck the dollar if they are forced to do so by no longer giving their money in exchange of US debt.