China "worried" about its massive Treasury holdings
"Chinese Premier Wen Jiabao said Friday that he is "worried" about the country's vast $1 trillion holdings in U.S. Treasuries and that China will pursue a policy of diversification when comes to its future foreign exchange holdings.
"Wen's remarks, which were made at the close of the annual National People's Congress meeting in Beijing, echoed those that have been made by other high-ranking policymakers and bankers over the past year since the subprime crisis devastated the value of the mortgage-backed securities that made up a large chunk of China's U.S. holdings.
"We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried," Wen said.
"At a number of diplomatic meetings since then, Chinese officials have raised the issue of U.S. Treasuries and have sought assurances the United States that it will do everything possible to maintain the stability of its economy. On Friday, Wen called on the Obama administration to "maintain its good credit, to honor its promises and to guarantee the safety of China's assets."
"China does not release details about its foreign reserve holdings, but there has been growing evidence of its unease about those investments."
China's comments aside, I personally wouldn't be surprised to see Treasury bonds rally into the Fed meeting next week amid talk the U.S. Fed will follow the Bank of England down the policy road of "central bank prints money, then buys debt issued by the treasury." But over the longer term, we have a real problem in that we're a massive debtor nation that relies on the kindness of creditors/strangers to pay its bills.
In case you're wondering, the latest figures (from December) show China holding $727.4 billion in U.S. Treasuries. That makes the country our largest foreign debtholder. Japan is the next largest at $626 billion.