Interest Rate Roundup

Friday, March 13, 2009

China "worried" about its massive Treasury holdings

Back in January, there was some talk that China was full up with U.S. Treasuries. Now that issue is once again front and center thanks to comments made by Chinese Premier Wen Jiabao at an overnight news conference. As reported by the Washington Post ...

"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.

3 Comments:

  • "central bank prints money, then buys debt issued by the treasury."

    Wouldn't this creation of money out of thin air cause massive inflation? If this activity is the fix, then why haven't governments done this from day one. How stupid would the Fed have to be to do this??? It is almost as if the governmant has a blueprint on how to destroy a nation and they are going down the checklist one bullet point at a time. UNREAL...

    By Anonymous Anonymous, at March 13, 2009 at 6:51 PM  

  • China should be worried about their dangerous over investment in US Treasury obligations. Washington’s long-term choice is either repudiation or monetization. For monetization to be effective, the depreciation in the dollar would have to be substantial and this in turn would dramatically raise prices of imports for American consumers which would mean a tremendous drop in foreign imports. Debt monetization would cause more disruption to exporting nations than selective repudiation of Treasury debt.

    Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.

    The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts
    Thanks, Ron Holland

    By Anonymous Anonymous, at March 13, 2009 at 10:35 PM  

  • Hyperinflation and the crash of the Keynesian model could be in the offing soon if the Chinese drastically draw down.

    http://tinyurl.com/da295v

    mB

    By Blogger Michael J. Bernard, at March 21, 2009 at 12:04 AM  

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