When the time finally comes for the inevitable discussion of just whom the US will support in the escalating China-Japan conflict: its long-term political ally Japan, where numerous naval bases are located, or its key inflation-exporting recipient and world economic powerhouse (ghost steel receipts notwithstanding) China, there will be much political rhetorical, many promises, even more lies, but in the end only one thing will matter. Money, or more specifically, debt and credit formation. Which brings us to the just released TIC data, which among other things shows that in July, Chinese holdings would have dropped to a 12 month low, if only the June print of $1164.3 billion had not been mysteriously revised to a fresh multi year low of $1147.0 billion, just so the July print of $1149.6 billion can be an uptick. More curious it that Japan, quite mired by its own debt "situation" of Y1 quadrillion in public debt and rising, continue to grab US paper with both arms, and as of July touched on an all time high of $1117 billion (maybe in another all-in gambit to show its "solidarity" with Big Uncle Sam in hopes Big Uncle Sam will support the Senkaku incursion).

The net result is that the spread between Chinese and Japanese US Treasury holdings has declined to a tiny $33 billion, from $430 billion one short year ago (we know that China is now actively buying gold with its current account cash instead of US paper but that is irrelevant for the time being). What is more importantly is which of its top US Treasury holders (the Fed being naturally the largest) will the US end up disappointing: China or Japan, because as much as it wants, it won't be able to support both. What happens if and when the snubbed party decides to dispose of its $1.1 trillion in US securities?

Source: TIC