Is China Turning Bearish on the U.S. Treasury?
Is America's banker turning bearish? This week, Japan eclipsed China as the largest foreign holder of U.S. Treasury securities. This news comes one week after it was reported that China may sell-off some of its U.S. Treasury holdings to punish Washington for selling weapons to Taiwan. These developments offer more evidence that Beijing is growing less willing to continue buying and holding U.S. debt.
China is indeed losing its taste for Treasuries, its timing could not have come at a worse time. The federal government has to finance over $1.3 trillion in deficit spending this fiscal year. And in the past, the U.S. has relied on China to buy not only Treasuries, but corporate and mortgage debt as well. Without China in the picture, it's unclear where all this money will come from.
For years, concerns over the growing U.S. debt to China—estimated at $755 billion—were met with calming explanations of the economic interdependence of the two superpowers. After all, the argument went, China wouldn't ever sell off its U.S. paper because the two economies need each other so much.
While that symbiotic relationship remains, it might not be enough to persuade the Chinese to continue lending us billions of dollars annually. Decisions of foreign leaders aren't driven by budget finances alone: continued arms sales to Taiwan, free-speech issues raised by Google and others, and unhappiness with currency valuations could all come into play. And the Chinese might decide that the benefits of a more diversified portfolio and protection against an inflated dollar might outweigh the costs of selling off T-bills.
In truth, no one knows exactly what to expect from China in the future. Its continued investment in the U.S. government isn't an “either-or” decision; there are about 800 billion different lending positions the Chinese could take. And no one really knows what would happen if China stopped buying Treasuries, although U.S. interest rates would almost certainly rise. This uncertainty is unsettling, and we don't seem to have a plan B. It's time to think hard about dealing with a world in which the Chinese aren't the reliable lenders we've come to rely upon so heavily.
report, I will post the same time this post
I support involvement with the Dalai Lama. China can go be communists on their own time, but America has the right support what we believe in. Sure, China could probably come over to the US and wipe us out if they really wanted to, but they need us. Americans have their own cash cows with things like acai, fast food, Hollywood, and rock music; and China has their power products like Pokemon and cars. We need each other and that's the truth. I just hope we can continue to support struggling nations like Tibet in the face of Chinese involvement.
Interest rates going up won't be a bad thing, since it will attract domestic depositors and make T-Bills a better investment for American investors. It will also make more salient the question of whether it is better to borrow from the rich or raise their marginal tax rates. If you have children, the answer to the last question is obvious.
“He who goes a-borrowing, goes a-sorrowing.” The quote comes from Ben Franklin. But it was recalled to us neither by America's president, nor Britain's prime minister. Instead, the Telegraph in London reported it from the mouth of Cheng Siwei, a “top member of the communist heirarchy.” What goes around comes around. The Anglo-Saxsons have forgotten what makes a successful economy. The Chinese have remembered.
Bill Bonner, The Daily Reckoning
China, not a reliable lender? China has been reliable until the U.S. repeatedly challenge Chinese government's legitimacy. Yes, meeting Dalai Lama, a separatist, selling arms to Taiwan are all real provactive spit on the face challenges that Chinese government can no longer ignore without losing itself rights to rule.
that was a december report and had nothing to do with taiwan or the dalai lama…last week, in light of greece, their banks were ordered back to treasuries…
Not really a problem if
China trims its appetite for Treasury's: Bernanke has created a private label carry trade with the TARP banks – many of whom are primary Treasury dealers – by providing free money to them so that they can buy U.S. Treasury's as a means to repair bank balance sheets. Not only does it recapitalize the banks, but it allows U.S. to wean itself from China's status as beneficent lender so that we can have a stiffer foreign policy front.
Obama accepting Dali Lama in the Map Room = China <> becoming bearish on T-Bills.
Should you really be surprised?