from 21st Century Wire:
William Pesek of Asia Times reports…
TOKYO — If Pan Gongsheng gets tired of central banking, the People’s Bank of China governor may have a future in hedge fund management.
In March, before the April chaos in US debt markets and last week’s US credit downgrade, Pan’s PBOC and the State Administration of Foreign Exchange (SAFE) displayed impeccable market timing, quietly reducing Beijing’s leverage to the dollar.
So much so that Beijing is now only the No 3 holder of US Treasuries, leaving the dubious No 2 honor to the UK.
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As recently as 2019, China was the top financier of Washington’s fiscal imbalances. Japan is now on the hook for the most — US$1.1 trillion. The trouble for China, of course, is that it still has $765.4 billion of exposure to a dollar that’s as vulnerable to collapse as it’s been in decades.
US Treasury Secretary Scott Bessent’s impulse to dismiss Washington losing its last AAA rating and push ahead with the very policies behind the move may invite more downgrades — and even greater trouble for the dollar.
Bessent’s boss, US President Donald Trump, doesn’t get all the blame for Moody’s Investors Service revoking the pristine rating it first gave the US in 1919. It takes more than one presidency to run up a national debt approaching $37 trillion.
But the negligence and tone deafness toward basic economic reality leaves little question why Moody’s acted now, on Trump 2.0’s watch.
Bessent’s we-wouldn’t-have-done-anything-differently tone in Sunday talk show appearances explains why.
Many of the giant tariffs that cratered the stock market, reanimated the “bond vigilantes”, and sent the dollar sharply lower are still with us. Traders can rejoice at Trump’s lowering China taxes to 30% from 145%. But it’s still at levels seen in the 1930s, when the Smoot-Hawley Tariff Act deepened the Great Depression.
Markets can think Trump learned his lesson from acting so erratically — and losing virtually all of America’s top allies in just four months — or admit the obvious. Many investors worry the answer is absolutely not.
Investors are free to hope that Trump isn’t planning to fire Federal Reserve Chair Jerome Powell. Or to push for a weaker dollar, either unilaterally or via some “Mar-a-Lago accord” that sends the yuan shapely higher. Here, too, many investors fear he will.
Folks can hope that Trump and Xi will soon sit down for “grand bargain” talks between the Group of Two nations. Yet Chinese leader Xi Jinping isn’t the caving type. Has Beijing offered Trump the slightest concession on access to China Inc. so far? Odds are, many economists worry, the Trumpian fireworks will resume.
Finally, it’s unclear whether Moody’s got Trump World’s attention in the right way. Any other US administration would internalize why Moody’s cut Washington to Aa1 the way S&P Global and Fitch Ratings did in years past.
Not according to Bessent’s take. “I don’t put much credence in the Moody’s” downgrade, Bessent told CNN. He stressed that the tax-cut bill being debated in Congress remains on track. And that it would spur economic growth that generates more than enough revenue to pay down US debt.
It’s an unwelcome reminder — and poorly timed one — that Trump’s 1985 mindset is colliding with the global realities of 2025. As Washington gives “trickle-down economics” another try, its credit rating hangs in the balance.
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